The origin of monetizing mortality risks in the United States and other countries can be traced to application of the human capital approach, which some agencies termed the “cost of death.” In the view of agency officials, life was too sacred to value, so instead they assigned a monetary value to the deaths. When I introduced the VSL in 1982 to resolve the dispute between the Occupational Safety and Health Administration (OSHA) and the Office of Management and Budget over the proposed hazard communication standard, the shift to the VSL as the measure of mortality benefits boosted benefits by a factor of 10. The bolstering of benefit assessments through the use of the VSL reflects the historical role of the VSL in providing an economic efficiency rationale for benefit assessments, making regulations more stringent than if set based on cost-of-death values.

Behavioral economics phenomena also came into play in the shift from a human capital to VSL approach. Agencies remained anchored in their established approach of basing mortality benefit assessments on the monetary costs of death. After adopting the VSL methodology for measuring the willingness to pay for mortality reduction benefits, agencies increased their mortality benefit assessment estimates over time, but the values often lagged behind the VSL estimates in the economics literature (Viscusi 2013). The values currently applied across the federal government are generally in a similar and much more reasonable range.

Remarkably, there has been less progress in aligning U.S. agencies’ regulatory sanctions for fatalities with the VSL. The penalty values are typically constrained by agencies’ original statutes, which have undergone some modest updates for inflation. The penalties are not linked to the VSL in any way, with the result being very low penalties such as OSHA’s average penalty for serious violations associated with fatalities of $7,000 for federal inspections and $3,500 for state inspections.

Outside the United States, VSL been consistently underestimated, with anchoring on the original human capital values. In the United Kingdom. the government has relied on stated preference studies for estimating the VSL, which often are below the labor market estimates. But more important is that a downward bias was introduced in the selection of the VSL based on the stated preference evidence. U.K. officials remained anchored on the previous low estimates of the valuation of mortality risks and selected a VSL value below the mean estimated stated preference range (Jones-Lee and Spackman 2013). In Australia, the review of VSL estimates for government policy encompassed both revealed preference and stated preference methods, but once again officials remained anchored in the “cost of death” approach and selected VSL estimates from the lower end of the range (Abelson 2003, 2008).

To place the VSL estimates on sounder footing throughout the world, in my forthcoming book, Pricing Lives: Guideposts for a Safer Society, I propose that the base VSL figure should be the estimate of the VSL in the United States derived from labor market studies that utilize the Census of Fatal Occupational Injuries (CFOI) data. The CFOI data serve as the gold standard for fatality rate data. Moreover, unlike most other VSL estimates, VSL estimates based on these estimates are subject to very little publication selection biases (Viscusi 2015a). 

One can couple a U.S. VSL estimate of about $10 million with an international income elasticity estimate of 1.0 to obtain VSL estimates throughout the world. (The topic of adjusting VSL to reflect income differences across countries has been addressed in several issues of the Journal of Benefit Cost Analysis, most recently a group of articles appearing in 2017, as well as articles in 2013 and 2011.) Even after this downward income adjustment, the projected VSL for other countries greatly exceeds the VSL currently used in these countries. According to the HM Treasury’s Green Book: Central Government Guidance on Appraisal and Valuation, current VSL estimate for policy analyses in the United Kingdom is about $2.1 million for floods and $2.4 million for transport (all figures in 2015 dollars), whereas the projected VSL based on my procedure above would be $7.1 million. Similarly, the official Australian guidance VSL is $3.5 million (in U.S. dollars), while my projected VSL for Australia is $7.9 million. A similar pattern is observed throughout the world, as extrapolating the U.S. values internationally boosts the value placed on fatality risk reductions despite applying an income elasticity adjustment.

The themes in this post are discussed in W. Kip Viscusi’s new book, Pricing Lives: Guideposts for a Safer Society (Princeton: Princeton University Press, 2018).  Princeton University Press is offering a 20% discount to the SBCA.  To order the book, follow this link and enter the offer code EX225 at checkout. The offer code expires 4/30/18.

References 
Abelson, P. 2002. The value of life and health for public policy. Economic Record 79: S2–S13; 

Abelson,  P. 2008. Establishing a monetary value for lives saved: Issues and controversies,” Working Papers in Cost-Benefit Analysis, WP 2008-2, Office of Best Practice Regulation, Department of Finance and Deregulation.

Viscusi, W.K. 2015. The value of individual and society risks to life and health, in Handbook of the Economics of Risk and Uncertainty, ed. Mark J. Machina and W. Kip Viscusi (Amsterdam: Elsevier)

Viscusi, W.K. 2015a. The role of publication selection bias in estimates of the value of a statistical life. American Journal of Health Economics 1(1): 27–52.

Jones-Lee, M. and M. Spackman. 2013. The development of road and rail transport safety valuation in the United Kingdom. Research in Transportation Economics 43(1): 23–40.