The Value of Changes in the Probability of Death or Injury

Abstract

One of the more puzzling questions encountered in public investment decision making (especially in the health and transport fields) concerns the value placed on improvements (or reductions) in the safety of human life. Schelling (1968) appears to have been the first to suggest that any potential change in the fatal (or nonfatal) accident rate may be regarded as a (typically small) change in the probability of death (or nonfatal accident) for any particular individual. Mishan (1971) takes a similar view of the problem and argues that, if alternative resource allocations are to be compared solely on the basis of "potential Pareto improvements,'' then public investment projects which increase the safety of human life wilI be recommended only if the total of sums which individuals would be prepared to forfeit to effect such probability changes (and the other desirable consequences of the investment) exceeds the capital costs of the projects concerned. Given the manner in which Schelling and Mishan formalize the problem, the central question is therefore the nature of the Hicksian "compensating variations" in wealth[1] for various changes in probability of death or injury. In fact, even if Mishan's potential Pareto improvement criterion is rejected as a basis for allocative decisions, information concerning these compensating variations will still be relevant for all but those public investment decisions which completely ignore private preferences. [ABSTRACT FROM AUTHOR] Copyright of Journal of Political Economy is the property of University of Chicago Press and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)