Using Revealed Preference Methods to Estimate the Value of Reduced Mortality Risk: Best Practice Recommendations for the Hedonic Wage Model

The hedonic wage model provides a key input into benefit–cost analyses of public policies that are aimed at reducing mortality risks: an estimate of the value of reduced mortality risk (VRMR), also known as the value of a statistical life. Because a large majority of the benefits associated with policies that improve air quality stem from mortality risk reductions, estimates of the VRMR play an exceptionally important role. The use of VRMR estimates from hedonic wage studies in benefit–cost analyses of environmental policies is not without controversy. This article reviews the use and importance of the VRMR in environmental regulation and policy and summarizes the major shortcomings of existing VRMR estimates derived from hedonic wage models. We propose a set of best practices for estimating and reporting VRMR estimates using the hedonic wage framework