What is the value of human life? This seemingly academic question is more important than most people appreciate, especially in the context of transport funding decisions.
But before we discuss how the value of human life influences transport funding decisions, let’s first justify the economic concept itself. I’m aware that for many people the phrase “value of life” just sounds wrong, usually because they think that life has, well, infinite value.
On the other hand, it’s easy to point out that people accept certain “risks” all the time; we are if you like “risk-takers.” That’s not to suggest that people are inherently foolhardy, but it is to suggest that people seem to accept the risk of death when the probabilities are low and/or the rewards are high. Every time you cross a road, for example, you are effectively trading-off a small risk of death versus the benefit of being on the other side of the road.
Perhaps even stronger evidence that the value of life concept has some merit can be found in situations where people pay for things that reduce their likelihood of death. When deciding which car to buy, for example, most people will trade-off safety features versus the additional costs. In this case, people are actually revealing, through how much they pay, how “safe” they prefer to be. To put it bluntly, some people will willingly accept increased risk of death when the price of safety is too high.
At this point I should acknowledge that people are not necessarily fully informed of the relative risks associated with their actions. I may also agree that in situations where people do not have full information it may be worthwhile for governments to “nudge” people towards certain choices that have outcomes that are more desirable. Such arguments lie behind government involvement in, for example, advertising campaigns that encourage children to adopt more healthy eating habits. Ultimately, however, the issue of imperfect information suggests people err when evaluating relative risks; it does not suggest the VOL concept has no merit.
The suggestion that life has infinite value also seems absurd when you consider its full implications: If life were infinitely valuable then we would reasonably expect individuals to use all of their resources to eliminate risks to life, and where risks were unable to be eliminated then we would cease to undertake those activities altogether. My personal view is that while many people feel uncomfortable talking openly about the value of life, it is a conversation that every advanced society that is concerned for the welfare of its citizens (both in terms of their safety and their freedom) needs to have.
Putting philosophical issues to one side, government agencies estimate VOL because it’s actually rather practical. Indeed, VOL helps government agencies determine appropriate levels of funding for health and safety initiatives. And outside of the health system, perhaps no other government agency needs to value life so much as the transport sector. This brings us to the ‘nuts and bolts’ of this post. That is, the methodology that it typically used to estimate VOL.
To estimate VOL you actually just need to follow these three simple steps:
- Get a representative sample of NZers;
- Ask them questions about how much they would be prepared to pay (both in terms of direct and indirect costs) to drive on a “safe” road, compared to a goat track; and
- Collate their responses and use some freaky econometrics (preferably non-parametric logit models) to estimate how much people are prepared to pay for reduced change of death.
From these types of “stated preference” experiments NZTA have estimated the value of life for the average New Zealander to be approximately NZD $4 million.
A normal benefit-cost analysis of a transport safety initiative then proceeds by multiplying this VOL by the reduction in transport related deaths attributed to the project. E.g. Project A saves 5 deaths therefore benefits = $4million x 5 lives saved =$20 million in benefits. Voila, with this methodology NZTA is able to estimate the economic benefits of transport safety improvements in comparison to their economic costs. This in turn can inform relative levels of investment in transport safety initiatives compared to, say, public transport and walking/cycling.
But is this a reasonable methodology? I think not. The primary issue I have with the current process for estimating VOL is that it considers VOL from an individual perspective, rather than in terms of one’s societal value. To put it another way, the current methodology asks people how much they value their own life, but it does not ask about the value of that person to other people. Just ask yourself: How much your own mother, father, and partner would collectively be prepared to pay to avoid your death? Quite a lot one would imagine! That is quite a lot “on top” of your own value of life, i.e. what I call “societal VOL” is additive to “individual VOL” – where current methodologies estimate only the latter.
Am I alone in suggesting that NZTA maybe under-estimating the value of life? It seems not. In May 2011 the State Services Commission commented (in a formal review of NZTA):
NZTA may need to check that the costs in its Economic Evaluation Manual (which are based on a social value of life and willingness to pay surveys) appropriately measure the current economic cost of serious injury. For example the cost to ACC of a paraplegic 20 year old is around $10-15 million life time cost.
In this case, the State Services Commission has picked up the fact that the value of avoiding injuries used by the NZTA is at least four times lower than the actual fiscal costs. Either this suggests that ACC is spending too much on paraplegics, or alternatively that the NZTA is underestimating how much society is prepared to pay to mitigate the costs of serious injury (NB: Injuries are a complex kettle of fish because there are arguments to suggest that being seriously injured is worse than dying).
There is another intuitive reason to think that something is fishy is going on with how we currently value life. This fishy smell arises when you look carefully at responses to stated preference experiments. In doing so you will typically find an interesting anomaly: Young people have a lower value on life than old people, even though the former have longer left to live. Now some of this can obviously be put down to differences in risk profiles. But some of it is also, I believe, due to the fact that individual value is not equivalent with social values, especially when age differences come into play. Stated differently, society places a high value on the life of young people, even if young people themselves do not value their own existence so highly.
If you asked people on the street whether (given the horrendous) choice they would choose to save the life of a young person over that of an old person then most would reply “yes.” This suggests that society values life quite differently from how individuals value their own lives. Again, in my mind the anomaly of young people having a lower VOL confirms that the current method of estimating VOL is incomplete.
As someone whose own father suffered a horrendous vehicle accident at the hands of a drunk driver, I can tell you from first-hand experience that serious injuries impact not only on the individual’s quality of life, but also the quality of life of those that are close to them. There is, if you like, collateral damage to society when people are seriously hurt or killed.
To sum up: I believe that current methodologies are systematically under-estimating the value of avoiding transport related deaths and injuries. They do so because they focus exclusively on the individual value of life, rather than the wider social value.
So while the value of life may not be infinite, I think it’s certainly more valuable than we currently think.