Valuing Life_ A Plea for Disaggregation

2004] VALUING LIFE 435
programs that benefit them, the autonomy argument for WTP is
greatly reduced; they are enjoying a benefit (partly) for free, and it
does not insult anyone’s autonomy to give them a good on terms that
they find acceptable. Note that these points do not bear directly on
the question of whether VSL should vary across risks. But they do
bear on the issue of varying VSL across persons, and in particular
across disparities in income and wealth.
Suppose, for example, that beneficiaries of a proposed drinking
water regulation are willing to pay only $80 to eliminate a risk of
1/50,000. Assume, in addition, that the per-person cost of eliminating
a 1/50,000 risk is $100—but that for every dollar of that cost, the
beneficiaries pay only $.80. The remaining $.20 might be paid by
water companies themselves, in the form of reduced profits, or by
employees of the water companies, in the form of reduced wages and
fewer jobs. In this example, the costs of the regulation exceed the
benefits: it is inefficient. But by hypothesis, the regulation makes its
beneficiaries better off. If the WTP criterion is used, the fact that the
monetized costs exceed the monetized benefits is decisive. But as a
normative matter, the analysis here is far harder than in the easy
cases. On what assumption should the WTP numbers be decisive?
The assumption must be that economic efficiency is the goal of
government, at least in the context of regulation—that to know what
to do, government should aggregate the benefits and costs of
regulation, and act if and only if the benefits exceed the costs. When
using the WTP numbers, government is acting as a maximization
machine, aggregating all benefits and costs as measured by the WTP
criterion. But this is a highly contestable understanding of what
government should be doing. In fact it represents a shift from the
relatively uncontroversial Pareto criterion, exemplified above, to a
version of the far more controversial Kaldor-Hicks criterion, 178 which
assesses policy by asking this question: Are the gainers winning more
than the losers are losing? The Kaldor-Hicks criterion is sometimes
described as potential Pareto superiority, 179 because it asks whether in
principle, the winners could compensate the losers, and a surplus
178. It is only a version of that criterion, because it is measuring welfare in monetary
equivalents. A direct assessment of welfare, if it were possible, might justify the regulation in
question on Kaldor-Hicks grounds.
179. See, e.g., RICHARD A. POSNER, ECONOMIC ANALYSIS OF LAW 13 (6th ed. 2003) (“The
Kaldor-Hicks concept is also and suggestively called potential Pareto superiority: The winners
could compensate the losers, whether or not they actually do.”).