The Value of a Statistical Life: Evidence from Panel Data

We address long-standing concerns in the literature on compensating wage differentials: the econometric properties of the estimated value of statistical life (VSL) and the wide range of such estimates. We confront prominent econometric issues using panel data, a more accurate fatality risk measure, and systematic application of panel data estimators. Controlling for measurement error, endogeneity, latent individual heterogeneity possibly correlated with regressors, state dependence, and sample composition yields VSL estimates of $4 million to $10 million. The comparatively narrow range clarifies the cost-effectiveness of regulatory decisions. Most important econometrically is controlling for latent heterogeneity; less important is how one does it. © 2011 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.