Cost-Benefit Analysis and Relative Position

Abstract

Current estimates of regulatory benefits are too low, and likely far too low, because they ignore a central point about valuation - namely, that people care not only about their absolute economic position, but also about their relative economic position. We show that where the government currently pegs the value of a statistical life at about $4 million, it ought to employ a value between $4.7 million and $7 million. A conservative reading of the relevant evidence suggests that when government agencies are unsure how to value regulatory benefits along a reasonable range, they should make choices toward or at the upper end.