The Social Value of Mortality Risk Reduction: VSL vs. The Social Welfare Function Approach

Abstract

We examine how different welfarist frameworks evaluate the social value of mortality risk-reduction. These frameworks include classical, distributively unweighted cost-benefit analysis — i.e., the “value per statistical life” (VSL) approach — and three benchmark social welfare functions (SWF): a utilitarian SWF, an ex ante prioritarian SWF, and an ex post prioritarian SWF. We examine the conditions on individual utility and on the SWF under which these frameworks display the following five properties: i) wealth sensitivity, ii) sensitivity to baseline risk, iii) equal value of risk reduction, iv) preference for risk equity, and v) catastrophe aversion. We show that the particular manner in which VSL ranks risk-reduction measures is not necessarily shared by other welfarist frameworks, and we identify when the use of an ex ante or an ex post approach has different implications for risk policymaking.

Keywords: law and economics, risk policy, uncertainty, cost-benefit analysis, CBA, value of statistical life, VSL, social welfare functions, SWF, welfare economics, welfarism, wellbeing, utilitarianism, prioritarianism, social choice theory, equity, fairness

JEL Classification: D04, D61, D63, D81, I18, K32, Q51