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Using Mandated Speed Limits to Measure the Value of a Statistical Life

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  • Ashenfelter, Orley

    ()
    (Princeton University)

  • Greenstone, Michael

    ()
    (MIT)

Abstract

In 1987 the federal government permitted states to raise the speed limit on their rural interstate roads, but not on their urban interstate roads, from 55 mph to 65 mph for the first time in over a decade. Since the states that adopted the higher speed limit must have valued the travel hours they saved more than the fatalities incurred, this experiment provides a way to estimate an upper bound on the public’s willingness to trade off wealth for a change in the probability of death. We find that the 65 mph limit increased speeds by approximately 3.5% (i.e., 2 mph), and increased fatality rates by roughly 35%. In the 21 states that raised the speed limit and for whom we have complete data, the estimates suggest that about 125,000 hours were saved per lost life. Valuing the time saved at the average hourly wage implies that adopting states were willing to accept risks that resulted in a savings of $1.54 million (1997$) per fatality, with a sampling error that might be around one-third this value. Since this estimate is an upper bound of the value of a statistical life (VSL), we set out a simple structural model that is identified by variability across the states in the probability of the adoption of increased speed limits to recover the VSL. The empirical implementation of this model produces estimates of the VSL that are generally smaller that $1.54 million, but these estimates are very imprecise.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 571.

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Length: 49 pages
Date of creation: Sep 2002
Date of revision:
Publication status: published in: Journal of Political Economy, 2004, 112 (S1), S226-S267
Handle: RePEc:iza:izadps:dp571

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Keywords: value of time; safety risks; speed limits; value of a statistical life;

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References

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  1. Deacon, Robert T & Sonstelie, Jon, 1985. "Rationing by Waiting and the Value of Time: Results from a Natural Experiment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 93(4), pages 627-47, August.
  2. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
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  13. Lee, N & Dalvi, M Q, 1969. "Variations in the Value of Travel Time," The Manchester School of Economic & Social Studies, University of Manchester, University of Manchester, vol. 37(3), pages 213-36, September.
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  15. Hersch, Joni, 1998. "Compensating Differentials for Gender-Specific Job Injury Risks," American Economic Review, American Economic Association, American Economic Association, vol. 88(3), pages 598-627, June.
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