Sun, 15 Aug 2004

The Cost of a Man

What is the cost of a man? Poets and philosophers have tried to answer that question for centuries. Give an economist space to try.

The cost of a person's death is the loss of their productive output. Some people are very much more productive than other people. A Hemingway, a Mozart, a Monet, or an Einstein, all have had a greater impact on society than a Smith, a Baker, or a Barber. Can we then say that some people's death would have cost society more than others? Only weakly. Once someone is dead, they're dead. The future is closed to us; their future is closed to us.

We cannot value a person by looking at their death. We can only value a person by looking, not at their life, but what they would trade for their life. People do dangerous things all the time. Driving down the road is dangerous enough. People are trading (a risk to) their life all the time. That means that we can conclude that people do not value their lives infinitely.

How to determine how much someone values their own life? You can look at it by how much life insurance they buy. That's not a very good metric, though, because people are not often in such a risk of their lives that they purchase all the insurance they need. A better metric is to look at the actions of people with hazardous jobs, for example an explosives truck driver. They're much more likely to look at the risk, and decide how much risk they're willing to bear for how long. That risk, carried out, is how much they value their lives.

I won't hold you in suspense any longer. The figure comes out to about $1.2 million. It's not an unreasonable number. It's about $26K per year over a 45 year productive lifetime.

Thanks to David D. Friedman for doing the actual research behind this, and publishing it in his excellent book Hidden Order.

Posted [12:13] [Filed in: economics] [permalink] [Google for the title] [digg this]