Identifying the Legitimate Role of the Value of a Statistical Life in Legal Contexts

This article is based on my keynote address at the American Academy of Economic and Financial Experts conference in which I examined some of the implications for legal contexts of my book, Pricing Lives: Guideposts for a Safer Society. The value of a statistical life (VSL) provides an economic measure of the efficient cost-risk tradeoff rate for mortality risk decisions. Consequently, the VSL is well suited to serving as a measure of the benefits of mortality risk reduction for government regulatory policies and for corporate risk decisions. The tort liability counterpart of this function is using the VSL to assess the possible negligence of corporate risk decisions. Setting total damages equal to the VSL also can provide efficient levels of deterrence in punitive damages contexts. Unlike situations of property damage losses for which making the victim whole leads to efficient levels of insurance and deterrence, in personal injury contexts, damages amounts that create efficient deterrence incentives do not also provide the efficient levels of insurance. Hedonic damages based on the VSL exceed the efficient level of insurance in wrongful death cases.