The Environmental Protection Agency has asked its Environmental Economics Advisory Committee (EEAC) for advice on how the Agency should adjust the value of statistical lives (VSL) in the future. Incomes in the future are expected to grow, and people with higher incomes tend to place a higher value on measures to reduce their own mortality risks. Does this mean that a benefit-cost analysis should place greater weight on lives saved in the future than it does on those saved today? In comments filed with the Committee and summarized here, Mannix argues that this is more than just a question of analytical technique.
Measuring how regulatory policies will reduce future mortality and morbidity is certainly important, and the valuation of these benefits can be challenging. Intertwined with the detailed analytical questions, however, is a fundamental ethical and methodological question: Is it right to force a relatively poor population to pay an inflated price – higher than they are willing to pay to save their own lives – to save the lives of a richer population, on the theory that rich people’s lives are more valuable?
Is adjusting values for richer future populations methodologically correct?
In applying benefit-cost analysis (BCA), we tend to assume that, summing across a large number of government actions, benefits and costs will be broadly distributed without a systematic bias, so that we are all better off. Yet the careless use of income effects could introduce just such a systematic bias: effectively assigning to the wealthy a stronger claim, not only on the private goods that they pay for, but also on public goods and on the benefits of regulation that other people pay for.
Is adjusting values for richer future populations ethical?
Governments assign statistical estimates to small reductions in mortality not merely for analytical convenience; they also serve an ethical function. They provide a veil of ignorance behind which we can make objective judgments of what actions might serve the general welfare. This is important because the application of benefit-cost analysis to regulations is intended to justify the use of force by a government against its own citizens – force that will make some of them worse off. We need to be conscious of this ethical function when we think about how to tweak the analysis. Even if we can, it is not obvious that we should peek behind the veil of ignorance for the purpose of giving greater weight to the preferences of the wealthier among us.
The relevant question today is how much are Americans today willing to pay in order to save statistical lives in the future? This is a question which could be answered directly, using empirical methods. Alternatively, we could make the assumption that our willingness to pay for future lives is not much different from our willingness to pay for today’s lives. Using a value that is inflated for future income growth – growth not yet realized by the paying public – is more difficult to justify.
Unintended consequences
Additional complications arise if we consider the variation in income effect over time, in addition to the variation of income elasticity over time. Incurring regulatory costs has consequences for mortality and morbidity, and they are greater for poorer populations than for richer ones. Can we use the presumed higher value of life in the future to ethically justify increased mortality today, and increased mortality overall? If not, then we should hesitate to incorporate an escalating VSL into benefit-cost analyses.
Finally, it is worth considering how a changing VSL over time will interact with the discount rate we use to calculate the net present value of benefits and costs. This is not the place to review the literature on discounting, but it is worth noting in this context the arguments that have been raised for using a lower discount rate – say, 2% – for intergenerational effects. If we use a VSL that escalates at, say, 3%, with a discount rate of 2%, we run the risk of creating an infinite benefits machine. Health and safety regulations with an unbounded time horizon will appear infinitely beneficial, while the lives and values of everyone today will vanish into insignificance. Surely this is not the intent of the present effort to adjust the future VSL, but the result is absurd and we ought not to stumble into it without serious thought.
Read the author's public interest comment.