Is Survival a Luxury Good? Income Elasticity of the Value per Statistical Life

Résumé

The value of a change in mortality risk is conventionally described by the marginal rate of substitution between income and mortality risk—the value per statistical life (VSL). The income elasticity of VSL is important for estimating how the value of mortality risk varies with time (for evaluating programs with long-lived effects) and across populations with different income levels (for evaluating programs with international consequences). Previous estimates of income elasticity based on meta-analysis of wage-differential studies and cross-sectional comparisons in stated-preference studies suggest values between about one-half and one. We present new estimates based on a 16-year series of wage-differential estimates in Taiwan. Between 1982 and 1997, estimated VSL increased by a factor of five while household labor earnings increased by 60 percent, per capita GDP increased two-and-a-half fold, and the occupational fatality rate in manufacturing and service industries decreased by half. Comparing the growth of VSL with that of household income implies the income elasticity is between about two and five but this estimate may be biased by the endogeneity of VSL, which is affected by workers’ job choices. Using a two-stage approach to control for endogeneity yields estimates of the income elasticity of VSL between two-thirds and one, consistent with estimates from other approaches.