The Value of a Statistical Life: Evidence from Panel Data

article published economic reviewThis article addresses fundamental long-standing concerns in the compensating wage differentials literature and its public policy implications: the econometric properties of estimates of the value of statistical life (VSL) and the wide range of such estimates. Here we address most of the prominent econometric issues using panel data, a new and more accurate fatality risk measure, and systematic application of panel data estimators. Controlling for measurement error, endogeneity, latent individual heterogeneity that may be correlated with the regressors, state dependence, and sample composition yields estimates of the value of a statistical life in the range of about $6 million to $10 million. This comparatively narrow range greatly clarifies the assessments of the cost-effectiveness of regulatory decisions. We show that probably the most important econometric issue is controlling for latent heterogeneity; less important is how one does it