Using Preference Calibration for VSL Estimation
Smith, V. K., Pattanayak, S. K., & Van Houtven, G. (2003). Using Preference Calibration for VSL Estimation.
To evaluate the benefits of public health and safety programs, considerable attention has focused on the measurement of the economic value of reducing risks to life. The benefits of reductions in mortality risks are typically evaluated using a “unit price” for avoided premature deaths– i.e., the value-of-statistical life (VSL) estimates – which are mostly drawn from wage-risk hedonic studies. In this paper we propose an alternative benefit transfer approach -- preference calibration – for valuing mortality risks. We demonstrate how wage-risk estimates can be supplemented with information from contingent valuation and labor supply studies and linked to a common preference structure. By combining information in this way, it is possible to calibrate parameters of the preference function and develop a WTP function for avoided mortality risks that is inherently more consistent with utility theory.