Value of life: Wikis

  
  

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The value of life (or price of life) is an economic value assigned to life in general, or to specific living organisms. In social and political sciences, it is the marginal cost of death prevention in a certain class of circumstances. As such, it is a statistical term, the cost of reducing the (average) number of deaths by one. It is an important issue in a wide range of disciplines including economics, health care, adoption, political economy, insurance, worker safety, environmental impact assessment, and globalization. Discussions about the value of life would be more-or-less limited to university philosophy departments and religious groups if it were not for the fact that this value must be calculated in an exact quantitative way by practitioners in these disciplines.

Some people feel that putting an economic price tag on life is inhumane, because every life is "priceless". However, with a limited supply of resources or infrastructural capital (e.g. ambulances), or skill at hand, it is impossible to save every life, so some trade-off must be made. Also, this argumentation neglects the statistical context of the term. It is not commonly attached to lives of individuals or used to compare the value of one person's life relative to another person's. It is mainly used in circumstances of saving lives as opposed to taking or "producing" lives.

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Economic approaches to valuation

The value of a statistical life is most commonly determined by looking at a person's willingness to pay or willingness to accept. Willingness to pay can be found by asking a person how much they would be willing to pay for good health outcomes (or to reduce bad health outcomes). It can also be determined by looking at a person's purchasing choices. An example would be looking at how much more a person would be willing to pay for airbags in his/her car. To determine willingness to pay one would look at the change in the price that occurs because of the added airbags and divide that by the change in the risk of death. Willingness to accept is determined by looking at how much more you would have to pay someone to put them in a position where they are more likely to have bad health outcomes. This could be seen by changing a person's location from a less polluted city to a more polluted city and looking at the difference in wages between the two areas.

An Alternative Model

An opposing view to the "willingness to pay" model follows. For all practical purposes, a "willingness to pay" model assumes that each individual is able to pay in cash or trade the pledged monetary value of what they are willing to pay for the life in question. However, a "willingness to pay" model is not useful in estimating the cost of a human life for minors, terminally sick people, incarcerated people, and more importantly in the event of a terrorist or environmental hazard. Since the “willingness to pay” model accepts a subjective appraisal of a human life made by the person who was given a hypothetical situation which implies that they have a greater amount of financial resources than they do in actuality, because the calculation is not based on their actual ability to pay at the moment, but what they think they would pay and some normalization and averaging of their spending habits over a period of time.

Additionally, this method is not applicable when estimating anyone under 18, because clearly they do not meet the criteria required by the "willingness to pay" model. Assuming the person is an adult, if they are asked the same question during the actual catastrophic event, and they are told upfront that the amount they are willing to pay for their life is to be paid in full within a narrow window of time, say two weeks, then a Marxist model may be more appropriate, since it provides a defensible algorithm which monetizes the loss of a human life into measurable units. Marxist theory suggests that in a capitalist system human labor is a commodity, which is equal to its cost of production. Let us for the sake of this argument define a human life to mean "Consumer Unit" (CU). Since a measurable amount of money went into producing the CU, this methodology provides us a method to assign a monetary value to the CU.

The Marxist model allows us to construct a defensible estimate of the costs associated with producing the CU to a useful stage. Furthermore, if the CU is rendered useless either by damage or destruction, its value becomes zero. This method gives us a unique numerical value for a significant variable (human life), which we include in our model for economic consequence analysis. The procedure involves obtaining person level demographic data available at no cost from the Census Bureau, which will be used to determine the socio-economic level of the CU. The resulting variable is a combination of the costs associated with raising the CU to a maturity level where it becomes a tradable commodity in its category, i.e., a wage earner. In economic consequence analysis, estimating the CUs value plays a crucial role in estimating the economic impact on the affected geographic region. Hence, the "willingness to pay" model produces a subjective value of a human life, while the Marxist model produces the actual monetary value of a human life. Hence, the socio-economic background of the CU drives the results of the economic consequences for a particular region, which in theory produces a higher fidelity estimate than the “willingness to pay” model.

A practical example of a baseline model

This example monetizes the life of an 18 year old individual which for the purposes of this exercise shall be referred to as a Consumer Unit (CU). Assumptions and known data: 1. Family Income 2. Family Size 3. Limited educational background data. The CU is an 18 year old non college bound individual who was produced in a two income household without siblings. The combined family income over the lifetime of the CU is inflation and tax bracket adjusted. The income is divided by the total number of family members (3) which yields the CU’s estimated Monetary Value. Future value is not considered since this method assigns a zero value if the CU is damaged or destroyed.

Mothers Annual Income = $20,000.00 Fathers Annual Income = $30,000.00 Amount of time invested in producing the CU = 18 years Inflation and 15% tax bracket adjusted combined Family Income over the CUs lifetime = $765,000.00

CUs Estimated Monetary Value = $255,000.00

A practical application of the Marx-Zilberman equation

Seventy-eight percent of incarcerated adults grew up in a one-parent income household with an average income of $1300.00 per month. We construct a mathematical model by applying the Marx-Zilberman (MZ) equation derived by translating into math, Karl Marx’ assertion that in a capitalist system human labor is a commodity, which is equal to its cost of production. For brevity, we obtained demographic data from the Bureau of Justice Statistics.
Average annual family unit income of a Penal System Consumer Unit: $16,800.00
Average annual cost to the family unit of producing a CU: $5,544.00
Total Cost to a family unit of producing a mature (18 year old male) CU: $ 99,840.00
Average age of entry of the CU into a Penal Community (PC): 25
Average annual income of CU at time of entry into the Penal System (PSCU): $11,760.00
Average length of employment for CU prior to entering the Penal System: 6 years
Average amount of total earnings from maturity (18 years) to point of entry into the Penal System: $70,560.00
Average annual cost to state of housing a Penal System Consumer Unit: $25, 000.00
Average total duration of incarceration of a CU in a Penal System: 80 months
Cost to the state and taxpayer for housing a CU in a Penal System for 80 months: $166,666.00

Putting it all together

Applying the Marx-Zilberman (MZ) equation yields the following result:
Production Cost of a Consumer Unit (CU) = Age of CU*CUs Household annual income/number of CUs in household.
Economic Impact on Society = Cost of Penal System Consumer Unit = (Familycost + Statecost)--CUearnings
Substituting actual figures into the MZ equation gives us $195,9467.00 = ($99,840.00 + $166,666.00) − $70,560.00. Since the CUs earnings are positively correlated with the CUs Familycost, this implies that it is possible to derive an optimal return on investment of producing a college bound consumer unit whose income will significantly exceed the annual average income of a CU's income at the time of entry into the Penal System, before reaching the critical age of 25 (for males). Hence, significantly reducing the CUs probability of incarceration. Also the Statecost of housing a Penal System Consumer Unit becomes negatively correlated when the CUs earning potential increases. Given this information, we propose a method of identifying a Family Unit "at risk" of producing a Penal System Consumer Unit, by screening individual federal and state income state returns. Once an “at risk" family unit is identified the state would allocate up to one-half of its cost of production of a Penal System Consumer Unit—approximately $100,000.00 for intervention which would guide and support the family unit to produce a viable CU with an earning potential beyond the risk threshold of a Penal System Consumer Unit. By correctly applying an appropriate method of return on investment, the state government would potentially save an average of $100,000.00 per Penal System Consumer Unit. As of year-end 2007, a record 7.2 million people were behind bars, on probation, or on parole, with 2.3 million of those actually incarcerated. The total annual cost of housing a Penal System Consumer Unit is 2.3*$200,000.00=57.5*109 =$57.5 billion. Ideally, if the state government success rate in identifying and administering intervention to each “at risk family unit” was one-hundred percent, the state government would save approximately 29 billion dollars each year. We leave the remainder of the problem to social scientists in determining the optimal return on investment strategy in producing a college bound consumer unit as well as identifying the positive far reaching economic consequences on society.

Uses

Since resources are finite, tradeoffs are inevitable, even regarding potential life-or-death decisions. The assignment of a value to individual life is one possible approach to attempting to make rational decisions about these tradeoffs.

When deciding on the appropriate level of health care spending, a typical method is to equate the marginal cost of the health care to the marginal benefits received. In order to obtain a marginal benefit amount, some estimation of the dollar value of life is required.

In risk management activities such as in the areas of workplace safety, and insurance, it is often useful to put a precise economic value on a given life. There can be no such thing as a perfectly safe or risk free system - one can always make a system safer by spending more money. However, there are diminishing returns involved.

In transportation modes it is very important to consider the external cost that is paid by the society but is not calculated, for making it more sustainable.

Criticisms

There are also intergenerational aspects to the value of life. Some economists calculate social discount rates based on the interest rates prevalent in financial markets. The higher the social discount rate, the more future generations are devalued relative to the current generation.

The anti-globalization movement objects to the obvious disparity between the value assigned to life in developed nations versus developing nations - most particularly as reflected in World Bank, WTO, and IMF decisions. They point to such numbers as the IPCC assumption that a developed nation can pay fifteen times more than a developing nation to avert a death due to climate change, as evidence of systematic neglect of the value of statistical life in the poorer South, as opposed to the more developed North. Some also fear that more standard global value of life mechanisms could have consequences for the working people in the developed nations.

A few also debate as to whether animal life deserves to have a value assigned to it, such as in the field of biodiversity. A moral argument associated with this is the Great Ape personhood debate, which has become especially poignant since the recent advocacy by some scientists to move the two chimpanzee species into the genus Homo (previously it was considered a hominid).

See also

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