Health Inflation, Wealth Inflation, and the Discounting of Human Life

XiXiDu

Abstract:

This Article presents two new arguments against “discounting” future human lives during cost-benefit analysis, arguing that even absent ethical objections to the disparate treatment of present and future humanity, the economic calculations of cost-benefit analysis itself - if properly calculated - counsel against discounting lives at anything close to current rates. In other words, even if society sets aside all concerns with the discounting of future generations in principle, current discounting of future human lives cannot be justified even on the discounters’ own terms. First, because cost-benefit analysis has thus far ignored evidence of rising health care expenditures, it underestimates the “willingness to pay” for health and safety that future citizens will likely exhibit, thereby undervaluing their lives. Second, cost-benefit analysis ignores the trend of improved material conditions in developed countries. As time advances, residents of rich countries tend to live better and spend more, meaning that a strict economic monetization of future persons values the lives of our expected descendents above those of present citizens. These two factors justify “inflation” of future lives that would offset, perhaps completely, the discount rate used for human life. Until regulators correct their method of discounting the benefits of saving human lives in the future, the United States will continue to suffer the fatal costs of underregulation, and agencies will remain in violation of legal requirements to maximize net benefits.

Link: papers.ssrn.com/sol3/papers.cfm?abstract_id=1845504

Paper (PDF): SSRN-id1845504.pdf

Via: marginalrevolution.com/marginalrevolution/2011/06/dont-apply-positive-discount-rates-to-human-lives.html

Abstract:

This Article presents two new arguments against “discounting” future human lives during cost-benefit analysis, arguing that even absent ethical objections to the disparate treatment of present and future humanity, the economic calculations of cost-benefit analysis itself - if properly calculated - counsel against discounting lives at anything close to current rates. In other words, even if society sets aside all concerns with the discounting of future generations in principle, current discounting of future human lives cannot be justified even on the discounters’ own terms. First, because cost-benefit analysis has thus far ignored evidence of rising health care expenditures, it underestimates the “willingness to pay” for health and safety that future citizens will likely exhibit, thereby undervaluing their lives. Second, cost-benefit analysis ignores the trend of improved material conditions in developed countries. As time advances, residents of rich countries tend to live better and spend more, meaning that a strict economic monetization of future persons values the lives of our expected descendents above those of present citizens. These two factors justify “inflation” of future lives that would offset, perhaps completely, the discount rate used for human life. Until regulators correct their method of discounting the benefits of saving human lives in the future, the United States will continue to suffer the fatal costs of underregulation, and agencies will remain in violation of legal requirements to maximize net benefits.

Link: papers.ssrn.com/sol3/papers.cfm?abstract_id=1845504

Paper (PDF): SSRN-id1845504.pdf

Via: marginalrevolution.com/marginalrevolution/2011/06/dont-apply-positive-discount-rates-to-human-lives.html

It seems the quite interesting arguments about discount rates are marred by the political points the author wants to make. While not discounting might suggest we should regulate some areas more, there are other areas we'd want to regulate less, especially if regulation slowed the rate of growth at all.