What is the human capital approach to valuing a human life I

What is the human capital approach to valuing a human life? If people are too poor to afford treatment costs for life-threatening illnesses, such as heart surgery or cancer treatments, how could the willingness to pay apporoach be higher than the human capital approach?

Solution

The terminology “value to life” means monetary incentive of a life. Its just determining cost-benefit analysis in a healthcare industry. In an Economics it just equating marginal costs of the healthcare to the marginal benefits received & based on this money is spend on the in improving quality of life, treatments & determine value of life to evaluate costs & effective medical decisions. Value of life can be determined using either the human capital approach or the willingness to pay approach.

Human Capital Approach

It is determined as-:

Value of a human life = Discounted market value of the output produced by an individual over an expected lifetime.

This approach estimates the discounted value of future earnings that result from an extension or improvement in life. This approach has many drawbacks.

Using the human capital approach, a person who continually unemployed but yest still lives and breathes each day has effectively a zero value of life.

Willingness to Pay Approach

Formula in determining the Willingness to Pay Approach->

V= C /

Where values are-:

V = value of life
C =cost of life-saving good/service
= reduced probability of dying

This approach attempts to account for the shortcomings of the human capital approach by considering more than just the workplace output of an individual. The willingness to pay approach determines the value of life based on a person’s willingness to pay for small reductions in the probability of dying. A person’s willingness to pay is expressed through choices such as drinking alcohol, smoking, unhealthy behavior.

The willingness to pay approach generally estimates the value of life > (higher)estimated using the human capital method.

This is a direct result of the willingness method’s greatest advantage- measurement of total value of life rather than just job market value. The higher value estimated using willingness includes the value of forgone earnings as well as the value from leisure and simply life itself.