Using Mandated Speed Limits to Measure the Value of a Statistical Life

Orley Ashenfelter and Michael Greenstone

ABSTRACT

Public choices about safety in a democratic society require estimates
of the willingness of people to trade off wealth for a reduction in
the probability of death.  In this paper we exploit a novel
opportunity to measure the revealed preferences for safety risks from
public choices about speed limits.  The idea is to measure the value
of the time saved per incremental fatality that results from the
voluntary adoption of an increased speed limit.  Since adopters must
have valued the time saved by greater speeds more than the fatalities
created, this ratio provides a convincing and credible upper bound on
the value of a statistical life.  Our analysis exploits the
opportunity that the federal government gave the states in 1987 to
choose a speed limit for rural interstate highways that was higher
than the uniform national maximum speed limit then in existence.

Our empirical results, which are robust across many different
specifications, indicate that among states that adopted increased
speed limits on their rural interstates, average speeds increased by
approximately 4% while fatalities increased by roughly 35%.  Together,
they imply that about 130,000 hours were saved for each life lost in
the adopting states.  Valuing the time saved from increased speeds at
the average hourly wage of a professional (truck) driver implies that
adopting states were willing to accept risks that resulted in a saving
of $1.5 million per fatality.  Since this figure is the value of time
saved per fatality among states adopting higher speed limits, it
provides an upper bound on the value of a statistical life.  A simple
structural model that is identified by variability across the states
in the probability of adoption of increased speed limits is consistent
with this claim, but it provides estimates of the value of a
statistical life that are very imprecise.