Monday, January 24th, 2011

Should we price life?

The Environmental Protection Agency is suddenly queasy about putting a price on life. Like other government agencies, the EPA uses an estimate of the value of Americans’ lives in order to assess the costs of regulations against their benefits.

The government estimates the value of life by observing what precautions Americans take. If a home loses 10% of its value for every mile it draws closer to a dump laced with carcinogenic waste, home prices can be used to estimate how much people value an increase in the odds of dying of cancer, and thus the price homeowners put on life. This estimate will help the EPA decide whether to clean up the site. It is worth it as long as the cost per life saved is no more than the price homeowners put on their own life.

This kind of calculation is inevitable in a society that must allocate resources between competing wants: do we build the extra firehouse or decontaminate the Superfund site or invest in a new maternity ward? If you were running Medicare you would want to know how far to go to add a year to the life of a patient. Is a $100,000 per year treatment worth it? Should you fund a $1 million therapy? What if it costs $10 million?

But despite the soundness of the principle, people get queasy about the idea that the government is putting a price tag on their life –especially since that price tag is substantially lower than infinity, their preferred valuation. In response, the EPA is proposing to tinker with the terminology, replacing “value of a statistical life”, the standard term used in these calculations, with the more antiseptic “value of mortality risk.”

Maybe the new term will set our mind to rest.

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