THE ALLOCATION OF SCARCE RESOURCES TO LIFE-SAVING PROGRAMS, WITH AN APPENDIX ON THE ECONOMIC VALUE OF HUMAN LIFE

Legislators, and public officials in general, have often been criticized by economists for not equalizing the marginal costs of the different government-controlled "life-saving" programs. Although these economists have not provided formal models to support their criticisms, they assume that an equalization of the so-called "implicit values per life saved" is a necessary condition for efficiency in the allocation of public resources. In this dissertation, we develop a very simple general equilibrium model that is consistent with the "willingness to pay" approach to life valuation. This model is subsequently used to prove that the above recommendation can only be sustained under rather unrealistic assumptions on the individuals' preferences regarding death and dying; when one brings more realistic assumptions on the individuals' preferences into the analysis, the reasons favoring equality in marginal costs seem to vanish. Under these circumstances, we argue, an eventual equalization of marginal costs would entail a cost in terms of social welfare. An estimator for that cost is provided.;Finally, in an appendix we discuss in detail several of the major problems that arise when one tries to estimate the economic value of human life. In particular, we explain the relationship between the "willingness to pay" and the "human capital" methods of valuation.;Lawmakers often issue regulatory legislation setting maximum acceptable levels of risk to life for a number of economic activities, thereby setting minimum values for the expenditures required on the corresponding life-saving programs. We prove that in such cases, "efficiency" considerations do not require us to introduce any change in the optimal structure of the relative marginal costs of unregulated life-saving activities. Nevertheless, these same "efficiency" considerations may require us to set the expenditure levels of the programs affected by "political minima" well above the levels required by the legislators.