When is a Man's Life Worth More Than His Human Capital

Abstract

In this paper we use a simple one-period choice model to remove some of the sting from the paradox of pricing the priceless. We show that there is a simply described, though less easily measured concept of the "value of life" that is appropriate for measuring the benefits or costs of a broad class of public projects that save or expend human lives. this value can be decomposed in a simple way into the direct and pecuniary effects of a change in survival probability. The pecuniary effects, which are the consequence of the effects of a change in survival probability on the budget, can be related in a simple way to the human capital, net output, and insurance measures. We are able to find a reasonably easily interpreted condition on preferences that determines whether a man's human capital is too large or too small a value to place on a life saved. We argue that the presence of interpersonal benevolence would not in general imply that lives saved should be valued more highly than in a selfish world. Finally, we consider a model of private safety in which actuarially fair insurance is unavailable.