Valuation of road safety effects in cost–benefit analysis

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Abstract

Cost–benefit analysis is a common method for evaluating the social economic impact of transport projects, and in many of these projects the saving of human lives is an issue. This implies, within the framework of cost–benefit analysis, that a monetary value should be attached to saving human lives. This paper discusses the ‘Value of a Statistical Life’ (VoSL), a concept that is often used for monetising safety effects, in the context of road safety. Firstly, the concept of ‘willingness to pay’ for road safety and its relation to the VoSL are explained. The VoSL approach will be compared to other approaches to monetise safety effects, in particular the human capital approach and ‘quality adjusted life years’. Secondly, methods to estimate the VoSL and their applicability to road safety will be discussed. Thirdly, the paper reviews the VoSL estimates that have been found in scientific research and compares them with the values that are used in policy evaluations. Finally, a VoSL study in the Netherlands will be presented as a case study, and its applicability in policy evaluation will be illustrated.

Introduction

In the field of traffic and transport the saving of human lives is an issue in many policy decisions. An integral assessment must then be made of invested resources, the saving of lives, and other effects of an intervention. This means that a value is attached to the saving of human lives, be it implicitly or explicitly. In a cost–benefit analysis (CBA) this is explicitly done by attaching a monetary valuation to the safety effects. This enables weighing the saving of human lives against other effects and costs. The valuation of human lives in Euros is necessary for CBAs which are often carried out or even are compulsory in many countries. Such a valuation does not only take someone's production capacity (‘human capital’) into account, but also appraises immaterial aspects such as joy of life, health and the prevention of sorrow, pain, and distress.

In addition to the use in a CBA there is a second reason to monetise human losses: this type of damage is an important item in the total costs as a consequence of road crashes. Information about road safety costs is a useful input for the preparation and assessment of the national road safety policy. The total road safety costs can also be used for a comparison with the costs of other social problems like the safety costs of modes of transport other than road traffic, other types of unsafety (e.g. unsafe work), congestion, or the environmental damage caused by road transport. Furthermore, it gives us insight in the possibilities for cost reduction and it can be used for prioritizing policy targets. Studies of the social costs of road crashes in various countries show that human losses are a substantial part of the total costs: a share of 50 to more than 75% of the total costs is no exception (e.g. Elvik, 2000).

This paper discusses the ‘Value of a Statistical Life’ (VoSL), a concept that is often used for monetising safety effects, in the context of road safety. Firstly, the concept of ‘willingness to pay’ for road safety and its relation to the VoSL are explained. The VoSL approach will be compared to other approaches to monetise safety effects, in particular the human capital approach and ‘quality adjusted life years’. Secondly, methods to estimate the VoSL and their applicability to road safety will be discussed. Thirdly, the paper reviews the VoSL estimates that have been found in scientific research and compares them with the values that are used in policy evaluations. Finally, a VoSL study in the Netherlands will be presented as a case study, and its applicability in policy evaluation will be illustrated.

Section snippets

The concept ‘Value of a Statistical Life’

In order to value safety effects in monetary terms, including human costs, the concept of the Value of a Statistical Life (VoSL) was developed and is now used in several countries. This ‘statistical human life’ can be illustrated by the following example. The chance of a fatal crash of, for instance, 7 per 100,000 inhabitants means that, statistically, each year 7 out of every 100,000 people will die in a road crash. A decrease from 7 to 4 road deaths per 100,000 means that 3 of every 100,000

Valuation methods and their applicability to road safety

Various methods have been developed to measure ‘willingness to pay’. The two most important groups of methods are revealed preference (RP) and stated preference (SP) methods. RP methods value risk reductions based on actual behaviour, for example on how much money people actually spend on safety provisions, while SP methods use questionnaires in which people, directly or indirectly, are asked about how much they are willing to pay for safety provisions. Theoretically, RP methods are better than

Meta-analyses of VoSL estimates

In various countries research has been carried out to determine the VoSL, and a number of reviews have been published. To give an indication of the VoSL estimates that have been found in the literature, we will briefly discuss three studies. Firstly, a Canadian study examined the results of 85 VoSL studies (Dionne & Lanoie, 2004). Of these studies, 28 investigated road safety and the remainder looked at other types of safety, such as work safety. The road safety studies found an average VoSL of

VoSL used in policy

There are also several publications that contain international surveys of the VoSLs that countries use for policy research. The VoSL can be the result of a study in a country or it can be a value that has more or less been officially determined by the government for policy research. These values are often (much) lower than the values that have been found in scientific research. For example, de Blaeij, Koetse, Tseng, Rietveld, and Verhoef (2004) made an inventory of the most up-to-date official

VOSL research

Until recently the Netherlands did not have a well-founded VoSL. For this reason the ‘OEI guideline’ (OEI stands for Overview Effects of Infrastructure and is a guideline for evaluating projects on the basis of a cost–benefit analysis) does not give a standard value for the VoSL, whereas it does for travel time. The guideline refers to a € 1.5 million value in a European study, but also recommends determining the VoSL on the basis of specific research. This void has been filled by a study of

Applications of VoSL in the Netherlands

In the Netherlands, there are two ways in which the VOSL is used in road safety policy. Firstly, the VOSL is used to estimate the social costs of road crashes. The estimates of the costs of road crashes are used by Dutch policy makers, mainly in the Ministry of Transport (e.g. in the latest Mobility Policy Document; Ministry of Transport, 2004). In addition to the three cost categories medical costs, production loss, and human costs that are related to fatalities and injuries, three other cost

Conclusions

An increasing number of countries use the VoSL to calculate the human losses of fatal road traffic crashes, after deduction of the consumption loss. Considering their size, these costs cannot be ignored in calculating the costs of crashes and the benefits of road safety measures and mobility projects. It must be strongly advised to separately determine the VoSL for each country, because the valuation depends on many factors that differ strongly between countries. As these factors can undergo

Wim Wijnen is an economist and researcher at the Institute of Road Safety Research SWOV. His research activities are focused on cost-benefit analysis, cost-effectiveness analysis, effectiveness of countermeasures, monetary valuation of road safety and social economic costs of road crashes. Wim Wijnen has participated in a large number of national and international research projects in the field of road safety and economics.

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      The Value of a Statistical Life (vosl) concept consists of two parts: material and an immaterial part. The material part, which is formed by all the utility that can be acquired by market transactions, consists of the loss of consumption in the life years lost: the no longer being able to consume whereas the immaterial part represents things that have no (market) price such as the loss of joy of life and the value of pain, sorrow and distress of the casualties and their realatives, also called human losses (Wijnen et al., 2009). The two most important methods used to measure the wtp are revealed preference (rp) and stated preference (sp) methods.

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      The VSL does not reflect the value of individual lives, but statistical lives saved, since it is based on the willingness to pay for reducing the probability of dying in a road crash. The VSL includes human costs and consumption loss [10]. Consequently, human costs are calculated by deducting consumption loss from the VSL.

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      Another method used to value a statistical life, although rarely used nowadays, is the human capital approach, which determines the VSL as the present value of the expected future income stream of an individual. This approach only considers material losses because it only values lost production2; however, individuals value not only production/consumption but also life itself. In contrast to the WTP/willingness-to-accept approach (eg, compensating-wage differentials), which captures both material and immaterial components of the VSL, the human capital approach ignores the value individuals or society place on life apart from earnings and any reductions in VSL owing to pain and suffering.

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    Wim Wijnen is an economist and researcher at the Institute of Road Safety Research SWOV. His research activities are focused on cost-benefit analysis, cost-effectiveness analysis, effectiveness of countermeasures, monetary valuation of road safety and social economic costs of road crashes. Wim Wijnen has participated in a large number of national and international research projects in the field of road safety and economics.

    Paul Wesemann is a senior researcher and project manager at the Institute of Road Safety Research SWOV. He is an international road safety expert and has published a large number scientific journal articles or reports. Paul Wesemann's work focuses, among others, on evaluation of national road safety programmes, social economic cost of the road crashes, assessment methods of regional road safety plans, and decision analyses of national and regional road safety plans.

    Arianne de Blaeij is an economist and wrote a PhD thesis about the value of a statistical life in the Netherlands. She currently works at the Agricultural Economics Research Institute.

    1

    Tel.: +31 703173351.

    2

    Tel.: +31 703358304.

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