American Economic Association The Value of Risks to Life and Health Author s W Kip Viscusi Source Journal of Economic Literature Vol 31 No 4 Dec 1993 pp 1912 1946 Published by American Economic Association Stable URL http www jstor org stable 2728331 Accessed 04 01 2010 13 25 Your use of the JSTOR archive indicates your acceptance of JSTOR s Terms and Conditions of Use available at http www jstor org page info about policies terms jsp JSTOR s Terms and Conditions of Use provides in part that unless you have obtained prior permission you may not download an entire issue of a journal or multiple copies of articles and you may use content in the JSTOR archive only for your personal non commercial use Please contact the publisher regarding any further use of this work Publisher contact information may be obtained at http www jstor org action showPublisher publisherCode aea Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission JSTOR is a not for profit service that helps scholars researchers and students discover use and build upon a wide range of content in a trusted digital archive We use information technology and tools to increase productivity and facilitate new forms of scholarship For more information about JSTOR please contact support jstor org American Economic Association is collaborating with JSTOR to digitize preserve and extend access to Journal of Economic Literature http www jstor org Journal of Economic Literature Vol XXXI December 1993 pp 1912 1946 The to of Value Life and Risks Health By W KiP Viscusi Duke University SusanJakubiakand three anonymousreferees provided detailed and helpful comments Many of the themes of this paper are developed morefully in Viscusi 1992a 1 Introduction AND SAFETY RISKS comprise one aspect of our lives that we would all like to eliminate Even if we set out to provide a risk free existence however our efforts would be constrained by our economic resources If the entire American GNP were devoted to preventing fatal accidents we would be able to spend an average of only 55 million per fatality There are also other demands on these resources ranging from food to recreation which will reduce the funds available for risk reduction One possible approach is to set the risk reduction priorities based on the magnitude of the hazard Table 1 lists a series of risks involving market processes and individual decisions that have been the focus of economic analyses to be considered below The vigilance that individuals and society should devote to reducing these risks is not however governed solely by their size Risks thought to be amenable to technological improvements such as motor vehicle safety have attracted the greatest attention Risks beH EALTH yond our control have merited comparatively modest risk reduction efforts Scientists estimate that we face an annual fatality risk from asteroid impactthe doomsday rock of 1 6 000 New York Times June 18 1991 p B5 Yet few would argue that we should abandon efforts to reduce smaller risks such as those posed by jobs and home accidents and reallocate these funds to fending off asteroids The key issue is the risk reduction that is achievable for any given expenditure and the value society places on this risk reduction The government faces a variety of opportunities to reduce risk 2 Airplane cabin fire protection costs 200 000 per life saved automobile side door protection standards save lives at 1 3 million each Occupational Safety and Health Administration OSHA asbestos regula1 Some scientists have begun speculating on the feasibilityof such riskreductions For example some have suggested the use of nuclear weapons to alter the path of an asteroid Thus far it appearsthat less flamboyantpolicies such as improved guardrailson highways would be more cost effective For a review of the federal guidelines on the valuationof health risks see the U S Officeof Management and Budget 1988 1990 1912 Viscusi The Value of Risks to Life and Health TABLE 1 Source of Risk Cigarette smoking per smoker Cancer Motor Vehicle Accident Asteroid doomsday rock Work Accident per worker Home Accident Poisoning Fire Aviation Accident passenger deaths total population Annual Fatality Risk 1 150 1 300 1 5 000 1 6 000 1 10 000 1 11 000 1 37 000 1 50 000 1 250 000 Source National Safety Council 1990 and further calculations by Viscusi 1992a 1992b the smoking risk estimates are averaged over the entire smoking population The average smoker consumes 1 5 packs per day tions save lives at 89 3 million each Environmental Protection Agency EPA asbestos regulations save lives at 104 2 million each and a proposed OSHA formaldehyde standard cost 72 billion per life saved John Morrall 1986 3 Which of these different policies should be pursued and which provide benefits that are not commensurate with their costs In a democratic society the appropriate starting point for analyzing these tradeoffs is the value individuals bearing the risk place on the improved safety 4 Over the past two decades there has developed a substantial literature on the value of these risk money tradeoffs The greatest emphasis has been on the trade3These estimates reported by Morrall 1986 are for new government regulations For example the 1986 OSHA asbestos standardthat cost 89 3 million per life was more stringent than the 1972 OSHA standard which cost 7 4 million per life 4This principle is the same as in other benefit valuation contexts The primary matter of interest is society s willingness to pay for the benefits generated by the policy ThomasSchelling 1968 first presented the willingness to payapproach in the lifesaving context 1913 off involving mortality risks and wages These labor market studies have addressed the implicit values of life of workers in many countries including the United States the United Kingdom Australia Canada and Japan Straightforward extensions of these models have included a measure of nonfatal risks faced by the worker enabling analysts to impute an implicit value per statistical injury in the workplace Economists have also analyzed the price risk tradeoff for a variety of consumer products In situations in which no market data are available such as some environmental risks one can use surveys to derive a market value if a market for the good existed This paper explores these different approaches to establishing appropriate economic values for risks to