How Agencies Monetize “Statistical Lives” Expected to Be Saved By Regulations

Curtis W. Copeland
Specialist in American National Government

Federal health, safety, and environmental regulations are often designed to reduce the risk of death, illness, or injury from exposure to a particular hazard (e.g., arsenic in drinking water or rollover car crashes). As part of an economic analysis required by Executive Order 12866, the issuing agencies often place a monetary value on these expected health benefits by determining the number of "statistical lives" that the rules are expected to extend or save, and then multiplying that number by an estimated "value of a statistical life" (VSL). For example, if 100,000 people are each willing to pay an average of $50 to reduce a 1 in 100,000 risk of dying from a particular risk, then the VSL for the population relative to that risk is $5 million ($50 times 100,000). 

The monetization of regulatory health benefits is often controversial, and the process by which federal agencies do so is not widely understood. This report summarizes current government wide requirements for benefit-cost analysis and the monetization of health benefits, and describes agency-specific policies in selected health, safety, and environmental agencies. Also, the report provides examples of final rules published by the selected agencies from 2007 through 2009 that monetized expected health benefits and describes how those values were used in the economic analyses for the rules. Finally, the report offers some concluding observations. 

OMB Circular A-4, which was issued in September 2003, delineates what is expected in a good regulatory analysis while giving the agencies substantial flexibility. The circular notes that academic studies have identified VSLs from $1 million to $10 million, but it does not recommend that agencies use a particular VSL. Circular A-4 says that VSLs should not vary by age, but recommends that agencies consider providing estimates in terms of both VSLs and the value of statistical life years (VSLY) extended. The circular says that agencies should use larger VSLYs for senior citizens, but does not specify how much larger or what constitutes a "senior citizen." When the benefits and costs of a rule are expected to occur at different times, the circular says agencies should compare them in "present values" using both a 3% and a 7% discount rate. 

Some federal agencies have written policies on the monetization of expected health benefits, and those policies differ in some respects. For example, in 2009, the Department of Transportation's (DOT) VSL was $6.0 million while the Environmental Protection Agency's (EPA) VSL was nearly $7.9 million. Other agencies tended to use the DOT or EPA VSLs, or used VSLs that they or other agencies have used in previous rules. DOT's policy established the value of injuries prevented as percentages of the VSL, whereas EPA's policy does not recommend particular values for injuries or illnesses. 

In more than 20 final rules that were issued between 2007 and 2009, federal agencies used somewhat different VSLs, and used VSL information in different ways. The agencies often compared monetized health benefits with costs to determine whether to regulate, but in some cases the agencies used VSL estimates in "break-even" analyses (showing at what point the value of the health benefits equal the cost), or to rule out a regulatory option. The agencies sometimes used lower and higher VSLs, and sometimes used multiple discount rates, in sensitivity analyses. Some of the rules illustrated that the size of the VSL used can affect whether a rule is expected to produce positive net benefits. Some of the apparent variations in the agencies' economic analyses may be due to differences in the degree to which the agencies disclosed their procedures.


Date of Report: March 24, 2010
Number of Pages: 44
Order Number: R41140
Price: $29.95

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