Well-Being Measures of Mortality Risks: Life-Cycle Contradictions and Ordinal Index Challenges

Abstract

The value of a statistical life (VSL) monetizes the expected loss in well-being associated with the risk of death. The utility loss resulting from a fatality is central to the empirical framework for estimating the VSL. The VSL trajectory over the life cycle exhibits an inverted-U shape, following a trajectory similar to that of lifetime patterns of consumption. The U shaped pattern displayed by happiness measures over the life cycle is the opposite of the inverted-U shape pattern displayed by the VSL. It is consequently inappropriate to use happiness measures as ordinal ranking substitutes for the VSL for purposes of estimating the benefits of mortality risk reduction. Compared to ordinal well-being scales, the VSL also offers a variety of additional capabilities by providing a cardinal index of the unit benefits for changes in mortality risks.

Keywords: value of a statistical life, VSL, well-being, happiness, life satisfaction, mortality risk, life cycle

JEL Classification: K32, J17, D61, D91