Are young or old lives worth more?

Jeremy Horpedahl and Bryan Caplan debate this topic, with Jeremy pointing out that older, wealthier people can have just as high a willingness to pay to reduce risk, if not higher.

In all things Covid I usually agree with Jeremy, though in this case I side with Bryan’s conclusion (though he doesn’t explain well why he is correct).

For purposes of simplicity, let us consider purely selfish individuals and move to the case where the “p” of death will be equal to one if the “risk” is not avoided.  And make capital markets perfect.  Then both young and old will then pony up the full value of their prospective human capital to avoid death.  The lives with more human capital will be worth more, at least according to economic standards.  Young lives usually will be worth more than old lives, though of course highly productive older people might count for more if the higher productivity outweighs the smaller number of years left.  You might prefer to save fifty-year-old Thomas Schelling over the life of a forty-year-old who is doing less.

This is so far quite intuitive, again noting these are economic judgments not final moral judgments (which will be more contentious and bring in many additional considerations).  Furthermore, you can scale down these numbers, and adjust for risk-aversion, to cover mortality risks much lower than p = 1.

Now consider some older people who have a lot of wealth but very little human capital.  These (selfish) individuals still will pay a lot to avoid death or risk of death, but in essence there is an externality.  They treat their wealth as “disappearing with their death” when in reality that wealth simply is transferred to others.  Therefore they overspend to keep themselves around on planet earth, and they will overpay for risk reduction.

So the lives of high wealth, low human capital individuals, including older individuals, are overweighted by traditional economic metrics, given that “naive” WTP measures do not adjust for the “wealth transfer upon death” externality.  That is some but by no means all of the elderly.  Their willingness to pay for risk reduction may be as high as the WTP of the young, but in social terms that does not mean their lives are equally valuable.

In sum, check your WTP calculations against human capital intuitions.

The first version of this argument appeared in my dissertation, though it has surfaced a few times since, including in some QJE pieces.

And if you would like some homework for your spare time, try solving for the conditions under which selfish individuals, but living in families, can make intra-family trades to internalize these wealth transfer externalities.