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


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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    ABSTRACT: We analyze data of a Spanish nationally-representative survey where subjects reported their willingness to pay (WTP) for road safety improvements, specifically they hypothetically paid for a reduction of the risk of a road fatality and several injuries. Respondents also reported their current income (CI) and permanent income (PI). The latter refers to their normal income once they considered various stages of low/high earnings throughout their entire lives. Consequently, we define relative income as the comparison of CI with respect to PI. Three income frames are generated as explanatory variables: gain (with CI>PI); neutral (with CI=PI); and loss scenario (with CI<PI). Surprisingly, we find that conditional on current income, and on a set of characteristics, those respondents in gain frame reported higher WTP than those in neutral and loss scenario. Further analysis shows that the income frames effect is higher and more significant for the older half-sample (>45), being about three or four times higher than for the younger subset. Possible interpretations of the role of PI as a reference point are considered given the results. A reference-dependent utility function of income, where PI is the reference point, is proposed to describe the monetary valuation of safety within the theoretical framework previously developed in the safety economics literature. Copyright © 2015 Elsevier Ltd. All rights reserved.
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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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    ABSTRACT: Methane is a greenhouse gas that oxidizes to form ground-level ozone, itself a greenhouse gas and a health-harmful air pollutant. Reducing methane emissions will both slow anthropogenic climate change and reduce ozone-related mortality. We estimate the benefits of reducing methane emissions anywhere in the world for ozone-related premature mortality globally and for eight geographic regions. Our methods are consistent with those used by the US Government to estimate the social cost of carbon (SCC). We find that the global short- and long-term premature mortality benefits due to reduced ozone production from methane mitigation are (2011) $790 and $1775 per tonne methane, respectively. These correspond to approximately 70 and 150 % of the valuation of methane’s global climate impacts using the SCC after extrapolating from carbon dioxide to methane using global warming potential estimates. Results for monetized benefits are sensitive to a number of factors, particularly the choice of elasticity to income growth used when calculating the value of a statistical life. The benefits increase for emission years further in the future. Regionally, most of the global mortality benefits accrue in Asia, but 10 % accrue in the United States. This methodology can be used to assess the benefits of methane emission reductions anywhere in the world, including those achieved by national and multinational policies.
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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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