Question

HIgh-income people are willing to pay more than lower-income people to avoid the risk of death. For example. they are more likely to pay for safety features on cars. Do you think cost-benefit analysis should take this fact into account when evaluating public projects? consider, for instance, a rich town and a poor town, both of which are considering the installation of a traffic light. should the rich town use higher dollar value for a human life in making this decision? why or why not?

Answer 1

Yes it is true that higher income people are willing to pay more than lower income people to avoid the risk of death , for example they are more likely to pay for safety features on cars because they can afford it and do it for private expenditure purpose.

Public projects are financed by government and for that cost benefit analysis is important to compare the cost on the project and the future benefit generated from that project and whether the money should be spent on some other beneficial projects or not.

As given in this examination problem considering two towns a rich and a poor , they should not be treated differently in valuing dollar value for a human life because in studies it is said that human life is worth in millions. The rich town and poor town's dollar value for money should be valued on the basis workers' wages in risky and less risky occupations. So we should not use higher dollar value for rich town and poor dollar value for poor in considering cost benefit analysis of public projects.