Chapter 8 Environmental Regulation and the Valuation of Life: Interindustry Mobility and the Market Price of Safety

Abstract

Publisher Summary Public policy debates over environmental regulations for health and safety hazards have often centered on cost-benefit analysis in which the critical parameter is the implied value of life. This necessity to evaluate environmental policy affecting human life in dollar terms is becoming increasingly common in both the United States and Europe. For example, in the United States the FAA proposal in 1985 for all airline manufacturers to strengthen seats depended critically on the assumed value of life estimates. This chapter examines the valuation of life from the economist's perspective of compensating wage differentials. Empirical studies of compensating wage differentials attributable to risk in the workplace assume, most often implicitly, that workers' willingness to pay for risk reduction (safety) is equal to the market “price” of providing this reduction. Thus, it is assumed that labor markets are observed in a state of pure competition in long-run equilibrium. In this regard, workers and their employers are believed to possess perfect information regarding work hazards, the likelihood of adverse outcomes stemming from these hazards, and the cost of providing additional safety in the work place.