In this essay I will outline what is meant by the Value of a Statistical Life (VOSL) and explain four valuation techniques used to estimate the VOSL, noting possible problems in each. I will then explain the arguments for and against the motion: ‘Is it defensible that studies have estimated lower VOSL's in developing countries than in developed countries', before evaluating both sides of the argument to reach my conclusion that it is defensible.
Key to Economics is “the study of the effects of scarcity, the science of choice, and the study of human behavior” (Backhouse and Steven, 2009, 222). It is this ‘scarcity' of resources which causes a tradeoff between safety and risk. Economists observe this tradeoff to try to assess what value people place on their own lives. For example people may make take the risk to run across a road without waiting for the green man and economists can analyze this.
To clarify, “economists do not place values on others' life and health; they measure the values people place on their own lives” (Lesser, Dodds and Zerbe, 1997, 318). This distinction is important since economists are only attempting to reveal what Backhouse and Steven outline as ‘human behavior' and are not attempting to play God, deciding who shall live and who shall die. Instead, the VOSL is the revealed amount people are willing to pay (WTP) to avoid risk, divided by the probability of death from that risk.
[...] Is it defensible that studies have estimated lower VOSL's in developing countries than in developed countries? In this essay I will outline what is meant by the Value of a Statistical Life (VOSL) and explain four valuation techniques used to estimate the VOSL, noting possible problems in each. I will then explain the arguments for and against the motion: ‘Is it defensible that studies have estimated lower VOSL's in developing countries than in developed countries', before evaluating both sides of the argument to reach my conclusion that it is defensible. [...]
[...] Likewise a solution may be to financially compensate LEDCs whom we have deemed a lower VOSL and not disregard VOSL altogether since there are clearly differences in ‘human behavior' especially with regard to risk which we would like to be able to measure. In conclusion I have defined VOSL and outlined methods to estimate it. It is defensible that studies have estimated lower VOSL's in developing countries than in developed countries and on efficiency grounds VOSL definitely has its usefulness. Bibliography Backhouse, Roger E., and Steven G. Medema (2009), “On the Definition of Economics”, Journal of Economic Perspectives, 23 (1): 221 – 233 Lesser, Dodds and Zerbe (1997), “Environmental Economics and Policy” Addison-Wesley. Chapter 12 Viscusi, W.K. and Aldy, J.E. [...]
[...] From this we form the equation: This equation represents an estimation of VOSL in LEDCs (LDC) based on a system of benefit transfers whereby results of studies of VOSL in MEDCs (D) were transferred to LEDCs with values scaled according to National Income (Y), for accuracy. ‘E' is the income elasticity of WTP to protect the environment and is normally assumed to be 1 so that the VOSL of an LEDC divided by the VOSL of an MEDC is proportional to ratio of the National incomes of an LEDC to an MEDC. [...]
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