Article

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

Journal of Benefit-Cost Analysis 01/2011; 2(1):1-1. DOI: 10.2202/2152-2812.1009
Source: RePEc

ABSTRACT

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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Available from: Lisa A Robinson, Dec 13, 2013
    • "In this sense current, past and future income should affect WTP in the same manner because they are different components of wealth. However, previous studies only take into account current income (Andersson, 2007, 2013; Hammitt and Robinson, 2011; Lindhjem et al., 2011; Persson et al., 2001a; Jones- Lee et al., 1985, 1993). So far different incomes throughout the economic life cycle have been ignored. "
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    • "million, while an elasticity of 1.0 10 produces a VSL that is proportional to income. While an elasticity of 1.0 is the largest elasticity considered in this study, there are some studies that indicate that the income elasticity may be greater than 1 in some cases (Hammitt and Robinson 2011). The total annual value of reduced mortality must be discounted back to the year of emissions in order to calculate the NPV. "
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    • "As IE-VSL increases, the estimated VSL in the lower-income country decreases. Although values of 0.55 to 1.0 are most often used in transferring estimates of VSL, recent evidence suggests that higher values are more appropriate for transfers to low-income countries (Hammitt and Robinson 2011). We used GNI per capita estimates based on the PPP method (Viscusi and Aldy 2003), and an IE-VSL of 1.0 and 1.5. "

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