Cost/benefit analysis and the valuation of human lives

2011-12-12T16:08:00.000-08:00

Despite the difficulties in conducting cost/benefit analysis on complex issues, like the interconnections between human activity and climate change, the Copenhagen Consensus* see it as their obligation to try and do so. They try to calculate the value of human lives using several methods of cost/benefit analysis (CBA) and DALY-valuations (Disability-Adjusted Life Year). They argue that valuations are necessary, and 'difficult' calculations have to be made.

The Copenhagen Consensus works from an assumption that economist tools can provide insights into forging efficient methods and policies for dealing with global problems (Lind & Schuler in Harris 2001). Additionally there is an assumption that principles of sustainability can usefully be expressed in standard economic terms like costs, utility and maximization (Harris 2001): Investments in solutions have economic benefits which one should try to maximize, and objectives should be ranked accordingly to prioritize which problems to address first. Choices are judged by the respective sum of total utilities it generates (Sen 1999). The Copenhagen Consensus use a market logic saying that by maximizing investment benefits (growth) one will drive the efficient allocation of resources and thus maximize (sustain) personal welfare. They are thus promoting weak sustainability, taking into account the environment as long as it is associated with human welfare.

Quantifying the value of human lives through economic analysis has the potential to create better, comparable policies, based on impersonal forces without value laded or emotional motives. Cost and benefit analysis are attractive to decision makers who find it easier to convey policies based on this type of ‘hard’ data and the aim of making the most out of the limited resources that society have to solve problems; ‘getting the most for less’. The Copenhagen Consensus also works within the current economic system with a belief in the market mechanism capability to adapt to changes. It does not demand major efforts in restructuring society.

However, valuation in monetary terms can give at best only partial view of reality (Harris 2001). There is an element of neoclassical 'presentism' in the Copenhagen Consensus that see sustainability only as efficient resource use. What about future generations for example? The long-term costs are uncertain but possibly very large. It is difficult to determine an appropriate discount rate for weighing future costs and benefits due to uncertain externalities (Martinez-Alier in Harris 2001). The discount rate calculated often favor short-term investment but CBA can also be wrong and overestimate the economic benefits, leading to wrong decisions (Monbiot (1)).

Alternative ways to prioritize projects
The precautionary principle presents an alternative approach to CBA’s linear focus. Even if benefits outweigh costs (which can be due to overestimated benefits) there is a need to prioritize projects that keep a certain minimum level that take into account uncertain long-term costs and ‘unknown unknowns’.

One can try to translate human lives values into monetary terms to fit the current economic practices, where markets are presumed to be the best and most efficient allocator of resources (Harris 2001), but there is no guarantee that the market will distribute the resources. The CBA tells how to create most value for less, and “sum-rank” according to utility but nothing about equal distribution of these values. The valuation of human lives like simple commodities easily makes poor people losers as they can be considered not to contribute to society. But given Sen’s (1999) capability approach, people should be given substantive freedoms. This should be the target; increase capabilities, so people will contribute to growth despite the initial ‘low value’ of their lives according to CBA.

* For more detail take a look at www.copenhagenconsensus.com

Literature
- Harris, J. M. (2001), “Overview Essay” in Harris J. M., Wise, T. A., Gallagher K. P., and Goodwin N.R., A Survey of Sustainable Development – Social and Economic Dimensions, Island Press.
- Sen, A. (1999), Development as Freedom. Oxford University Press
- (1) Monbiot.com: http://www.monbiot.com/archives/2008/02/19/an-exchange-of-souls/ (Assessed May 10. 2010)

To blog or not to blog-blog...

2011-12-08T15:58:00.000-08:00

So many times now I have thought about making myself a blog, reflecting my current state of mind, interests and things that trick my critical senses, and also publish some of the things I have written during my time at Uni, hopefully interesting to a broader audience. Here it is!

Better not bigger

Cost/benefit analysis and the valuation of human lives

To blog or not to blog-blog...