The Value of Life and Health

National audienceIndividuals and society value safety, but safety does not have an easily available market price. This is a problem for cost-benefit analysis (CBA), which is a powerful tool to evaluate government policies, as it requires that all benefits and costs are measured in a common metric, which usually is money. Often the monetary value to reduce fatality risk is defined as the value of a statistical life. This chapter explains this concept and describes the theoretical and empirical models used to monetize safety. The theory is based on the assumption that individuals’ preferences can be represented by their willingness to pay or willingness to accept for a change in the safety level, which then can be elicited with empirical methods usually referred to as nonmarket valuation methods. The methods described in the chapter are well established and have been used in several countries to obtain monetary values that are used for policy purposes like CBA