Risk, the Willingness-to-Pay, and the Value of a Human Life

Empirical estimates of the value of a life based on the willingness-to-pay concept have been used in formulating public policy decisions involving safety and environmental regulations and by some state courts as a measure of the legal value of a human life in personal injury cases. The basic idea of the willingness-to-pay concept is that by examining how people value small risk changes we can estimate the value of the entire life. The paper argues that the use of the willingness-to-pay concept is theoretically inappropriate and demonstrates that because people are risk averse, willingness-to-pay estimates of the value of a life will generally overstate the relevant economic value.