The value of statistical life (VSL) is a risk-to-money conversion factor that can be used to accurately approximate an individualâ€™s willingness-to-pay for a small change in fatality risk. If an individualâ€™s VSL is (say) $7 million, then she will be willing to pay approximately $7 for a 1-in-1-million risk reduction, $70 for a 1-in-100,000 risk reduction, and so forth. VSL has played a central role in the rapidly emerging economics literature about COVID-19. Many papers use VSL to assign a monetary value to the lifesaving benefits of social-distancing policies, so as to balance those benefits against lost income and other policy costs. This is not surprising, since VSL (known in the U.K. as â€œVPFâ€: value of a prevented fatality) has been a key tool in governmental cost-benefit analysis for decades and is well established among economists. Despite its familiarity, VSL is a flawed tool for analyzing social-distancing policyâ€”and risk regulation more generally. The standard justification for cost-benefit analysis appeals to Kaldor-Hicks efficiency (potential Pareto superiority). But VSL is only an approximation to individual willingness to pay, which may become quite inaccurate for policies that mitigate large risks (such as the risks posed by COVID-19)â€”and thus can recommend policies that fail the Kaldor-Hicks test. This paper uses a simulation model of social-distancing policy to illustrate the deficiencies of VSL. I criticize VSL-based cost-benefit analysis from a number of angles. Its recommendations with respect to social distancing deviate dramatically from the recommendations of a utilitarian or prioritarian social welfare function. In the model here, it does indeed diverge from Kaldor-Hicks efficiency. And its relative valuation of risks and financial costs among groups differentiated by age and income lacks intuitive support. Economists writing about COVID-19 need to reconsider using VSL.
Adler, M (2020), ‘What Should We Spend to Save Lives in a Pandemic? A Critique of the Value of Statistical Life‘, COVID Economics 33, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-33#392514_392909_390534
We document a decline in mental well-being after the onset of the Covid-19 pandemic in the UK. This decline is more than twice as large for women as for men. We seek to explain this gender gap by exploring gender differences in: family and caring responsibilities; financial and work situation; social engagement; health situation, and health behaviours, including exercise. We discuss two dimensions of gender differences, the extent to which particular circumstances relate to well-being and the share of individuals facing a given circumstance. Overall, we find that differences in family and caring responsibilities can explain a part of the gender gap, but the bulk is explained by social factors such as loneliness. Other factors such as financial difficulties or age are similarly distributed across genders and thus play little role in explaining the gap.
Etheridge, B and L Spantig (2020), ‘The Gender Gap in Mental Well-Being During the Covid-19 Outbreak: Evidence from the UK‘, COVID Economics 33, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-33#392514_392909_390535
In this paper, we estimate the effect of the 1918 influenza pandemic on income inequality in Italian municipalities. Our identification strategy exploits the exogenous diffusion of influenza across municipalities by infected soldiers on leave from World War I operations at the peak of the pandemic. Our measures of income inequality come from newly digitized historical administrative records on Italian taxpayer incomes. We show that in the short-/medium-run (i.e., after five years), income inequality is higher in Italian municipalities more afflicted by the pandemic. The effect is mostly explained by a reduction in the share of income held by poorer people. Finally, we provide initial evidence that these differences in income inequality persist even after a century.
Galletta, S and T Giommoni (2020), ‘The effect of the 1918 Influenza Pandemic on Income Inequality: Evidence from Italy‘, COVID Economics 33, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-33#392514_392909_390536
This paper uses a survey representative of the UK online population to assess the willingness to accept loss of certain goods. We had conducted an initial survey in February, focusing on â€˜freeâ€™ online goods and some potential substitutes and comparators. Consistent with other contingent valuation studies, consumers on average assigned valuations to many of these goods, particularly when benchmarked against revenue figures for the services. Our pilot studies, discussed in a forthcoming paper, also suggested that the actual valuations are not well anchored, but the methodology can give consistent rankings among goods. It is also a useful way to assess changes in valuations. Repeating the survey in May, during the UK, lockdown, we observed significant changes in the valuations of different goods and services, with some large differences by age and gender. In this sense the lockdown has acted as a natural experiment testing for the extent to which digital goods and physical goods are substitutes. These valuation changes may indicate which services are most valuable in a post-pandemic world where more activity takes place online. They also provide important, policy-relevant insights into distributional questions
Coyle, D and D Nguyen (2020), ‘Valuing goods online and offline: the impact of Covid19‘, COVID Economics 33, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-33#392514_392909_390537
The COVID-19 shock and its unprecedented financial consequences have brought about vast uncertainty concerning the future of climate actions. We study the cross-section of stock returns during the COVID-19 shock to explore investorsâ€™ views and expectations about environmental issues. The results show that firms with responsible strategies on environmental issues experience better stock returns. This effect is mainly driven by initiatives addressing climate change (e.g., reduction of environmental emissions and energy use), is more pronounced for firms with greater ownership by investors with long-term orientation and is not observed prior to the COVID-19 crisis. Overall, the results indicate that the COVID-19 shock has not distracted investorsâ€™ attention away from environmental issues but on the contrary led them to reward climate responsibility to a larger extent.
Garel, A and A Petit-Romec (2020), ‘Investor Rewards to Environmental Responsibility in the COVID-19 Crisis‘, COVID Economics 33, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-33#392514_392909_390538
Despite the COVID-19 pandemic is currently spreading all over the world, we still observe dramatic variation between and, even within, countries in the speed of the infection, in the observed fatality rates and in the effectiveness of the containment measures put in place by most countries. This paper sheds light on the role of culture exploiting the large cultural variation between German and Latin (French and Italian) speaking regions in Switzerland. Consistently with the large difference in social contacts across generations between these two distinct cultural groups, it shows that the disease affected disproportionately elderly people only in Latin regions. Then, it shows that cultural differences are also associated with different levels of compliance with the containment measures put in place by the Swiss government. Mobility data by Google and Apple clearly show that people living in Latin-speaking regions started reducing their movements a week before the lockdown and then complied more strictly than their German counterparts with the policy. This differential compliance across language regions clearly affected the epidemic curves. Using an event study design, we reveal that Latin regions experiencing a faster decline in the growth rate of new cases, hospitalizations and deaths than their German counterpart.
Mazzonna, F (2020), ‘Cultural differences in COVID-19 spread and policy compliance: evidence from Switzerland‘, COVID Economics 33, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-33#392514_392909_390539