Personal Finance

What is the Value of a Human Life?

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Last updated on July 23, 2019 Comments: 9

When the Environmental Protection Agency decides which regulations to create and enforce, just like any business deciding to pursue a project, it runs a cost-benefit analysis. While typical businesses might compare the costs of obtaining equipment and paying salaries with the anticipated income from the project, the EPA has to consider grander variables.

If the EPA is considering whether to adopt a regulation that would require all office buildings in the United States to reduce hazardous air particles, as an example, the organization would compare the cost of implementing and enforcing the regulation with the lives that would be “saved” by the regulation’s implementation.

The only way to do a direct comparison between an amount of money and a number of human lives is by giving each life a “value.” So how does the organization decide how much a statistical human life is worth? According to the EPA, the value of a human life has nothing to do with wealth or ability to earn income, so what you might receive in a wrongful death suit or insurance settlement is not related to this figure. The EPA chooses to value the human life by building an average figure based on two different studies with survey questions like, “How much more money would you expect to see in your salary if you took a job where your life is in danger?”

It’s interesting to note that this calculation values all human life equally. The value of a hedge fund manager, a CEO of a huge corporation, or a humanitarian doctor curing children from diseases in depressed countries is no more and no less than the value of a bum on the street. A newborn baby with almost a century of possibilities is worth no more and no less than the 105-year-old on life support in the hospital, nearing his last breath.

If all life is worth the same amount, what is that dollar figure? As a result of the latest calculation, the EPA’s valuation of a statistical life dropped significantly. Previously, the value of a human life was $7.8 million and the revised value is now $6.9 million. Here’s how the Associated Press describes a hypothetical result of this change:

Consider, for example, a hypothetical regulation that costs $18 billion to enforce but will prevent 2,500 deaths. At $7.8 million per person (the old figure), the lifesaving benefits outweigh the costs. But at $6.9 million per person, the rule costs more than the lives it saves, so it may not be adopted.

A lower value placed on an individual’s life for the purpose of statistics will result in fewer regulations passing. Additionally, the decreasing value of the dollar in comparison with the rest of the world currencies implies that human life is also decreasing value.

The $6.9 million is not a real figure. You cannot replace a person with this value of money or any other. So the calculation is arbitrary. The EPA can choose which studies it wants to include in its calculation. In fact, the EPA’s water division refuses to accept the larger organization’s most recent two decreases, using the earlier calculation of $8.7 million per person in today’s dollars.

One final note: This calculation is only valid for “American” lives, which I presume would mean anyone living in the United States. There is no indication of whether “foreign” lives would be worth more or worth less.

Do you think the change in valuation is necessary or fair? Is the Environmental Protection Agency serving a political agenda? Does this sort of valuation, where all American lives are valued the same, even make sense?

AP IMPACT: An American life worth less today, Associated Press

Article comments

Anonymous says:

It is interesting. It would make sense that they would (given that they are using employment data and values). And it also makes sense that it would create controversy.

What is also interesting is the way they used only 2 studies to come up with the value. I need more data than that!

Luke Landes says:

Deepali: There are many ways to determine the value, but it is interesting to note that the EPA, in the calculation cited above, does *not* differentiate for age. The $6.9 million figure is used whether a life is 2 months old or 98 years old. See the final article of the AP article linked above. The EPA *tried* to differentiate for age several years ago but reversed itself after it created controversy.

Anonymous says:

Well, that’s not the only calculation – there’s an entire risk analysis portfolio done (ie, issues related to the hazard, technology, clean-up, etc).

But cost-benefit analysis is an important component, and in order to make financial comparisons, it stands to reason that lives would have some dollar value. The number isn’t entirely set, either – it depends on how old the person is (thus a value is set for ‘years of potential life lost’) and whether the life will be saved now or in the future (ie, will there be discounting?). Some consideration is involved in terms of type of employment of potential victims (and thus what they can contribute to economy or how vital the jobs are).

Usually when I do calculations like this, I get to use numbers under $1 million…

Anonymous says:

I think it’s a reasonable methodology for determining the value of life in $. Since it has to be done anyway (maths with infinities in gets too complicated) why not?

Of course in a joined up government, you’d expect different departments and agencies to be working from the same number, but who lives in a country with a joined up government?

Anonymous says:

It sounds like it is American taxpayers funding intiiatives that protect their own lives, at rates that they would themselves find attractive on average indicated by a survey asking them how much money they need to make to take life-threatening risks. Surprisingly it makes total sense to me. It solves the problem of “nothing being too good for me as long as somebody else pays for it”.

Anonymous says:

“Is the Environmental Protection Agency serving a political agenda?”

Well, yeah. That’s not surprising given that the person in charge of the EPA is appointed by the president. Also, from wikipedia: “An extensive online questionnaire responded by 1600 EPA staff scientists who have worked in the agency for more than 10 years has determined that they have been pressured to skew their findings…”

Anonymous says:

The FAA (for security purposes) uses a value of $2.7 million as the value of a human life.

My recollection is that they use an even smaller value when they do cost-benefit analysis as regards aircraft safety. Here’s an FAA document discussing the cost/benefit analysis for airworthiness that places the value at $1.5 million, but it’s from 1991. They’ve probably raised it significantly since then.!OpenDocument

I once read somewhere that the EPA puts the highest dollar amount on the value of a human life of any govt. agency, but that may no longer be true.

Anonymous says:

I wonder if this is the same “guidline” that the Alcohol, Tobacco, and Firearms Administration uses in instituting their policies?

Anonymous says:

With the devaluation of the dollar, the reduction makes even less sense, but then, if you think about humans as a commodity and there are more of us now, then it makes sense. 🙂

This whole business of valuing human life is rough and seems wrong no matter how you do it, but it’s necessary for agencies like the EPA who have to evaluate economic impact. But the idea of valuing American lives higher than other lives troubles me.