It’s an uncomfortable question – how much is your life worth?
The answer from an existential perspective is – life is priceless. You cannot put a monetary value on a human life.
It’s called value of statistical life. When applied properly, it can be used in cost-benefit analyses.
“The VSL does not estimate the value of life, rather it only measures what an individual is willing to pay to reduce a certain risk level or accept a risk level by not paying for the risk reduction,” stated a 2017 report from Utah-based think tank Strata.
Governments, life insurers and health insurance companies are among those that use VSL to evaluate the efficiency of policies. If a government is thinking of putting up a new stoplight in town, for example, it almost certainly would use a VSL to help calculate whether the value of the lives potentially saved outweighs the cost of purchasing and installing the lights.
Series examining lives vs. economy
The Cayman Islands government does not have an established VSL.
“We have never calculated or considered calculating any of those indicators mentioned,” said Adolphus Laidlow, Economics and Statistics Office director.
Various insurers in the Cayman Islands are likely to use a VSL, but those contacted by the Cayman Compass for this story either declined to comment or did not respond.
The concept of a VSL has been around since the middle of the 20th century but arriving at that figure has changed over time and depends on many factors.
One method commonly used to calculate VSL centres on employment – how much more do you have to pay someone to perform a dangerous job (say, a coal miner) than a safe one (say, a newspaper editor).
Another way to calculate VSL focusses on social preference. For instance, a survey finds in a community of 100,000 people each is willing to pay $50 for that new aforementioned stoplight. It has been estimated that the stoplight will reduce the annual risk of dying in a car accident at that intersection from three in 100,000 to two in 100,000, meaning one additional person is likely to be saved annually because of this stoplight. If 100,000 people are each willing to pay $50 to save one life, the VSL in this example is $5 million.
This is an oversimplification, of course; the actual formula is more like this:
V = pum(w) + (1 – p)us(w) – but we won’t try to break that down here. You get
the idea. It’s not a perfect science.
“Have the statisticians who calculated the value of statistical life included the cost borne by the loved ones of the deceased – the emotional and mental costs the survivors would suffer? Let alone the economic costs? This may be a fundamental flaw in their approach since there is no way you can make a determination of this cost,” Caribbean economist Marla Dukharan said in an emailed response to questions from the Compass. “From the time we begin to measure anything, we make mistakes. That is not to say we should not measure, but that we should bear in mind at all times that our measures are flawed in one way or another.”
Other potential problems with calculating a VSL include differences in perceived risk, techniques in calculations, publication or political bias. VSL can also vary significantly between entities housed in the same country. In the US, for instance, the VSL used by different government agencies ranges from US$1 million to US$10 million, according to a 2011 Organisation for Economic Cooperation and Development report.
Countries and regions use different techniques as well.
“Research also indicates that VSL values should differ since their preferences differ with differences in population and risk characteristics,” according to the OECD report.
There are also ongoing debates as to whether a one-size-fits-all VSL is better to use than one that assigns specific VSLs based on categories like gender, age and socio-economic factors.
“Empirical research suggests that VSL is likely to vary by population and risk characteristics, but agencies neither in the US nor other countries have tailored their estimates to reflect these differences,” the OECD said in the report.