Suppose that the average person in a group of 150,000 people is willing to pay $10 to lower the probability of a random death among members of that group from 10 in 150,000 to 9 in 150,000. Then the total willingness to pay is $10 (150,000) = $1,500,000 is equal to

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The total willingness to pay of $1,500,000 represents the value that the group places on reducing the risk of a random death. This is a measure of the value of a statistical life, which is commonly used in cost-benefit analyses to compare the costs of safety measures to the benefits of reducing risk. Choice A is incorrect because willingness to pay measures the value of reducing risk, not the willingness to accept additional risk. Choice C is incorrect because willingness to pay does not necessarily reflect the value that individuals place on their own lives – it can also reflect their concern for others in the group or the value they place on avoiding the costs of grief or other consequences of a death in the group. Choice D is incorrect because willingness to pay does not necessarily reflect individual earnings or lifetime income.

Suppose That the Average Person in a Group of 150,000