When I ask students in my large economics classes if some things are just too important to put a price on, someone always answers, “human life.” This seems like a reasonable answer. After all, how many people would sacrifice their lives for cash, no matter how much was offered? What is the point of being a rich corpse? But economists reject the notion that human life is priceless. They put a price on human life, not because they are uncaring, callous, and completely lacking in moral sensitivity, but because they have a professional interest in understanding human action and because they understand that there is nothing morally lacking about pricing human life.
All of us put a price on our own lives every day with the choices we make and the actions we take. And pricing human life provides information that can save large numbers of lives, certainly not an immoral activity. Unfortunately, the moral superiority that so many people feel when expressing outrage at pricing human life helps keep in place government policies that cause many people to die needlessly.
Recognizing that prices reflect the marginal value of things is the key to understanding why economists put prices on human life. The price of asparagus gives us information on the value of one more pound of asparagus, not the value of the entire crop. Similarly, when economists talk about the price of human life, they are referring to the marginal value of life—the value of a slightly longer life expectancy—not the total value. The total value we put on our lives is extremely high (in most cases infinite), so we would not agree to be killed for any amount of money. Yet we put a very low marginal value on our lives. We routinely do things that reduce our life expectancy by marginal amounts in return for rather minor conveniences and pleasures. We often stay up too late, eat and drink too much, fail to get enough exercise, and drive too fast. When we do so, we are putting a price on our lives, and a pretty low price. Just how much is it worth to eat that extra cream puff or drink that extra beer? You would probably forgo the cream puff for $10, but not to avoid reducing your life expectancy by a marginal amount. If so, the implication is clear—the marginal value, or price, you place on your life is no more than $10.
The Risks of Government Policies to Reduce Risks
There is nothing wrong or irrational about putting a low marginal value on our lives. We face tradeoffs in everything we do, and living a meaningful and satisfying life requires doing things that reduce how long we can expect to live. It is sensible to avoid paying very much to avoid very small risks and the corresponding reductions in life expectancy.
In many situations we can choose how much to pay to avoid risks. We can choose to sacrifice time by slowing down a little, taking a somewhat less dangerous job that pays a little less, or buying a slip-resistant rubber mat for the bathtub (bathtubs are dangerous places). Government policy attempts to reduce many risks we face, but we have little choice in how much we pay for the risk reduction we receive. The justification for government action is that the risks are general, like the risks from pollution, and it would be difficult, if not impossible, for individuals to protect themselves acting alone. This is a reasonable justification for some risks, although it cannot be used for many government regulations, such as those requiring seat-belt use or outlawing smoking in all bars. But even when government action is justified, it doesn’t make sense to enact regulations that make people pay more to reduce risks than the reduction is worth. Unfortunately, this is common practice.
According to many studies of how much people pay for safety devices and how much income they sacrifice to take safer jobs, they are willing to spend from $3 million to $7 million to save a life. Yet many government regulations impose a far greater cost per life saved. For example, Environmental Protection Agency (EPA) regulations on benzene storage are estimated to cost $260 million per life saved; EPA regulations on contaminated land disposal over $4.5 billion per life saved; and Occupational Safety and Health Administration (OSHA) regulations on formaldehyde over $92.7 billion per life saved.* The problem with the high regulatory cost of saving a life is not only that these costs are far higher than the amount individuals would pay, but that these regulations increase the number of lives lost.
* The figures in this and subsequent paragraphs come from W. Kip Viscusi, “The Dangers of Unbounded Commitments to Regulate Risks,” in Robert W. Hahn, ed., Risks, Costs, and Lives Saved (New York: Oxford University Press, 1996), pp. 135-66.
Such costly policies may reduce some risks, but they also reduce wealth, and there is plenty of evidence of a positive relationshipbetween wealth and life expectancy. Obviously healthy people are more productive and therefore wealthier. But cause and effect also goes the other way; studies show that costly policies, by reducing our wealth, also reduce life expectancy, with an estimated one life lost for every $10 million to $50 million in regulation costs. Using the $50 million estimate, this implies that saving one life with the formaldehyde regulation would cause the loss of over 1,854 lives due to reduced wealth.
Another problem with extremely costly regulations to reduce risk brings us back to the importance of marginal considerations. When the marginal cost of saving life is higher with one regulation than with another, it is possible to save more lives at the same cost by reducing the high-marginal-cost regulation and expanding the low-marginal-cost regulation. For example, if the EPA land-disposal regulation (which saves fewer than three lives) were scrapped, and just a small portion of the $4.5 billion in saving were used to expand low-marginal-cost-per-life-saved regulation, thousands of additional lives could be saved and there would be a net reduction in government regulation. In addition, by reducing costly regulations, more resources would be available for the creation of wealth and this would save even more lives.
By refusing to put a price on human life government regulators can justify regulations with extremely high costs for a life saved. Despite the superficial morality suggested by this “save-a-life-at-any-cost” approach to regulation, the result is more lives lost than if the marginal cost of saving lives were considered—if a price were put on human life—when we legislate and implement regulations.