Q&A with economist W. Kip Viscusi

The Environmental Protection Agency is planning to do away with cost estimates related to reducing premature deaths when regulating certain pollutants, with a sole focus on industry costs related to pollution limits, according to reporting Monday in The New York Times.

Federal analysts routinely produce cost-benefits reports for proposed rules and regulations. They try to answer a basic question: Will the benefits of a proposal outweigh its costs?

Some rules and regulations save lives — or, more accurately, prevent deaths. If an industry is prohibited from emitting a large amount of pollutants known to cause cancer, for example, then some number of cancer deaths likely will be prevented.

Federal agencies use a monetary value for each death prevented. Most federal agencies put that value at $10 million per death avoided. Far from being a cold, detached calculation, these estimates have played a large role in justifying numerous safety standards enacted over the past half century.

When the EPA news hit my inbox, I reached out to W. Kip Viscusi, who developed the modern calculations federal agencies use to put a monetary value on human lives.

Viscusi is a University Distinguished Professor of Law, Economics, and Management at Vanderbilt University, and he wrote the 2018 book “Pricing Lives: Guideposts for a Safer Society.” The book, among other things, chronicles his efforts in the early 1980s to get federal agencies to increase their estimates of the monetary value of human life.

We talked about the measure he developed, the “value of a statistical life,” which placed a much higher monetary value on life than what the federal government used at the time. Broadly defined in academic and government literature, the value of a statistical life is the cost people are willing to pay to prevent one death.

We also discussed his response to the EPA news, and his advice for journalists covering the regulatory environment of the current presidential administration. Our conversation has been edited for clarity.

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Clark Merrefield: What is the “value of a statistical life”?   

Kip Viscusi: Government agencies have always had to figure out how important it is to save lives. The Department of Transportation has been doing this forever. And what they did is, they looked at how much is paid off after a wrongful death case in a fatal job accident, which is essentially the present value of lost earnings, maybe medical costs, you know, basically monetary costs, maybe some pain and suffering thrown in. But it was a fairly low number. It was a few hundred thousand dollars.

Until 1980, government agencies used this number to try and monetize deaths. They didn’t want to go out and call it the “value of life,” because that seemed sacrilegious, or it was controversial. So they called it the “cost of death,” which to them seemed less controversial. But it was a pretty small number.

The [Occupational Safety and Health Administration] did this for a hazard communication regulation. This is the first regulation that would have regulated hazardous chemicals in the workplace. They calculated the benefits and costs using their cost-of-death method, and the numbers came out where the costs were greater than the benefits. But OSHA thought the regulation was still desirable.

The Office of Management and Budget — this is at the start of the [Ronald] Reagan administration — turned down the regulations, saying the costs are greater than the benefits. I was brought in to analyze the dispute between the two agencies.

What I found is that if they only replaced the cost-of-death numbers with my “value of statistical life” numbers, that would increase the benefits by a factor of 10. By the way, these numbers came from my Harvard Ph.D. dissertation, so I like them. The value of a statistical life was several million dollars, three-to-four million dollars, as opposed to a few hundred thousand dollars. Benefits now exceeded costs.

Agencies jumped onto this and said, “Wow, this is great.” They may have even thought it was the right thing from an economic standpoint to do it. But the good thing from the standpoint of an agency’s self-interest is they got to increase their benefits by a factor of 10. Increasing the estimated benefits for the regulation was very attractive to them.

CM: Your initial development of the value of a statistical life was in the context of workplace safety and it was novel because what it accounted for was the value that workers place on their own lives and the risk that they were taking on to do potentially dangerous jobs. You were essentially asking a question that hadn’t been asked yet: What’s the point of view of the workers? And there’s data on that, in the form of the wages that the workers are willing to accept to do risky work. Is that a fair overview of the approach you took in developing this measure?

KV: That’s essentially it. There’s great data on worker employment, there’s good data on fatality risks, and you can get a handle on how much extra workers are paid for extra risk. Statistically, it’s a good area to look at.

Since then, I’ve also looked at car prices. Do safer cars command a higher price, controlling for everything else? Housing prices, are housing prices adversely affected by the cancer risk from having a hazardous waste site nearby? There are a lot of different market contexts where you can do it. There’s also a flourishing industry where people go out and ask survey questions. How much would you be willing to pay for safer food, safer cars? They generally have come up with fairly similar numbers.

CM: What was your reaction to The New York Times reporting that the Environmental Protection Agency is planning to do away with using cost estimates of certain health effects, including premature deaths, in their clean air rules — with a focus instead, reportedly, on the costs to businesses of complying with those rules?

KV: They’re going after the particulate matter regulations and ozone regulations. These are two pretty important regulations. In fact, particulate matter accounts for something like 70% of what the EPA’s done recently.

It’s irresponsible. It will also be likely overturned by the courts as being an arbitrary and capricious thing that they’re doing that’s inconsistent with anything the government’s done over the past half century. Even before 1980, they didn’t say lives were worth nothing. They were worth less than what we say they’re worth now, but there’s always been a non-zero value attached to lives.

The lion’s share of what the government does is mortality risk reduction. Whether it’s EPA, whether it’s highway safety, whether it’s job safety, consumer product safety, the biggest benefits are from saving lives. If saving lives is irrelevant, this has to have huge effects across everything society’s doing.

CM: What advice do you have for journalists covering the regulatory aspects of the current presidential administration?

KV: Getting into the mechanics of how you construct the value of a statistical life usually makes people dizzy. But I think this case, this incident, is going to be really easy to explain. In the past, during the George W. Bush administration, EPA lowered the value of statistical life and there was an uproar. It got a lot of media attention. Stephen Colbert did a bit on it: You know, the government now says your life is worth less.

This is even easier to understand. The government says your life is worth nothing. You don’t even have to be an economist and know the mechanics of the calculation to know this is off the charts. This is certainly the biggest shift we’ve seen.

CM: In your book “Pricing Lives,” you talk a bit about the part that you played, as an academic, and working in the government, in advocating that federal agencies use the value of a statistical life when doing cost-benefit analyses on proposed regulations. When did this measure become commonly used in those federal analyses and what was your role in making that happen?

KV: Until I did the analysis as part of the OMB-OSHA dispute, they never used [value of a statistical life]. I used the VSL in my analysis. The day after my analysis reached the Reagan White House, they approved the regulation that had been turned down before.

Going forward, agencies then started using it, but they didn’t go high enough. Agencies that had been anchored on the lower wrongful death numbers were slower to move up, like the Department of Transportation. I’d done a study for the [Federal Aviation Administration] that asked what number should they use to value lives for people killed in plane crashes. I came up with my numbers at the time, maybe $4 million [per life].

And representatives from the auto industry also met with people at the Office of the Secretary of Transportation, where they argued, well, a million dollars sounds like certainly enough. A million dollars at the time was moving [the department] up, but it still wasn’t getting them up to the right number.

But right now, Department of Transportation’s great. I mean, I think they’re phenomenal in terms of how they do it. They’re superb. Government agencies, the Department of Health and Human Services — all across the federal government, they’re all using numbers over $10 million.

If I were to pick a number, I’d say $13 million would be a reasonable number [today]. And $13 million is a whole lot bigger than zero. So this is a huge shift, in what [the EPA] is doing.

CM: You touched on this a little bit, but for a topic such as air quality, the prospect of valuing life and valuing premature death is more complex than looking at the wages someone will accept to do certain work. The EPA seems to use, as you said, some of these surveys where they’re asking people, “How much would you pay to save a life in this context?” Is that correct?

KV: They use those as well as the market data. They’re thrown in one hopper. And I’ve done some survey studies for the EPA, so I like them, too.

With respect to death, the one area I’ve done for EPA was cancer deaths. Cancer deaths also entail an additional morbidity effect: You’re not just simply dying, you also may have a period of illness before you die. And the question is, how much should they value that? Should you get a premium for that?

I’ve found that, yes, additional morbidity losses should count more. The example we did was 20% more for that particular context. Those estimates are still being refined, because there’s different kinds of cancer, different morbidity effects. Being killed in a traumatic accident in the workplace isn’t pain-free, so you also have to look at, you know, what’s the difference? Conceivably, if anything, EPA might merit a premium on how much they value mortality risk, as opposed to being zeroed out.

CM: So the survey was about pain and suffering, not doctor’s bills and things like that. And you’re asking people: How much would you pay to have this not happen to you? Because it would be worse, if you’re thinking about these things in a vacuum, to have to suffer over a period of time than to die quickly.

KV: The survey was structured to set aside medical costs.

In this case it was, if we could prevent, let’s say, five deaths. We’ve saved five lives from cancer. In this case it was bladder cancer. If we save five expected cancer deaths here, how many automobile deaths would that be equivalent to? Is it five for five? Or do five cancer deaths count as much as six traffic deaths?

So, just trying to get a sense of, are cancer deaths more valuable than traffic safety [deaths]? I thought that was easier for people to think about, rather than asking, point blank, how much would you be willing to pay?

We gave them a description of what was entailed. I’ve done this for several different kinds of cancer, chronic bronchitis and other ailments. You give them: Here’s the medical scenario of what it is, what it means to your life, how it affects your activity.

And knowing that, how would you value the risk?