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Home > By DEPARTMENTS > Sales and Marketing > Marketing Management > Green Marketing Trends

Metric of Value: Value of Statistical Life or VSL

Understanding intangible concepts such as economic impacts, value of life, and social good require deep analysis...and creative solutions. Here are several analysis methods to consider in the campaign for a more sustainable world.

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Some people value ethical and moral metrics -- such as justice, compassion, quality of life. Others place higher value on economics as a measure of survival and quality of life. How do we reconcile these different perspectives?

A new analysis tool is arising: "value of statistical life". When you couple that with traditional measures of economics, you can start talking with similar terminology...and potentially understand one another's world view of value.

Value of Statistical Life

"The way that the value of statistical life or VSL is estimated is through I think a pretty ingenious type of a study design where you ask people, "suppose there was an illness that had a one in 10,000 chance of killing you. How much would you be willing to spend yourself to eliminate that risk?" And let's say that people on average in a given study say $600, which a type of a reasonable or typical estimate that people will give. Then ten thousand people together will spend six million to save one life. So it's a way to estimate what society itself values. And we used a range of those estimates and then looked at the number of excess deaths that occur every year in coal mining areas of Appalachia versus non-mining area," explained Professor Hendryx.

VSL RESULTS: "The years 1997 through 2005 translate to over 10,000 excess deaths every year, and we attribute that difference to higher poverty rates in mining area, and also to differences probably in environmental exposures and pollution from activities in the mining industry. One of the estimates that I think is probably most reasonable to use translates into over $42 billion dollars as the human cost of coal mining in Appalachia."

SOURCE: Michael Hendryx, Associate Professor in the Department of Community Medicine at West Virgina University. His explanation is from an article about Appalachian coal economics and value.

Economic Value

Economic value is traditionally measured by jobs and the number of turns money makes as it travels through an economy as companies and people use the same dollars over and over to buy beneficial goods and services.

"The benefits of the coal economy measured by not only the direct jobs that it creates but the indirect jobs that ripple through the economy as well as the severance taxes that are paid by coal companies.

ECONOMIC RESULTS: "These benefits came to a little bit over $8 billion dollars a year, much lower than the estimated costs."

Solutions

"We have to realize as well that the estimates that come out from the U.S. Geological Survey are that West Virginia will peak in a its coal production in probably less than twenty years. So we really don't have any choice. We can sit around and do nothing and wait for that to happen, or we can begin now to plan and implement serious economic diversification programs."

Return on Investment - ROI

Change is constant. A given. Destructive change can also be changed if realistic and appealing alternatives are presented to the decision makers.

I'm coming to believe that most Americans will only change when faced with a "known crisis". If the coal companies don't yet see the problem as a crisis -- they will be reluctant to change. So, the challenge for the opposition is to identify what the keenest, localized crises are.

ROI is a high priority for business leaders. Poverty and death rates are high priorities for families.

Reconciling these needs is the challenge.

With a resource that will play out in 20 years, it's important to ask who cares? Is it the Baby Boomer managers who just want to get theirs and bow out before the gravy train ends? Or is it the youth who need a career that lasts longer than 20 years?

And families -- do they understand the immediate costs of the health crisis caused by coal? Do they have an alternative?

Alternatives are where the green economy come in. With long term job training that is backed up with real jobs on the ground for the younger workers, we have a long term ROI foundation.

In the meantime, however, older managers don't see that their retirement is in danger. They don't see that their towns are dying. They don't see that they are harming their children's ability to survive.

Maybe we need to demonstrate the timelines of these critical systems that they care about. Timelines are powerful tools! They can track ROI, Valuations, and the rise and fall of market sectors.

And they can be visual so that we understand them in ways that words cannot explain.

Learn more about Value of Statistical Life

Resources that look at different applications of VSL include:

Value of life - Wikipedia

The value of a statistical life is most commonly determined by looking at a person's willingness to pay or willingness to accept.

Using Estimates of the Value of a Statistical Life

Safety and the Value of Statistical Life in the Family: Valuing Reduced Risk for Children,. Adults and the Elderly.” Working Paper, Cornell University. PDF file format.

Environmental Economics: Responding to the value of statistical life

An economists view of value of statistical life and how it should be used. From "Environmental Economics: Economists on Environmental and Natural Resources: News, Opinion and Analysis"



Edited by Carolyn Allen, owner/editor of California Green Solutions
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