Supramonetary Values , The Value Of Life , And The Utility Theory Meanings Of Tort Recovery

Economists often take it for granted that any finite utility value to an individual can always be measured by a dollar equivalent. This presumption has led to the error of assuming that the utility value of life of an individual is ordinarily infinite. In this paper, we offer both logical proof and practical demonstration that the utility value of life of an individual cannot be infinite. At the same time, however, the finiteness of the utility value of life does not necessarily imply that an individual would give up his life for a very large monetary payment, no matter how large. Except under extraordinary circumstances, which we will discuss below, most individuals would not give up their lives for monetary payments. The apparent contradiction between the finiteness of the value of life and the nonexistence of a monetary equivalent for the value of life lies in clearly understanding the implications of modern utility theory. There is a class of values to an individual, which we will call supramonetary values, for which there are finite utility values, but no monetary equivalents. In this paper, we provide a definition for supramonetary values (following Arrow, 1997), but also explore issues relating to the reliability of market values for measuring utility losses of tort victims even in cases that do not involve supramonetary values. We employ the ordinary utility theory definition of "utility value" as the value an individual would attach to the good, service or asset in question. The utility value of each unit of a good service or asset is unique to an individual and not directly measurable. Interpersonal utility comparisons cannot be made except in terms of what individuals reveal about their preferences in actual market transactions. If two individuals pay the same amount of money for two identical units of a good, they reveal that they each value that unit of the good at least as much as the amount of money they paid to obtain it. Differences in value might arise either from different capacities of the individuals for converting goods into utility (including possible differences in time requirements for utility production) and from possible differences in consumer surplus between the individuals. Each individual would have some amount of "consumer surplus," which also might vary from individual to individual. Given these sources of differentiation, the conclusion cannot be drawn that the two individuals value a given unit of the good equally even though they each pay the same amount to obtain it. Economics makes no assumption that utility has the same magnitude for all individuals. Further, if the marginal utility of income declines, different income levels would imply different marginal utilities even for individuals who had identical utility functions. All that can be established is that each individual, as a lower bound, was willing to pay the amount actually paid for the good.