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The Income Elasticity of the Value per Statistical Life: Transferring Estimates between High and Low Income Populations

Listed author(s):
  • Hammitt James K.

    (Harvard University (Center for Risk Analysis) and Toulouse School of Economics (LERNA-INRA))

  • Robinson Lisa A

    (Independent Consultant)

The income elasticity of the value per statistical life (VSL) is an important parameter for policy analysis. Mortality risk reductions often dominate the quantified benefits of environmental and other policies, and estimates of their value are frequently transferred across countries with significantly different income levels. U.S. regulatory agencies typically assume that a 1.0 percent change in real income over time will lead to a 0.4 to 0.6 percent change in the VSL. While elasticities within this range are supported by substantial research, they appear nonsensical if applied to populations with significantly smaller incomes. When transferring values between high and lower income countries, analysts often instead assume an elasticity of 1.0, but the resulting VSL estimates appear large in comparison to income. Elasticities greater than 1.0 are supported by research on the relationship between long-term economic growth and the VSL, by cross-country comparisons, and by new research that estimates the VSL by income quantile. Caution is needed when applying these higher elasticities, however, because the resulting VSLs appear smaller than expected future earnings or consumption in some cases, contrary to theory. In addition to indicating the need for more research, this comparison suggests that, in the interim, VSL estimates should be bounded below by estimates of future income or consumption.

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Article provided by De Gruyter in its journal Journal of Benefit-Cost Analysis.

Volume (Year): 2 (2011)
Issue (Month): 1 (January)
Pages: 1-29

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Handle: RePEc:bpj:jbcacn:v:2:y:2011:i:1:n:1
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References listed on IDEAS
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  1. Dora L. Costa & Matthew E. Kahn, 2002. "Changes in the Value of Life: 1940-1980," NBER Working Papers 9396, National Bureau of Economic Research, Inc.
  2. W. Kip Viscusi, 2004. "The Value of Life: Estimates with Risks by Occupation and Industry," Economic Inquiry, Western Economic Association International, vol. 42(1), pages 29-48, January.
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  8. Eeckhoudt, Louis R & Hammitt, James K, 2001. "Background Risks and the Value of a Statistical Life," Journal of Risk and Uncertainty, Springer, vol. 23(3), pages 261-279, November.
  9. Bowland, Brad J. & Beghin, John C., 2001. "Robust Estimates of Value of a Statistical Life for Developing Economies," Staff General Research Papers Archive 5196, Iowa State University, Department of Economics.
  10. Bellavance, Franois & Dionne, Georges & Lebeau, Martin, 2009. "The value of a statistical life: A meta-analysis with a mixed effects regression model," Journal of Health Economics, Elsevier, vol. 28(2), pages 444-464, March.
  11. Larson, Bruce A. & Rosen, Sydney, 2002. "Understanding household demand for indoor air pollution control in developing countries," Social Science & Medicine, Elsevier, vol. 55(4), pages 571-584, August.
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  13. Guo, Xiaoqi & Haab, Timothy C. & Hammitt, James K., 2006. "Contingent Valuation and the Economic Value of Air-Pollution-Related Health Risks in China," 2006 Annual meeting, July 23-26, Long Beach, CA 21366, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  14. James Hammitt & Ying Zhou, 2006. "The Economic Value of Air-Pollution-Related Health Risks in China: A Contingent Valuation Study," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 33(3), pages 399-423, 03.
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  17. Jin-Tan Liu & James K. Hammitt, 2003. "Effects of Disease Type and Latency on the Value of Mortality Risk," NBER Working Papers 10012, National Bureau of Economic Research, Inc.
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  19. Viscusi, W Kip, 1993. "The Value of Risks to Life and Health," Journal of Economic Literature, American Economic Association, vol. 31(4), pages 1912-1946, December.
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  23. Lisa A. Robinson & James K. Hammitt, 2011. "Valuing Health and Longevity in Regulatory Analysis: Current Issues and Challenges," Chapters, in: Handbook on the Politics of Regulation, chapter 30 Edward Elgar Publishing.
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