Community versus Market Values of Life

Abstract

Individuals and communities make choices affecting the risk of accidental death. Individuals balance risk and cost in market choices, and communities develop social norms prescribing how much risk people may impose on others (and, in some instances, on themselves). In both cases, the balance between risk and the cost of reducing it implies a value of a statistical life or “VSL.” Applying this novel distinction to the existing VSL literature, we find that community VSLs are significantly smaller in magnitude than market values: whereas market VSLs average roughly $7 million, community VSLs — those based on socially approved behaviors — average roughly $2-3 million. In terms of magnitude, community VSLs therefore fall between the values of life determined though tort litigation (which average under $1 million and vary widely) and those used in the regulatory context (which are derived from market VSLs and commonly range from $5-$7 million).

This paper argues that courts and regulators should base the legal value of a life on the community value. Adopting the community value would roughly double current tort awards and halve the cost of death in regulating safety. The legal value of a life should equal the community value for practical and theoretical reasons. The practical reasons include reliability and measurability. The community value is more reliable than unaided intuition of jurors and no harder to measure than the market value. The theoretical reasons are reasonableness and validity. The community value is more reasonable because social norms embody collective judgments over time, which are less susceptible to irrationality and cognitive bias than unaided intuition or market value. The community value is more valid because the strictness of the standard of care and the seriousness of the harm belong to the same calculation. In torts, the current standard of care is too high relative to damages caused by its violation. In making safety regulations, the value of a life is far too high relative to damages in torts. These misalignments distort incentives for care and activity. Adopting the community value as the legal value would potentially place torts and safety regulation on the same, valid foundation.

Keywords: value of statistical life, VSL, legal value of life, personal injuries - law, community value, damages, community damages