Wednesday, August 13, 2008

Alex Rodriguez Makes Four People Per Year

Here's a bizarre article about the EPA's recent decision to change the cost of a human life from $8.04 million to $7.22 million, or a decrease of about 10%. This is done for the purpose of calculating whether or not a given regulation is worth the cost it would impose on industry.

Of course, if someone actually died because of corporate malfeasance, this wouldn't be the amount that their heirs would receive. That amount would take into account a lot of other things, including the person's salary and the company's ability to pay. It may be less, it may be more. And obviously, there's no way to legitimately place a price tag on a person's life.

To be honest, this idea sounds more callous than it is. The prices used by the EPA (and by other regulatory agencies) are indicative of our willingness to take risks. As the article explains, take the amount of money that would induce a person to take a 1-in-10000 risk of death and multiply it by 10000. So if the average American is willing to take such a risk for $500, that means that the economic "value of a life" would be $5 million. So back to the EPA's numbers - the EPA has apparently determined that people are willing to take $722 or so in exchange for a 1-in-10000 risk of death by pollution, and that this number is down from the $800 or so people would have been willing to accept when the economy was better. In other words, the EPA believes that people are willing to accept more risk of loss of life from environmental degradation in exchange for a more dynamic economy.

Personally, I think the number should be higher. I personally would be more willing to accept lower payment for a risk that I could control - say, a product or a job - than for a risk that would be ambient - say, dirty air or water. The numbers reflect this to some extent - the DoT, for example, uses a number around $5 million. But I don't think they reflect this accurately, at least not for me. How about for you?

I also have to wonder how this relates to smoking bans, the latest fad in governmental risk control. Now that smoking bans have been in place in some locales for a significant period of time, we can gauge the economic impact that they have on the local economy, and we can compare that to the number of deaths that occur from prolonged exposure to second-hand smoke. Someone with more time on their hands should do this.


lsmsrbls said...

hmmm...since I work in risk assessment, most of my time is spent determining whether the risk of death due to a certain situation is 1 in 10,000 or 1 in 100,000 (and hopefully even less).

I can think of a lot of things I'd do if I had a 1 in 10,000 chance of death (and do all the time, like driving).

However, with regards to a monetary number and the environment, I'm thinking my number would be about $10,000. Definitely more than $1,000, even though 1 in 10,000 is a small number. This is purely because my financial situation is good, and an additional $1,000 wouldn't benefit me that much, but I think $10,000 would (down payment for a house as opposed to two extra days vacation).

However, this whole concept really creeps me out. Someone who is poor and desperate enough to take $100 for a 1 in 100 chance of death has no less of a valuable life than I do. And, no, these aren't numbers for specific people, but for...forever, I guess, poor people have lived in commuties with higher risk of death due to enviroment. But, you know, their lives aren't worth the investment it would take to get the mercury out of the water.

I was about to go through and calculate the rough value of a life of a soldier based on military enrollment, deaths in Iraq and Afghanistan, and salary, but I decided that's too different of a situation.

Sorry so long....

Jacob said...

As for smoking bans, good luck finding unbiased numbers on that. It's too easy to put out junk science on that sort of thing using small sample sizes and selectively choosing start and end dates. But if you've got the time, go for it.

But even if the numbers come out in favor of bans, what does that matter? Prolonged exposure to tobacco smoke falls into the category of risks you can control. No one's making you frequent a bar or restaurant the way one has little choice about the air one breathes or the water one drinks. Smoking bans should be a question of property rights and individual autonomy, not gross costs and benefits.

Mike said...

Can I get my $7.22 million in tax-free cash up front?