Dear medmax-ga,
Wow! What an interesting question. In short, yes there are commonly
accepted methodologies used by insurance companies, environmental
groups and others to determine the value of a statistical life or VSL.
When divided by average life expectancy, the VSL can be used to
determine the value of one year of life.
"The Value of a Statistical Life: Theoretical and Empirical Evidence"
by Per-Olov Johansson, 01/16/2004, outlines the three major
methodologies used for estimating the value of a statistical life. All
three also take into account income levels as well as what people are
willing to pay (WTP) for an increase in life expectancy.
1) Indirect methods use actual market behavior to infer the value
placed on health or risk reduction. This information is used to
estimate what individuals are willing to pay for a change in risk
(and, indirectly, an increase at the chance of extended life).
"For example, given current market prices some people invest in a fire
alarm to reduce the risk of a fatal fire (and prices vary over time
and/or space). Others might be prepared to take a risky job in
exchange for a higher wage."
2) Direct methods use hypothetical surveys to determine what
respondents would be willing to pay for new medical treatment or an
increase in safety (i.e. a car with front and side airbags) to
determine the value of a statistical life.
3) A third technique, growing in popularity, is similar to method 2,
but recognizes that the attributes of a commodity are varied.
"To illustrate, let us assume that the commodity is a particular make
of a car with a certain number of airbags and horsepower. Next, the
number of airbags is increased while the horsepower is decreased. The
respondent is asked whether or not this change in attributes
represents an improvement. This technique, known as conjoint analysis,
can also be used to estimate a WTP-measure."
http://www.medscape.com/viewarticle/466952
"The twenty-four different studies reviewed by [Kip] Viscusi (1993)
produce economic values of life in a wide range, from $500,000 to $16
million, with a median value of about $5 million. Since life
expectancy during the periods covered by this survey was about 72
years, these numbers imply a value of a single year of life that
ranges from about $7,000 to more than $200,000, with a median value of
$70,000. One might argue that these economic values ignore other
important considerations. In this case, one might view this range as
an underestimate of the true value of an additional year of life."
http://www.frbsf.org/publications/economics/letter/2001/el2001-36.html
Table 2 in "Variations Between Countries in Values of Statistical
Life" by TR Miller (2000) show estimated values of a statistical life
for 13 countries, ranging from about $0.65 million for South Korea to
about $8.5 million for Japan. These would need to be divided by the
relevant country's life expectancy to determine the value for a year
of life.
http://www.bath.ac.uk/e-journals/jtep/pdf/Volume_34_Part_2.pdf
From a very interesting article, "The Economic Return to Health
Expenditures": "...economist Frank Lichtenberg of Columbia University
studied the returns on medical technology and medical-care spending
between 1960 and 1997. He calculated it cost $11,000 in medical
spending and $1,345 in pharmaceutical research and development to gain
one year of additional life. Meanwhile, the economic return for a year
of life added up to $150,000."
http://msnbc.msn.com/id/5451774/
"The Value of a Statistical Life: A Critical Review of Market
Estimates throughout the World" (2002) by W. Kip Viscusi (Harvard Law
School; National Bureau of Economic Research) and Joseph E. Aldy
(Harvard University - Department of Economics) provides a review and
analysis of dozens of studies throughout the world based on market
decisions that "involve implicit tradeoffs between risk and money."
"While the tradeoff estimates may vary significantly across studies,
the value of a statistical life for prime-aged workers has a median
value of about $7 million in the United States."
http://ssrn.com/abstract=362840
Therefore, with U.S. life expectancy averaging around 70 years
(http://www.hhs.gov/news/press/2001pres/20011010.html), the value of a
single year of life would be about $100,000 based on the Viscusi and
Aldy conclusions.
The US Environmental Protection Agency (EPA) uses $6 million as the
value of a statistical life in its analyses of regulatory issues.
http://yosemite.epa.gov/EE/epa/eerm.nsf/vwRepNumLookup/EE-0483?OpenDocument
Many of these standard studies, however, assume that the value of a
year of life doesn't change with age and health. That the first year
of an indivual's life is valued just as high as the last. And that
higher income levels in the middle years do not increase the value of
those life years. Some justify this because the cost of living
(consumption) also tends to be higher in those middle, wage-earning
years. Or because a senior who is no longer working could
theoretically still have a higher value of life due to delayed
consumption (retirement savings, etc.) and increased spending on risk
reduction.
Here are a few studies which discuss a "life-cycle" model of the value
of life. The second, from May, 2004, represents the first
"consumption-adjusted estimates of the value of life." They represent
the viewpoint that the inverted U-shape pattern of the value of life
over a lifetime is flatter at the senior end than many might think
when increased consumption and risk-aversion are taken into account.
"Age Variations in Workers' Value of Statistical Life"
http://ideas.repec.org/p/nbr/nberwo/10199.html
Life Cycle Consumption and the Age-Adjusted Value of Life
http://gatton.uky.edu/Faculty/Ziliak/IVL_May2004.pdf
In conclusion, there are some pretty big differences between studies
in presenting the value of a statistical year of life. In part, at
least, these differences may reflect real differences in risk levels,
risk changes, income levels and types of risk. Income level,
especially, varies from location to location and country to country.
But a good average for the U.S. appears to be in the neighborhood of
$70,000-$100,000.
Thanks again for the fun question. It was very enlightening!
--inquisitivega
Search Strategies:
insurance cost "year of life"
value "additional year of life"
"additional year of life" methodology
"additional year of life" determining value
value statistical life |
