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The Social Value of Mortality Risk Reduction: VSL vs. the Social Welfare Function Approach

  • Adler, Matthew
  • Hammitt, James
  • Treich, Nicolas

We examine how different welfarist frameworks evaluate the social value of mortality riskreduction. These frameworks include classical, distributively unweighted cost-benefit analysis—i.e., the “value per statistical life” (VSL) approach—and three benchmark social welfare functions (SWF): a utilitarian SWF, an ex ante prioritarian SWF, and an ex post prioritarian SWF. We examine the conditions on individual utility and on the SWF under which these frameworks display the following five properties: i) wealth sensitivity, ii) sensitivity to baseline risk, iii) equal value of risk reduction, iv) preference for risk equity, and v) catastrophe aversion. We show that the particular manner in which VSL ranks risk-reduction measures is not necessarily shared by other welfarist frameworks, and we identify when the use of an ex ante or an ex post approach has different implications for risk policymaking.

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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 709.

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Date of creation: Mar 2012
Date of revision:
Publication status: Published in Journal of Health Economics, vol.�35, mai 2014, p.�82-93.
Handle: RePEc:ide:wpaper:25759
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  1. Pratt, John W & Zeckhauser, Richard J, 1996. "Willingness to Pay and the Distribution of Risk and Wealth," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 747-63, August.
  2. An, Mark Yuying, 1996. "Semiparametric Estimation of Willingness to Pay Distributions," Working Papers 96-20, Duke University, Department of Economics.
  3. An, Mark Y. & Roberto Ayala, 1995. "A Mixture Model of Willingness to Pay Distributions," Working Papers 95-21, Duke University, Department of Economics.
  4. Ralph L. Keeney, 1980. "Utility Functions for Equity and Public Risk," Management Science, INFORMS, vol. 26(4), pages 345-353, April.
  5. Rachel Baker & Susan Chilton & Michael Jones-Lee & Hugh Metcalf, 2008. "Valuing lives equally: Defensible premise or unwarranted compromise?," Journal of Risk and Uncertainty, Springer, vol. 36(2), pages 125-138, April.
  6. Samuel Fankhauser & Richard Tol & DAVID Pearce, 1997. "The Aggregation of Climate Change Damages: a Welfare Theoretic Approach," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 10(3), pages 249-266, October.
  7. Marc Fleurbaey, 2007. "Assessing Risky Social Situations," IDEP Working Papers 0703, Institut d'economie publique (IDEP), Marseille, France, revised Jan 2007.
  8. Ben-Porath, Elchanan & Gilboa, Itzhak & Schmeidler, David, 1997. "On the Measurement of Inequality under Uncertainty," Journal of Economic Theory, Elsevier, vol. 75(1), pages 194-204, July.
  9. repec:cup:cbooks:9780521825511 is not listed on IDEAS
  10. HAMMITT James K & TREICH Nicolas, 2006. "Statistical vs. Identified Lives in Benefit-Cost Analysis," LERNA Working Papers 06.11.204, LERNA, University of Toulouse.
  11. BLACKORBY, Charles & DONALDSON, David, . "Can risk-benefit analysis provide consistent policy evaluations of projects involving loss of life?," CORE Discussion Papers RP 714, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  12. Olof Johansson-Stenman, 2000. "On the Value of Life in Rich and Poor Countries and Distributional Weights Beyond Utilitarianism," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 17(3), pages 299-310, November.
  13. Ulph, Alistair, 1982. "The role of ex ante and ex post decisions in the valuation of life," Journal of Public Economics, Elsevier, vol. 18(2), pages 265-276, July.
  14. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
  15. repec:cup:cbooks:9780521532587 is not listed on IDEAS
  16. Lisa A. Robinson, 2007. "Policy Monitor How US Government Agencies Value Mortality Risk Reductions," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 1(2), pages 283-299, Summer.
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