What is the value of life in Africa?

In the UK, the department of transport uses a figure of £1.2m per human life when carrying out cost benefit analysis for new transport projects, for example the building of a new, safer road. I'm not sure the road agencies in Africa attempt the same level of analysis but perhaps it is a useful concept to explain road safety, or the lack of it...

Let us start with a couple of examples:

On day 3 of my trip, an overloaded taxi tried to overtake our support vehicle when road marking clearly showed this to be illegal. The resulting crash fortunately didn't cause any loss of life. Had it been the taxi that rolled rather than our own land cruiser, it might have been a different story.

My Friend Mark walks away after we pulled him out of the wrecked truck.

On numerous occasions, I've seen buses overtaking each other on blind summits and corners. Whilst I haven't witnessed any more direct accidents, vehicle carcasses on the side of the road are testament to their regular occurrence.

When you were growing up, Mummy may have told you that you were priceless. Perhaps she still does.  Either way, the drivers out here obviously don't think so. Putting a value on a human life is usually the province of poets & philosophers, but I'm going to attempt it from an economic angle, by considering what value people implicitly put on their own life through their actions. After all, computing such a value is essential in government policy when externalities are involved - not just transport but health (cost effectiveness of new drugs), insurance, worker safety, environmental protection etc

And people say economists aren't normal?!

Plenty of research has already been done on this: my form of basic 'literature review' (you'd better get used to having to do this if you go to university!) reveals quite a range. The New York Times, for example, reports that the US environmental protection agency uses $9.1m whilst its department of transport $6m. The Israeli government last month recently negotiated the release of one its soldiers, Gilad Shalit, held prisoner by Hamas in exchange for hundreds of Palestinian Soldiers. Meanwhile, research by the philosopher Peter Singer  suggests the cost of saving a life in the developing world ranges from around $250 (about £160) - $3,500 (£2,270).

What methods can we use to put a value on a life? Philosophers aside, we economists revert to type and think marginal cost: what is the marginal cost of death prevention?! Two methods can be used to ascertain this: revealed & stated preference.

Revealed preference is effectively looking at "how much are people willing (and able) to pay to avoid risk of death?” or “how much do people demand to be compensated in order to be willing to face increased risk of death?”.

The problem with trying to use this method for my original examples requires there being a choice for consumers, or the passengers getting the aforementioned buses. In Africa, there often isn't a train and they can't afford a car. Getting on that kamikaze bus is often the only option and it isn't their choice whether seatbelts are provided. However, on my current route from Mbeya to Dar-es-aleem in Tanzania, there is a choice, both costing a similar amount of money: For this journey of approximately 900kms, the train takes 24hours (when on time!) but is safer. A bus meanwhile takes around 12 hrs.i.e. you save a day. You could of course cycle (10 days) but let us keep it simple for now! Lets assume that there is a 0.01% (1 in a thousand) chance of dying on the bus and a 0.05% chance on the train (sorry, I couldn't find the proper statistics).  if people make $2 per day, but are willing to increase risk of death by 0.05 percentage point to save 1 day, then they must value their lives at most $2/0.05% = $4000.

Of course, it assumes the dreaded 'ceteris paribus' and that consumers are rational. All other things are of course not equal - lots of other factors come into a decision and consumers are of course emmotional and very different.

As Juilian Baggani explained in a recent BBC article, the problem is that people are generally terrible at making rational decisions about risk. He uses the example of the many Americans who avoided planes after 9/11 and travelled by road instead. As a result, a team of researchers from Cornell University estimated there were at least 1,200 more deaths on America's roads than there would have been. Some 1,200 people died because they were avoiding what they perceived to be a riskier form of transport, 954 more than who died on the planes used for the terrorist attacks.

The other method, that of stated preference, looks at what people actual think they value their life. For example, by carrying out a questionnaire asking people how much they would be willing to pay for a reduction in the likelihood of dying, perhaps by purchasing safety improvements. Take a rear view mirror for cyclists. I'd estimate based on my experience of the last 3 months that this has reduced my own chances of dying by about 0.1%. A random poll of 10 local cyclists I've met (OK so a big sample bias here) would pay around $1. Using a similar methodology as above that would equate their value of life at some $1000 - lower than before but still way off the value we might find in the UK.

If I'm prepared to pay £200 for a wing mirror, what does it tell you about the value I place on my own life?

Apologies for this morbid discussion but it does help to explain a few things - including why there is less regard for safety on the roads here than in Europe. More generally, it is crucial for governments having to make any policy that involve a trade-off between cost and lives saved. The seventh billion person being born on planet earth this year during the worst global recession since the 1930s highlights the importance of such a trade-off. It also raises a few other issues: as Mr Baggani highlights, should government decisions about risk reflect the often irrational foibles of the populace or the rational calculations of sober risk assessment? Should our politicians opt for informed paternalism or respect for irrational preferences?

I let you mull over that. In the meantime, what does undertaking this trip tell you abut the value I place on my own life. Using the example above, I got my mirror for free, thanks to sponsorship from Topeak. If I lost it and had to pay for a new one, I would now be willing to pay £200 for it. I'll let you do the Math...

References:

Is driving more dangerous than flying through ash?
BBC, 21 April 2010

http://news.bbc.co.uk/go/pr/fr/-/2/hi/uk_news/magazine/8633484.stm

As U.S. Agencies Put More Value on a Life, Businesses Fret, New York Times, Feb 16th 2011

http://www.nytimes.com/2011/02/17/business/economy/17regulation.html?pagewanted=all

Viscusi, Kip; Joseph E. Aldy (2003). "The Value of a Statistical Life: A Critical Review of Market Estimates Throughout the World". JOURNAL OF RISK AND UNCERTAINTY 27 (1): 5-76.