Reference no: EM131212414

Benefit-Cost Controversy

When taken to its extreme, the logic of benefit-cost analysis can generate some strange conclusions. In one case, researchers wanted to determine the value that mothers placed on their children's lives. In Indiana in 1985, parents were not fined for failure to have car seats for infants and toddlers, though they were legally required. Also, some parents would not take the time to fasten car seats correctly. Two economists reckoned that this behavior (failure to purchase or correctly use car seats) on the part of the mothers raised the risk of death to their children by 0.0004, or 4 out of 10,000, from birth to age 4. They collected data on 190 people (all women) leaving a shopping mall with their kids; only 33% either had a car seat or were using it correctly.23 The authors calculated that properly hooking the kids in would take about 69 hours over four years. They hypothesized that the opportunity cost of women's time would be an important determinant of whether car seats were installed or properly used. And using a statistical model, they in fact concluded that controlling for (some) other factors, moms with a higher opportunity cost to their time (generally, a higher forgone wage) were statistically less likely (though not at a high level of confidence) to install or properly use a car seat. From this, they calculated that a wage increase equal in value to about $2.40 per hour would, all other things equal, induce a mom to forgo installing or properly using a car seat-all this leading finally to the following estimated value of a child's life:

$2.40 per hour saved ∗ 69 hours saved per mom/0.0004 lives lost per mom = $418, 597 per life lost

Note that this number is well below the $7 million figure used by the EPA for adults, even accounting for inflation since the time of the study.

1. Does this conclusion make sense to you? If not, why not?