Daniel Hemel (NYU; Google Scholar) presents Valuing Future Lives (with Jonathan Masur (Chicago; Google Scholar)) at NYU today as part of its Law & Economics Workshop hosted by Jennifer Arlen:

Federal regulation often involves a tradeoff between monetary costs in the present and life-saving benefits in the future. A central question in regulatory cost-benefit analysis is how to assign a present dollar value to future lives. Current practice across federal agencies reflects two competing intuitions. On the one hand, the “value of a statistical life”—the amount that society is willing to pay to prevent one premature death—will likely rise over time as per-capita income increases. On the other hand, the social value of a dollar will likely be lower in the future than it is today—even after adjusting for inflation—because people in the future will likely be richer than people today and thus will derive less utility from each additional dollar. In theory, these two competing effects—the upward adjustment in the value of a statistical life to reflect income growth and the downward pressure from discounting future dollars—could offset precisely, with regulators assigning the same weight to lives in the future and lives today. In practice, however, agencies adjust the value of a statistical life upward for income growth at a significantly slower rate than they discount future dollars. The mismatch between these two rates results in the dramatic devaluation of lives saved in the future. At some agencies, the value of a life saved in 30 years is—for purposes of cost-benefit analysis—less than half the value of a life saved today.

This article synthesizes the scholarly literature on the valuation of future lives and highlights the wide gap between economic theory and agency practice. Through case studies of four agencies—the Department of Transportation, the Environmental Protection Agency, the Department of Health and Human Services, and the Occupational Safety and Health Administration—the article shows how current regulatory practice substantially devalues future lives and thereby heavily disfavors lifesaving regulations. This deep devaluation of future lives is difficult to defend on ethical or economic grounds, and it has potentially outcome-determinative effects on the adoption of environmental, health, and safety rules. The article concludes that agencies should presumptively adjust the value of a statistical life upward for income growth at the same rate as they discount future dollars—with the result that future lives would receive the same weight in cost-benefit analysis as lives in the here and now.