The value of life

Some people are shocked by the idea that you can put a price on a human life. But for

economists, it is obvious that life has a price, not so much in absolute as in relative terms, as an

34 Paraphrasing Chronic Disbelief (10 April 2017) : “God doesn’t exist. Engage with reality and fix your fucking water laws.” https://ifunny.co/picture/because-god-doesn-t-exist-engage-with-reality-and-fix-6PeVsvMj4

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extension of the notion of limited resources. A person who boards an airplane or leaves home for a pizza is aware that there is some chance that the plane will crash or that she will be struck by a car and die. If this person still takes the plane or decides to go out and get her favourite pizza, she is accepting the low but non-nil risk of losing her life. This indicates that, to her, the value of her life (V) times the probability (p) that she will lose it, in expectation p*V, is lower than the value (W) of the plane trip or her consumption of a pizza: therefore p*V < W or V <

W/p, where W and p are obviously functions of the activity considered. To the extent that the value W is based on competitive prices, the value of life, as revealed by our choices, is based on these prices and can therefore be qualified as a competitive value.

Economists Christian Gollier and James Hammitt (2020)³⁵ write (translation):

“Because we are not willing to sacrifice everything to increase our life expectancy, it means that our life has value, and that value is finite. Since consciousness is the art of decision-making, and since decision-making is the art of comparing values, human beings have no choice but to give a relative value to everything. There is simply no alternative. The sage who refuses to commit may be honourable, but he abandons the decision-maker to abyss of his choices.

Many people associate the idea of the value of life with the idea of the commodification of life. Yet many things have value without being associated with a market or the possibility of trade. These include friendship, blood and organ donations, even admiring a beautiful landscape… In order to partially remove this ethical baggage, the Belgian economist Jacques Drèze and the American economist Thomas Schelling (Nobel Prize in Economics, 2005) have developed the concept of the ‘value of a statistical life’ (VSL), by examining not the value of life per se, but the value of reducing the risk of losing one’s life. If I am willing to pay 1000 euros to reduce my probability of dying tomorrow by 0.1%, this means that I impute a VSL of 1 million euros to my remaining life.

Choosing a professional occupation that is less hazardous to one’s health or buying a home in a less polluted community are similarly part of this probabilistic reasoning. There are, of course, moral imperatives, such as justice and

fundamental rights, which must transcend our individual preferences. The VSL of the rich is higher, but their euros also have a lower social value, so that all lives are valuable from the point of view of the community.”

35 Christian Gollier and James Hammitt (2020), “Coronavirus: Nous ne sommes pas prêts à tout sacrifier pour augmenter notre espérance de vie,” Tribune, Le Monde, April 3rd.

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In public health an approach that has gained more currency than the value of a statistical life (VSL) is the value of a statistical year or quality-adjusted life years (QALY).³⁶

We decide to earmark a certain amount of the government budget (B) to healthcare because we believe that allocating B+$1M to it, which would provide for a certain additional or

“marginal” reduction in mortality, is worth less to society than spending the $1M elsewhere, for example on education or support for the arts. Once again, these choices reveal a “competitive”

or, in this case, rather a “public policy” value of human life.

This analysis can be applied in an intertemporal context. Consider pharmaceutical patents, for example. If they were abolished, drug prices would fall and lives could be saved today. However, this would potentially reduce the profitability of the research laboratories that represent the capacity to deal with the pandemics of tomorrow. Abolishing patents could undermine our ability to deal with a future pandemic. Saving lives today means letting more people die in the future when a pandemic hits. Nothing is more certain than the high probability of future pandemics! The choice: to save lives tomorrow, we must sacrifice lives today. Ensuring the protection of pharmaceutical patents (determining the budget for pharmaceutical research) is a trade-off between present and future lives.

Any discussion of budgetary allocations, in road infrastructure, education, foreign aid, etc., implicitly involves a financial valuation of human lives potentially saved or sacrificed.

Not realizing this, or refusing to consider it, is equivalent to burying one’s head in the sand.

Choices must be made. These choices, both individual and collective, reveal the value “at the margin” of the alternatives, sometimes in terms of lives at stake. This is what economists fundamentally mean with allocating scarce resources to unlimited needs. It is in this light that the definition of economics as “the dismal science”³⁷ takes on its full meaning.

36 Martin Boyer (2020), “La valeur d’une vie: Covid-19 contre la SAAQ,” (French only) CIRANO, 2020PE-13.

https://cirano.qc.ca/fr/sommaires/2020PE-13.

37 Thomas Carlyle (1849). “Occasional Discourse on the Negro Question,” Fraser’s Magazine for Town and Country, Vol. XL., p. 672. https://babel.hathitrust.org/cgi/pt?id=inu.30000080778727&view=1up eq=692. Also see

https://www.investopedia.com/terms/d/dismalscience.asp.

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