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Thursday, July 31, 2014

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Researchers tally the value of human life

What is the value of a human life? About $1.54 million, according to economists Orley Ashenfelter of Princeton University and Michael Greenstone of the University of Chicago. At least, that is what it appears to be in the context of setting public policy about highway safety.

The federal government's 1987 decision to let states raise their speed limits to 65 miles per hour on some roads had major effects, including reduced travel times and increased highway fatalities. It also gave economists a rare opportunity to put hard numbers on the elusive and delicate question of how much monetary reward society would demand in exchange for the loss of some lives.

In fact, governments deal with such quandaries routinely, especially when the question is reversed: How much expense is society willing to incur for each potential life that could be saved? Widening a dangerous road, for example, may save some lives, but how much are taxpayers willing to spend to do it? Economists have often sought to pin down the numbers behind what they call the "value of a statistical life," but have been hard-pressed to find real-life situations that provide all the necessary data.

Ashenfelter and Greenstone found what they needed in interstate highway data. Studying the years from 1987 to 1993, the economists found that, on average, people drove about 2 miles per hour faster on roads with a 65-mile-per-hour-limit than they did under the old 55-mile-per-hour limit. They then calculated the cumulative amount of time saved from faster driving and estimated how much that time was worth to society based on average salaries.

Their analysis also showed that, taking into account an overall trend toward fewer traffic fatalities, the number of highway deaths increased by as much as 35 percent on roads with the increased speed limit. The researchers then simply divided the dollars saved by the number of lives lost and arrived at the figure of $1.54 million per life.

The research is not meant to be a method for valuing any individual life, as courts must do in the case of lives that have been lost. For loved ones, that value can be infinite. For society as a whole, however, the value of a statistical life -- an unspecified life that may be lost -- is very important. "People say you can't put a value on a life, but we do it all the time," Ashenfelter said. "We are going to make decisions and the question is: How well informed are they going to be?"

A working paper detailing Ashenfelter and Greenstone's work is available online in Acrobat (.pdf) format.

Contact: Marilyn Marks (609) 258-3601

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