The Rising Value of a Statistical Life in China and Risk Avoidance Associated with the Coronavirus

Back in 2004, Dora and I published a paper documenting that from 1940 to 1990 the estimated value of a statistical life in the U.S grew faster than U.S per-capita GNP.    Other studies from Taiwan and India have documented a similar result.

These findings have implications for China today and risk regulation policy in the face of the contagion risk.  As China has grown richer, the value of risk avoidance rises.  There is a greater aggregate demand for safety.  The CCP thus has a strong incentive to deliver safety.  This same logic was at the heart of my work with Siqi Zheng on air pollution regulation. Read our 2017 paper in JEP.

In the case of the Coronavirus,  the Chinese state appears to have been slow to recognize the urgency of the issue.  How much of this slow response is due to a desire to not appear weak and panicky to the West (and President Trump). An alternative hypothesis returns to Hayek’s view on how information flows in a system and asks whether the local leaders in Wuhan feared punishment by the Beijing bosses for panicking and thus delayed sharing bad news with the upper level leaders in Beijing. This raises the issue of how the CCP treats Type 1 versus Type 2 errors. Would the Central Beijing Government prefer to hear news of “false alarms” from the local areas or does it prefer being “slow to react” to a real crisis?  The rising VSL in China would predict that the Central Government would create incentives to trigger the “false alarm” scenario such that when there is any chance of a major risk event that the central government is notified and uses its autocratic power to take action.