September 9: Gore held a press conference to announce a preliminary report "to take the strongest measures possible to reduce the risk of terrorism and sabotage to airline passengers and crews."
September 19: Gore sent a letter to airline lobbyist Carol Hallett promising that the commission's findings would not result in any loss of revenue.
September 20: the Democratic National Committee received $40,000 from TWA.
Within two weeks, Northwest, United and American Airlines contribute $55,000. Whitehouse Spokesman Ginny Terzano gave no denial when asked whether Al Gore solicited these airline donations personally. Within the two months leading up to the November elections, American Airlines donated $250,000, United donated $100,000, Northwest donated $53,000.
January, 1997: Gore floated a draft final report that eliminated all security measures from the commission's findings. Two commission members balked, as did CIA Director John Deutch. Gore pulled back the draft report.
February 12, 1997, an open meeting was held on the commission’s final report. Gore made a point to inform Ms. Cummock that he would leave room for her dissent to the final report. Mr. Gore presenting the final report to President Clinton minutes later and pronouncing that the report had unanimous consent. But it didn’t. The report had no implementation dates or penalties for noncompliance-- it was toothless.
Suppose this evening you will be crossing the street and you have one chance in 10,000 of being hit by a bus and killed instantly.
You may buy out of this risk for a cash payment now.
You may borrow to make the payment, at the t-bill rate.
This risk is about the same as the average yearly fatality rate for construction workers.
How much would you pay?
If you would pay X, your value for life is 10,000X.
A group of 10,000 people know that one of them, picked randomly, will die next year unless we each pay amount X now.
What is the maximum X you would pay?
If each person pays $1,000, the total payment is 10,000 times that, which is 10 million dollars. We can say that is the value of a life.
Viscusi's estimates for the value of the life of a blue-collar worker are from 3 to 6 million dollars.
How much would you be willing to *accept* to take on an extra risk of this size?
Suppose someone is only willing to pay $2 to prevent the bus fatality risk. Should we require them to pay more anyway?
Suppose someone is only willing to pay $2 to prevent the bus fatality risk. Should other citizens pay $50 on their behalf?
The average worker valued a typical lost-workday injury at $47,900.
Smokers valued it at $26,100.
Workers who used seat belts valued it at $78,200.
What value should the government use?
What value should the business use?
| Regulation | Year | Agency | Cost per life saved | Cost per year of life saved |
|---|---|---|---|---|
| (millions of 1995 $) | (millions of 1995 $) | |||
| Unvented space heater ban | 1980 | CPSC | 0.1 | 0.0 |
| Steering column protection standards | 1967 | NHTSA | 0.1 | 0.0 |
| Children's sleepware flammability ban | 1973 | CPSC | 1.0 | 0.1 |
| Rear lap/shoulder belts | 1989 | NHTSA | 3.8 | 0.2 |
| Ethylene dibromide in drinking water | 1991 | EPAA | 6.8 | 0.8 |
| Benzene occupational exposure | 1987 | OSHA | 10.6 | 1.3 |
| Asbestos ban | 1989 | EPA | 131.8 | 15.8 |
| Atrazine/Alachor in drinking water | 1991 | EPA | 109,608 | 13,126 |
(2) Suppose first that the risk is p=1. Then p* will solve
U([1-p*]W) = 1(0),
so p*=1. The person will give up his entire wealth W to remain alive.
(3) Now suppose the risk is p=.5. Then p* will solve
U([1-p*]W) = .5 (0) + .5 U(W),
because the person will have [1-p*]W for sure if he pays to eliminate the risk, but if he does not pay, he has a gamble between dying (for payoff 0) or being alive with his fortune intact (for payoff U(W)).
If the person is risk averse, his utility function U(W) is concave. In that case, for it to be true that
U([1-p*]W) = .5 U(W),
it must be true that
1-p* is less than .5
For example, if the person's lifetime wealth if 1 million dollars, and the risk is p= .5, the person might be willing to pay $700,000 to eliminate the risk, because he is indifferent between $300,000 and no risk and $1 million with a 50% risk of dying.
Note that if we start from the amount the person is willing to pay--- $700,000 here--- then to find the value of the person's life, doubling the $700,000 is an *upper* bound to the value.
U([1-p*]W) = p(0) + (1-p) U(W),
so
U([1-p*]W) = (1-p) U(W),
so quite generally,
1-p* is less than 1-p,
and thus
p* is greater than p,
so to avoid a risk of death of 1%, the person will be willing to pay more than 1% of his wealth.
(a) U.S. GDP in 2004 is about 10 trillion dollars. Suppose we assume that this will grow at 2% per year (per capita GDP growth has averaged 2.1% over the past 10 years), and suppose we discount it at 5% (a reasonable figure for a risky asset). That gives us a net discount rate of 3%, so the present value is 10/.03 = 333 trillion dollars.
(b) The BEA says Non-labor wealth equals 39 trillion. Add 5 trillion for government wealth. Then multiply by 4, because labor's share of GNP is about 75% (see Krueger article). This yields 44*4 = $176 trillion.
Dividing these figures by 300 million yields an average value for a life of .586 to 1.11 million dollars.
Perhaps, though, we should be using median wealth rather than mean wealth. Mean income is 57 thousand dollars per household and the median is 41 thousand, so median wealth-- if proportional to income-- is 41/57=.71 times as high as mean wealth. This would give us a value for a life of $416,000 to $788,000.
We might also want to subtract out bequests, which people clearly do value. Perhaps 1/4 of wealth is bequeathed, since 1/4 of it is physical rather than human capital and our amount of capital is steady or growing over time.
We might or might not want to subtract out the portion of wealth owned by the government--18.9%, if proportional to income.
Measuring Labor's Share, Alan B. Krueger, The American Economic Review, Vol. 89, No. 2,
Papers and Proceedings of the One Hundred Eleventh Annual Meeting of the American
Economic Association. (May, 1999), pp. 45-51.
Stock Market Wealth and Consumption, James M. Poterba, The Journal of Economic
Perspectives, Vol. 14, No. 2. (Spring, 2000), pp. 99-118.
Recent Trends in the Size Distribution of Household Wealth, Edward N. Wolff, The
Journal of Economic Perspectives, Vol. 12, No. 3. (Summer, 1998), pp. 131-150.
The Value of Risks to Life and Health W. Kip Viscusi Journal of Economic Literature, Vol. 31, No. 4. (Dec., 1993), pp. 1912-1946.
We have about 300 million people in the U.S., and a million millions is a trillion, so the wealth needed is 5*300 = 1500 trillion. That is too high.
How about making the value of life 1 million dollars per person? Then the wealth of the US would be 150 trillion, which is in the correct range.
How about looking at it from the point of view of an individual? 40 years of undiscounted earnings of $30,000/year equals 1.2 million dollars. So that puts us in the correct range also. (Suppose someone starts at $30,000 per year and then their salary increases at a rate of 5% per year, In 40 years their salary would be abour $210,000. So this is an overestimate.)
In one sense it is easier to do these calculations in aggregate than for individuals. Looking at an individual, we would have to worry about how to value babies, knowing that their parents and other relatives would be willing to pay to save them. But in aggregate, my test is making the relatives pay for their own lives too, preventing double counting and removing the question of just how altruistic they are.
(d) We can think about this for an individual too. What is your lifetime wealth? To make it easy, assume that your salary will grow at the discount rate, which is reasonable for some kinds of jobs, at least. (Taxes, bequests?)