Thursday, April 01, 2004

an interesting article about the follies of over-relying on certain economic methods for the planning of public policy; makes me realise at least that there's a price on my life. oh, and one more thing, don't drink water. there's arsenic in it.

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The Human Factor - an article from the New York Times

How much is your life worth to you? On the face of it, that's an idiotic question. No amount of money could compensate you for the loss of your life, for the simple reason that the money would be no good to you if you were dead. And you might feel, for different reasons, that the dollar value of the lives of your spouse or children -- or even a stranger living on the other side of the country -- is also infinite. No one should be knowingly sacrificed for a sum of money: that's what we mean when we say that human life is priceless.

But the government set a price for it four years ago: $6.1 million. That's the figure the Environmental Protection Agency came up with when it was trying to decide how far to go in removing arsenic from drinking water. Arsenic can cause diseases, like bladder cancer, that will predictably kill a certain number of people. But reducing the arsenic in water gets more and more expensive as the poison levels approach zero. How many dollars should be spent to save one ''statistical life''? The answer, reasoned the people at the E.P.A., depends on how much that life is worth. And they're not the only ones doing such calculations. The Department of Transportation also puts a price tag on a human life when deciding which road improvements are worth making, although it's the rather more modest one of $3 million.

Presumably, losing your life in a highway smashup is less unpleasant than slowly dying of bladder cancer.

The advantage of this kind of cost-benefit analysis, its proponents declare, is that it promises to make our public policies more rational. But critics find the idea of putting a dollar value on human life preposterous. Part of their case is ethical: it is simply wrong, they say, to count death as a ''cost''; no public action that involves lost lives should be evaluated in monetary terms. But they also object to the ways in which the price of life is calculated.

How, exactly, did the E.P.A. arrive at its figure of $6.1 million?

Economists looked at the salaries paid to workers in riskier jobs like mining. They figured out that such workers received, on average, an additional $61 a year for facing an extra 1-in-100,000 risk of accidental death. Evidently, these workers valued their own lives at 100,000 times $61, or $6.1 million. (In 2002, the E.P.A. revised the price of a life downward, to $3.7 million -- or if you're older than 70, $2.3 million.)

Ingeniously simple, no? But on closer inspection, you begin to have misgivings about this methodology. In the first place, it is not at all obvious that workers really understand the risks they face in the workplace. Women seem to be much less willing to accept such risks than men. Does that mean their lives should be priced higher? Blacks and nonunionized workers demand little or no risk premium for taking dangerous jobs. Does that mean their lives should be priced lower? Poorer people, for whom an extra dollar is highly valuable, will take less compensation for facing danger. Thus, cost-benefit analysis tells us it is more efficient to locate toxic waste dumps near poorer neighborhoods.

Perhaps the strangest thing about the life-pricing business is the way the lives of future generations become discounted -- quite literally. Regulators begin with the assumption that it's better to have $200 in your pocket today -- when you can earn interest on it -- than a promise of $200 in the future. Equating money with human life, they conclude that a life saved today should count twice as much, in dollar terms, as a life saved 10 years from now; a life saved a century from now scarcely counts at all. That is why cost-benefit analysis might sanction, say, nuclear reactors that provide you and me with cheap energy at the expense of lives lost to cancer decades down the road. But as Frank Ackerman and Lisa Heinzerling point out in their recent book, ''Priceless: On Knowing the Price of Everything and the Value of Nothing,'' it is hardly clear why the same logic should apply to the value of our great-grandchildren. (On the other hand, those future generations may well have developed a cure for cancer, so perhaps we are justified in worrying about them less.)

Champions of cost-benefit analysis -- from the controversial Bush administration regulatory guru John D. Graham to the more circumspect liberal law professor Cass Sunstein -- maintain that the government is always valuing human life implicitly anyway, so we might as well be forthright about it. Only then, they say, will we be able stop spending excessively large sums to protect against small risks and vice versa. Most of us, after all, are deficient in rationality: we are excessively fearful of unlikely hazards when those hazards are shockingly unfamiliar or disturbingly involuntary (like dying in a terrorist attack or from something in the drinking water). And we are far too cavalier about much more immediate risks like dying on the highway (which we do at a rate of 117 fatalities per day).

But are ordinary people really being irrational when they seem to ''price'' their lives differently at different times? Some people even put a negative price on their lives -- when, for instance, they pay money to engage in a risky activity like mountain climbing. The economist E.J. Mishan, an early authority on cost-benefit analysis, has argued that the value of a human life has no meaning apart from the nature of the risk that is being measured. To say that a human life is ''priceless'' does not necessarily mean that it is worth more than any amount of money. It may just mean that money is the wrong yardstick to use when our decisions involve the loss of life. Even the most ardent cost-benefit analyst would spend more money to rescue a single actual child than to save 10 ''statistical lives.''

Jim Holt writes for The New Yorker, Slate and other publications.

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