Monday, February 01, 2010

Cost-benefit analysis: put a dollar value on human life?

Putting a Price Tag on Life: Today, companies and governments often use Jeremy Bentham’s utilitarian logic under the name of “cost-benefit analysis.” In Michael Sandel's lecture at Harvard, he presents some contemporary cases in which cost-benefit analysis was used to put a dollar value on human life. The cases give rise to several objections to the utilitarian logic of seeking “the greatest good for the greatest number.” Should we always give more weight to the happiness of a majority, even if the majority is cruel or ignoble? Is it possible to sum up and compare all values using a common measure like money?

 
Ford Pinto Case
One of the examples he used is the cost-benefit analysis in Ford Pinto case. According to Wikipedia,the Ford Pinto model became a focus of a major scandal when it was alleged that the car's design allowed its fuel tank to be easily damaged in the event of a rear-end collision which sometimes resulted in deadly fires and explosions. Critics argued that the vehicle's lack of a true rear bumper as well as any reinforcing structure between the rear panel and the tank meant that in certain collisions, the tank would be thrust forward into the differential, which had a number of protruding bolts that could puncture the tank. This, and the fact that the doors could potentially jam during an accident (due to poor reinforcement)allegedly made the car less safe than its contemporaries.
Ford allegedly was aware of this design flaw but refused to pay for a redesign. Instead, it was argued, Ford decided it would be cheaper to pay off possible lawsuits for resulting deaths. Mother Jones Magazine obtained the cost-benefit analysis that it said Ford had used to compare the cost of an $11 repair against the monetary value of a human life, in what became known as the Ford Pinto memo. The characterization of Ford's design decision as gross disregard for human lives in favor of profits led to significant lawsuits. While Ford was acquitted of criminal charges, it lost several million dollars and gained a reputation for manufacturing "the barbecue that seats four."

 
Repairing the Ford Pinto
Cost of Repairing                           Cost of Not Repairing
$ 11 per part                                 180 deaths x $200,000
x 12.5 million cars                          + 180 injuries x $67,000
                                                    + 2000 vehicles x $700
=====================================================================
$137 million                                   = $49.5 million
 (to improve safety)                          (to let it go) 

 
Philip Morris Czech Republic Cost-Benefit Analysis of Smoking

 
This is rather more recent case. The detail report can be found at this website.

Cost                                             Benefits
Increased Health Care costs          Tax revenue from cigarette sales
(due to lung cancer)                       Health care savings
                                                         (from early deaths)
                                                     Pension savings
                                                     Savings in housing costs

 
Net gain if citizens smoke is $147 million
Saving from premature deaths is $1227.00 per person

 

 
The fundamental issue in both cases is whether or not we can put a dollar value on human life (in the first example, a $200,000 tag for each death; in the second example, early death from smoking to benefit the government or other people).

 
We can easily see what is wrong and what is right in  both of these examples. However, in our real life, it is not easy to distinguish the right and the wrong.

 
In UK, a famous government agency is called The National Institute for Health and Clinical Excellence (NICE). NICE's main function is to provide the appraisals that are based primarily on evaluations of efficacy and cost-effectiveness. They actually put a monetory tag on human life (not for each death, but for a good-quality year). The cost-effectiveness limit (or threshold) for NICE is £30,000 per good-quality year of life gained. In many occasions, the novice drug could be denied if the drug is too expensive (over the limit of the price tag). NICE is not nice to the pharmaceutical companies.

If we can not put a price tag on human life, can we put a price tag on 3 months or 6 months of human life? If we can not put a price tag on 3 months or 6 months of human life (saved) and curb the use of extremely expensive drug, how the medical cost will be controlled? I don't think there is an easy solution.

Further readings: 

 

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