Appraising the priceless

What is a human life worth? That’s a question insurance companies and juries sadly must wrestle with in settling claims and awarding damages related to wrongful deaths. In those cases, the person already has died, of course. But what about someone who is still alive? How could you possibly assign a dollar value to preventing someone’s death?

The federal government does this all the time. In analyzing the costs and benefits of proposed regulations, agencies must assume a value of a statistical life in order to determine the benefit of preventing a fatality. Economists set these values based on average income levels and research into how much people are willing to pay to reduce their own risk of dying.

Last month, the Federal Motor Carrier Safety Administration disclosed in the Federal Register that the Department of Transportation has nearly doubled the value of a life to $5.8 million from the $3 million it had used since 2002. FMCSA said it had reassessed the regulatory analyses in open rulemakings to account for the adjustment. As of June, FMCSA has nearly two dozen open rulemakings in some stage of development that it considers significant, including electronic onboard recorders, minimum training standards for entry-level drivers and the latest version of the hours-of-service regulations.

In a memorandum earlier this year, two senior DOT officials told agency chiefs that the previous recommended value of a statistical life was “seriously out of date” in light of recent research and a comparison of DOT’s value compared to those of other federal agencies. DOT selected $5.8 million because that is the inflation-adjusted average of five studies it reviewed on the topic. Due to the “necessary imprecision” of any assumption, future analyses also will include estimates based on $3.2 million and $8.4 million.

Valuing human life in such a matter-of-fact manner might seem cold and heartless, but there is no practical alternative. Government officials, lawmakers and safety advocates frequently declare that a single death is one too many. That’s nice rhetoric, but zero tolerance for death clearly cannot be the objective in regulating safety. DOT could eliminate all risk of death or injury from the operation of a truck, airplane or locomotive only by banning the operation altogether. But then people would starve and die of disease and exposure because trucks couldn’t deliver food, medicine and clothing.

So balance is inherent in safety regulation. Assigning a specific value to the prevention of a fatality helps strike that balance and allows people to weigh costs and benefits rationally rather than emotionally. DOT’s previous value for human life fell well below what other federal agencies use in their regulatory analyses. The Office of Management and Budget, which reviews all federal regulations, uses $5 million as a default standard when the agency doesn’t supply one. The Environmental Protection Agency has used values as high as $7 million, while two Department of Labor agencies recently have used $6.8 million. By placing its own value more in line with the rest of the federal government, DOT affirms its commitment to reducing fatalities in transportation.

DOT acknowledges in its memorandum that economic and scientific analysis merely informs policymakers of the risks and doesn’t dictate the outcomes of rulemakings. The department’s plan to analyze three different values for human life in each rulemaking reinforces the notion that these are hardly purely objective decisions.

Still, a higher value for human life could help FMCSA justify more stringent regulations. If the agency’s analysis of all costs and benefits is sound, that’s a fair result. The real questions are whether FMCSA has cataloged the benefits accurately and identified the least burdensome alternatives for achieving them. Arguing that a human life is worth less than $5.8 million probably isn’t a winning strategy.