Kwantlen’s EconCafe: Is a life worth $7 million?

EconCafe, a new discussion series hosted by the Economics Department, kicked off its inaugural event last week. The topic of the first event was the monetary value of human life in regards to public policy.

By Paul Li

Seeking to reach out to  students outside the field, the Economics Department held its first “Economics Cafe” on Sept. 28th at the GrassRoots Cafe in Surrey. “We hope the

EconCafe is enlightening and at the very least thought provoking,” said Donald Reddick, Kwantlen Economics professor and leader of the discussion.

The event was jointly organized by the Economics Department and the Kwantlen Student Association. “The Econ department approached us about of the Cafe,” explained Ashley Fehr, director of Operations for the KSA. “They came up with the idea and the topics. We assisted with the logistics of the event, including arranging for the venue and preparing the posters which were placed around campus.”

“The goal of the Cafe is to bring out focused discussion yet try to be as inclusive as possible,” continued Reddick. The first 20 minutes were spent with a short exposition of the theory behind statistical value of life and its implications, before moving up to the discussion. “As with all open attendance events, there is a balance that must be struck between informing those that have no prior knowledge of the topic at hand and the actual time allotted for discussions.”

The inaugural EconCafe started with a lively discussion of Statistical Value of Life (SVL).

The methodology for SVL, developed by Vanderbilt University Professor W. Kip Viscusi provides a statistical way of finding what society considers is the value of life.

“Imagine the following analogy,” explained Reddick. “You’re inside a stadium along with 9,999 other people. And you’re all told that one person selected at random will die. How much would you pay to get out of the stadium? Let’s say that we ask what everyone is willing to pay and find that, on average, each person is willing to pay $700. If all 10,000 people pay- that is, no one is left in the stadium to die- then it means that statistically, the group was willing to pay $7 million to save a life.”

In the real world, it is not as simple as asking people whether they’re willing to die. However, it is possible to calculate it from labour statistics- risky jobs do in fact pay higher wages than less risky jobs. That is why Alaskan king crab fishermen can make $1,000/day, or a why the median coal mine worker can make $22/hour, but a welder/solder in the same company that doesn’t spend as much time down the mine makes a median of $15.50/hour. While people might not be able to calculate their own risks or preferences exactly, statistics give us the power to analyze it across large populations.

“Bear in mind that value is not set in stone. The SVL can change across countries, and even within countries across age groups,” continued  Reddick.

In Canada, the SVL is around $7 million. One of the interesting aspects of SVL is that, due to the manner in which it is calculated, older people tend to have higher values.

“SVL is calculated based on risk- how much we’re willing to accept to take on risk, or how much we’d pay to eliminate risk. As we grow older, we tend to be more risk averse- for example, we have families to take care of.”

Wealth also factors in- people with higher incomes are willing to pay more to avoid risk- a key factor in understanding why safety regulations for plane travel are so stringent compared to safety on the road.

This has important policy implications, particularly in areas where Cost-Benefit Analysis is a key factor in deciding on implementation.  Reddick explained: “We can easily assess the costs of adding new traffic lights, or of safety regulations. But the benefits are measured in terms of life saved. How do we value that?”

Prior to SVL, one of the more common methods was potential earnings- how much would a person be expected to contribute to society? That methodology, however, meant seniors being valued at very low levels- especially past retirement.  “Use of SVL has led to higher valuations of life for the use of cost-benefit analysis in policy.”

“I found the discussion pretty interesting”, said Robert Emanuel, who attended the Cafe and is a student of economics and political science. “Part of me would like to rebel against the idea of setting a dollar value on human life. However, part of me sees the need for such information when it comes to making rules and laws.”

The key is to “remember that the statistical value of life approach is not meant to value any one individual life. It is not about assigning values to determined people, but rather how much society is willing to pay to avoid the probability of one person dying. It is a tool to assist in policy making.”

The next EconCafe is tentatively planned for Tuesday, Oct. 26th. The topic “Why Governments Fail” will be discussed.