Nobel laureate puts price tag on a year of human life

The estimate Professor Kenneth Arrow came up with for American citizens is $400,000 for one year of life.

By JJ LEVINE
Professor Kenneth Arrow hasn't discovered the meaning of life, but he thinks he can put a value on it. The Stanford professor who won the Nobel Prize in Economics at age 51 (the youngest ever recipient of the prize) has been working on applying economic theories to complex issues like climate change and health care. Now 86, the Nobel laureate has this week been visiting Israel to participate in the Hebrew University's Jerusalem Summer School in Economic Theory, which this year is dedicated to Arrow's numerous groundbreaking theories. Arrow's name is well known not only in economics but also in political science and even philosophy. His "Impossibility Theorem" deals with the inevitable conflicts between society's goals in any decision-making process, and his "General Equilibrium Theory" states that through correct pricing an economy can find the ideal solution to supply and demand, alleviating both shortages and unnecessary surpluses. But in two lectures on Sunday, Arrow went into a realm which would seem a grave challenge even to one labeled by Hebrew University Professor Eyal Winter as "the greatest economist of the 20th century" - putting a monetary value on a year of human life. Arrow did not seem at all perturbed by the weight of the questions before him, tackling issues from climate change to national health care expenditures with a breezy air of academic interest, interspersed with old Jewish jokes. Arrow's lectures on the economics of the environment and of healthcare are part of a recent trend in economic theory, which aims to include factors such as longevity and environmental change in economic theorizing, a concept known as "comprehensive wealth." The trend began in the early 1980's, when awareness of climate change led to the idea that industrial development might not be an unmitigated good when the damage to the environment is taken into account. Arrow himself is an important member of the Intergovernmental Panel on Climate Change, the influential UN body which helps to draw policies for international treaties such as the Kyoto Protocol. Speaking to The Jerusalem Post, Arrow said that his own experience with the science of climate change dates back to classes he attended while working as a meteorologist with the US Army in 1942. Arrow explained that assessing the potential impact of global warming is greatly dependent on economics. For the rich, the cost might be simply spending more on air conditioning, while for poor people living in areas affected by flooding the issue could be about life or death. But Arrow said that what governments, even the most forward-looking European ones, are currently spending on CO2 reduction is not even close to the cost that even the most lenient economic models predict. "We're not going to have to worry about having too much [climate legislation]," Arrow said. Health care, though is an entirely different story. The United States currently spends 16 percent of its gross domestic product on health care, and even Israel, relatively behind in international terms, spends about 8% on health care. Of course, richer people, and richer countries, get better health care than poorer ones, but Arrow claimed that the gap between rich and poor is actually closing when one includes the improvement in life span in the equation. The gain in poor countries, such as Bangladesh, has been much faster than in rich ones. In order to make sense of questions in health care spending, the public needs to put a price tag on life. Asked about such concepts as the sacredness of life or the Talmudic dictum that "one who saves a life is considered as if he saved the world," Arrow replied that he could not find a meaning for such sentiment in his theory. While no price is too high for one's life, Arrow said that we regularly take calculated risks which involve - consciously or subconsciously - a chance of fatal harm. Arrow noted examples ranging from "soldiers of fortune" sent to Iraq to his own experience with cataract surgery, where he put himself at risk, albeit a very minor one, in order to improve his eyesight. In the insurance business, a model used for estimating the value of human life assesses the relative wages of different jobs related to the probability of job-related death to measure the price tag people actually put on longevity. The estimate Arrow came up with for American citizens is $400,000 for one year of life. The good news from such dour academic estimates is that it shows that human life over the course of the 20th century has vastly improved, with more people living longer than ever before. Putting a value on "comprehensive wealth" gained in a century of technological advancement would show a great loss for depleted resources and polluted environments, but that would be offset be the progress that has been made in extending human life.