What can empirical utility functions tell us about the value of a statistical life?

Abstract

This paper explores how utility functions for income and health state can be applied in order to develop closed-form estimates of the value of a statistical life based on an assumption of utility maximisation. For utility functions fitted to the results of studies of life satisfaction in Norway, most estimates of the value of a statistical life are quite low, in the range of 2–30 million NOK. These estimates refer to reducing the risk of a traffic fatality, which currently is about 20 per 1 million inhabitants in Norway. These estimates are lower than nearly all estimates developed in a road safety valuation study made in 2010. By combining utility functions for health impairments and utility functions for income, it is possible to estimate the monetary compensation for a health impairment needed to restore the initial level of utility. These estimates can be extrapolated to obtain estimates of the value of a statistical life.