I've been running a series of opinion polls that posit a hypothetical vaccine that can be used to reduce the risk of death due to something bizarre to zero. Would you pay $1, $5, or $10 to reduce your risk of death from foodborne illness, exposure to electric current or lightning strike (respectively) to zero? Plenty of env-econ readers participated in these polls and now I'm ready to reveal the implied value of statistical life (VSL).
Here are the results from the electric current question:
Here is how I explained VSL estimation in some distance education lecture notes a long time ago:
Stated Preference (contingent valuation, ranking, etc.) surveys can be used to estimate the benefits of policies that place people beyond the range of their choice making experience (eg, changes in job risk not experienced, new life saving drugs).
Consider the following survey question which asks for the willingness to pay for a private good (adapted from Johannesson, Johansson, and O'Conor, 1996).
"In the U.S., about 1 in 5000 people die annually in traffic. A possible measure to reduce the traffic risk is to equip cars with safety equipment, such as airbags. Imagine a new type of safety equipment. If this equipment is installed in your car, the risk of dying in a traffic accident will be cut in half for you and everyone else travelling in the car. This safety equipment must be tested and serviced each year to make sure that it is working correctly. Would you choose to install this safety equipment in your car if it will cost you $A per year?
[YES or NO]
Where A might take on values of $30, $150, $300, $750, $1500, or $3000 for each survey respondent. ...
... the value of a statistical life is equal to the average willingness to pay divided by the reduced risk of death (dR). In this case, the reduced risk of death is (in general, the reduced risk of death is equal to the number of lives saved divided by the affected population). If the average WTP = $500 and dR = .0001 (1 in 10,000), then VSL = 500/.0001 = $5 million.
Amazingly, the responses to my silly poll questions are internally valid. Env-econ readers are more likely to be willing to pay for the vaccine as the cost falls and as the risk rises. Using the formula above, the implied baseline VSL (cost of saving one statistical life) ranges from $.06 to $5 to $65 million. The percentage of readers willing to pay falls as the cost of life savings (on the horizontal axis to the right) increases.
Given these data, the average willing to pay for the vaccine is $4.37. The average change in risk in the sample is dR = .000004957. Therefore the VSL of env-econ readers as revealed by their stated preferences is:
- VSL = $4.37/.000004957 = $883,408
That's quite low, lower than the $6+ million from labor market studies and the $4+ from averting behavior studies. But, it is greater than the $120,000 VSL of hypermilers.
And maybe a low VSL is consistent with a low opportunity cost of time!
Note: a new opinion poll will debut tomorrow (11/30)!
