Getting control over the coronavirus has created enormous economic disruptions throughout the world. These efforts also generate health benefits, but how does the value of the risk reductions compare with the economic losses? Fortunately, there are accepted economic approaches for valuing these health effects to convert them into monetary terms, facilitating possible comparison with the economic costs.
Reducing mortality risks from coronavirus is just as real an economic cost as are the financial losses associated with shutdowns and social distancing policies. As indicated in my book, Pricing Lives: Guideposts for a Safer Society (Princeton University Press, 2018), the dominant policy approach to monetizing mortality risk reductions is the value of a statistical life (VSL). The VSL represents risk-money tradeoff for small changes in risk. My VSL estimate for the US is $10 million, which is based on estimates of the extra wages that workers receive for facing increased fatality risk at work. Thus, a worker who receives extra pay of $1,000 to face a risk of 1/10,000 has a value per unit risk, which is the VSL, or $1,000/(1/10,000) = $10 million. The VSL varies with countries’ income levels, as do many other expenditures. My estimates of the pertinent VSL levels for the countries that have experienced the greatest number of deaths thus far from coronavirus to date are $6.4 million for Italy, $2.5 million for China, and $6.1 million for Spain.
At the present time, over 20,000 people worldwide have died from coronavirus. These figures indicate that we are dealing with a major lethal threat. For purposes of assessing policy options, what matters is not the number of people who have died but the number of people whose deaths could be prevented through appropriate policies. That number is not known with precision, but must be estimated. To assess the value of these coronavirus policies, one multiplies that expected number of lives saved by the VSL. For example, if effective US policies could avert 1 million deaths, then the economic value of these benefits would be $10 million per expected death x 1 million expected deaths, or $10 trillion, which is a quite large number, even in comparison with the enormous economic costs.
Some policy critics note that many of the people who die from coronavirus were already in ill health and had short life expectancy. Is it appropriate to apply these substantial VSL estimates to the increased mortality risks when the foregone life expectancy is very short? In such instances, it is preferable to apply the value of a statistical life year (VSLY), which is based on the annual discounted value of the VSL on an annual basis. The VSLY varies with age but has an average value of just under $500,000 for US workers. If all of the 1 million people who are saved by our hypothetical policy gain only a single expected life year, the economic value of the reduced mortality would still be substantial, or $500 billion. Still a huge saving.
© W. Kip Viscusi
W. Kip Viscusi is the University Distinguished Professor of Law, Economics, and Management at Vanderbilt University, USA
Read more opinion pieces on the coronavirus crisis:
"Coronavirus and the labor market," by Daniel S. Hamermesh
"Fighting a coronavirus recession," by Daniel S. Hamermesh
"Pandemics and the labor market—Then and now," by Karen Clay
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