This question came up while I was reading Mr. Roadshow’s column today. More on him in a minute. For now I want to use some data he wrote about today to calculate how much a human life is worth. The issue is California’s specially formulated gasoline that reduces air pollution. Let’s do some cost-benefit analysis.
The Basics
Licensed Drivers by State (click for larger image)
According to the StateMaster website there are 22,657,288 licensed drivers in California. Mr. Roadshow cites a University of Michigan study showing California’s ultra-clean gasoline saves 660 lives per year. In exchange, each driver pays a higher price for gas. How much higher?
“And the cost? A study in March by Severin Borenstein, a professor of business at UC Berkeley, concluded that reformulated gasoline costs the average California motorist $37 to $51 a year, since not all of the difference between the U.S. average price and California’s gas prices is attributed to the cleaner-burning fuel.”
Prof. Borenstein is a respected expert in this field, so let’s use his numbers. Multiplying his cost per year estimates (high and low) by the number of licensed drivers gives a total annual cost between $838,319,656 and $1,155,521,688 per year. Dividing each number by lives saved per year (660) gives the implied value of a human life: between $1,270,181.30 and $1,750,790.44.
Cost per Life Saved
Is this too much? Too little? That’s a policy question. I will say that the generally accepted figure is around $5,000,000.[1] My best guesstimate is that benefits exceed costs. But I have to add that I’d like more information on that claim of 660 lives saved per year.
A Counterfactual
Let’s do a counterfactual. How many lives per year would need to be saved to raise the cost to $5 million? That’s easy. The number of lives needing to be saved per year is simply the total cost per year divided by the cost per life saved — in this case, $5 million. The number of lives that need to be saved for costs to equal benefits is between 167.66 and 231.10. California’s population is 38.8 million. My guess is that saving around 200 lives per year with cleaner gas is very likely.
Required Lives Saved
Mr. Roadshow
Gary Richards
Mr. Roadshow is the nom de plume of Gary Richards in the San Jose Mercury-News. In his column, he answers questions about cars, road conditions, and all things automotive. And he does this in six issues a week.
As always my methods are transparent. Click here to download the Excel workbook.
[1] Tom Tietenberg and Lynne Lewis, Environmental and Natural Resource Economics (9th edition, 2012). ISBN 978-0-13-139257-1. Addison-Wesley. Chapter 4 includes a long discussion of this topic.
