Valuing mortality risk in the time of covid-19

James K. Hammitt (Harvard University)

June 5, 2020, 14:00–15:00

Room Zoom Video

TSE/IAST workshop on Covid-19 and Economics


: In evaluating the appropriate response to the covd-19 pandemic, a key parameter is the rate of substitution between mortality risk and wealth or income, conventionally summarized as the value per statistical life (VSL). For the United States, VSL is estimated as approximately $10 million, which implies the value of preventing 100,000 covid-19 deaths is $1 trillion. Is this value too large? There are reasons to believe so. First, VSL is a marginal rate of substitution and the potential risk reductions are non-marginal. Standard theory implies the rate of substitution of wealth for risk reduction decreases with the magnitude of the reduction, but the rate of decrease is slow enough that the implied value of non-marginal risk reductions seems implausibly large. Second, mortality risk is concentrated among the elderly, for whom VSL may be smaller and who would benefit from a persistent risk reduction for a shorter period, because of their shorter life expectancy. In contrast, VSL is plausibly larger for risks (like covid-19) that are dreaded, uncertain, and ambiguous. These arguments are evaluated and key issues for improving estimates are highlighted.