Hostname: page-component-cc8bf7c57-llmch Total loading time: 0 Render date: 2024-12-11T21:29:41.509Z Has data issue: false hasContentIssue false

Skills of the trade: valuing health risk reductions in benefit-cost analysis

Published online by Cambridge University Press:  19 January 2015

Lisa A. Robinson*
Affiliation:
Mossavar-Rahmani Center for Business and Government, Harvard Kennedy School, USA
James K. Hammitt
Affiliation:
Harvard University (Center for Risk Analysis), USA and Toulouse School of Economics (LERNA-INRA), France
*
Lisa A. Robinson, Mossavar-Rahmani Center for Business and Government, Harvard Kennedy School, USA, lisa.a.robinson@comcast.net
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

Many public policies and private actions affect the risk of injury, illness, or death, yet changes in these risks are not easily valued using market prices. We discuss how to value these risk reductions in the context of benefit-cost analysis. We begin with a pragmatic focus, describing the analytic framework and the approaches currently used for valuation, including estimates of willingness to pay, cost of illness, and monetized quality-adjusted life years. We then turn to some conceptual issues that illustrate areas in need of further exploration.

Type
Article
Copyright
Copyright © Society for Benefit-Cost Analysis 2013

References

Adler, M. A., & Posner, E. A. (2006). New foundations for benefit-cost analysis. Cambridge, MA: Harvard University Press.Google Scholar
Alberini, A., & Kahn, J. R. (Eds.) (2006). Handbook on contingent valuation. Cheltenham UK and Northampton MA: Edward Elgar.Google Scholar
Aldy, J. E., & Viscusi, W. K. (2007). Age differences in the value of statistical life: revealed preference evidence. Review of Environmental Economics and Policy 1(2), 241260.Google Scholar
Arias, E. (2010). United States life tables, (2006). National Vital Statistics Reports 58(21). Centers for Disease Control and Prevention, U.S. Department of Health and Human Services.Google Scholar
Bateman, I. J., Carson, R.T., Day, B., Hanemann, M., Hanley, N., Hett, T., et al. (2002). Economic valuation with stated preference techniques. Cheltenham UK and Northampton MA: Edward Elgar.Google Scholar
Bergstrom, T. C. (1982). When is a man’s life worth more than his human capital? In: Jones-Lee, M. (Ed.), The value of life and safety. Amsterdam: North Holland.Google Scholar
Bergstrom, T. C. (2006). Benefit-cost in a benevolent society. American Economic Review 96(1), 339351.Google Scholar
Blomquist, G. (2004). Self-protection and averting behavior, values of statistical lives, and benefit cost analysis of environmental policy. Review of the Economics of the Household 2, 89110.Google Scholar
Boardman, A. E., Greenberg, D. H., Vining, A. R., & Weimer, D. L.. (2011). Cost-benefit analysis: concepts and practices. Upper Saddle River, NJ: Pearson.Google Scholar
Bosworth, R., Cameron, T. A., & DeShazo, J. R. (2010). Is an ounce of prevention worth a pound of cure? comparing demand for public prevention and treatment policies. Medical Decision Making 30(4), E40E56.Google Scholar
Cameron, T. A. (2010). Euthanizing the value of a statistical life. Review of Environmental Economics and Policy 4(2), 161178.Google Scholar
Carson, R. T. (2012). Contingent valuation: a comprehensive bibliography and history. Cheltenham UK and Northampton MA: Edward Elgar.Google Scholar
Champ, P. A., Boyle, K. J., & Brown, T. C. (Eds.) (2003). A primer on non-market valuation. Boston MA: Kluwer Academic Press.Google Scholar
Cropper, M., Hammitt, J. K., & Robinson, L. A. (2011). Valuing mortality risk reductions: progress and challenges. Annual Review of Resource Economics 3, 313336.Google Scholar
Cropper, M., & Morgan, M. G. (2007). SAB Advisory on EPA’s issues in valuing mortality risk reduction. Memorandum to EPA Administrator Stephen L. Johnson from the EPA Science Advisory Board and Environmental Economics Advisory Committee. (EPA-SAB-08-001.)Google Scholar
European Commission. (2009). Impact Assessment Guidelines. SEC(2009) 92.Google Scholar
Finkelstein, E. A., Corso, P. S., & Miller, T. R. (2006). The incidence and economic burden of injuries in the United States. Oxford and New York: Oxford University Press.Google Scholar
Freeman, A. M. III. (2003). The measurement of environmental and resource values: theory and methods (2nd ed.), Washington D. C.: Resources for the Future.Google Scholar
Grosse, S. D., Krueger, K. V., & Mvundura, M. (2009). Economic productivity by age and sex: 2007 estimates for the United States. Medical Care 47(7), S94S103.CrossRefGoogle ScholarPubMed
Hammitt, J. K. (2000). Valuing mortality risk: theory and practice. Environmental Science and Technology 34, 13961400.Google Scholar
Hammitt, J. K. (2002). QALYs versus WTP. Risk Analysis 22(5), 9851001.CrossRefGoogle Scholar
Hammitt, J. K. (2007). Valuing changes in mortality risk: lives saved versus life years saved. Review of Environmental Economics and Policy 1(2), 228240.Google Scholar
Hammitt, J. K. (2009). Response: saving lives: benefit-cost analysis and distribution. University of Pennsylvania Law Review PENNumbra 157, 189199.Google Scholar
Hammitt, J. K., & Robinson, L. A. (2011). The income elasticity of the value per statistical life: transferring estimates between high and low income populations. Journal of Benefit-Cost Analysis 2, Art. 1.CrossRefGoogle Scholar
Hanemann, W. M. (1991). Willingness to pay and willingness to accept: how much can they differ? American Economic Review 81, 635647.Google Scholar
Haninger, K., & Hammitt, J. K. (2011). Diminishing willingness to pay per quality-adjusted life year: valuing acute foodborne illness. Risk Analysis 31(9), 13631380.Google Scholar
Hirth, R. A., Chernew, M. E., Miller, E., Fendrick, A. M., & Weissert, W. G. (2000). Willingness to pay for a quality-adjusted life year: in search of a standard. Medical Decision Making 20, 332342.CrossRefGoogle ScholarPubMed
HM Treasury. (2003). The green book: appraisal and evaluation in central government. London: TSO. (Includes 2011 updates.)Google Scholar
Horowitz, J. K., & McConnell, K. E. (2002). A review of WTA/WTP Studies. Journal of Environmental Economics and Management 44(3), 426447.Google Scholar
Hunt, A., & Ferguson, J. (2010). A review of recent policy-relevant findings from the environmental health literature. Prepared for the Organisation for Economic Co-Operation and Development. ENV/EPOC/WPNEP(2009)9/FINAL.Google Scholar
Institute of Medicine. (2006). Valuing health for regulatory cost-effectiveness analysis. In: Miller, W., Robinson, L. A. & Lawrence, R. S.. (Eds.), Washington, D.C.: The National Academies Press.Google Scholar
Johnson, F. R., Fries, E. E., & Banzhaf, H. S. (1997). Valuing morbidity: an integration of the willingness-to-pay and health-status index literatures. Journal of Health Economics 16, 641665.Google Scholar
Jones-Lee, M. W. (1991). Altruism and the value of other people’s safety. Journal of Risk and Uncertainty 4(2), 213219.Google Scholar
Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1991). Anomalies: the endowment effect, loss aversion, and status quo bias. Journal of Economic Perspectives 5(1), 192206.CrossRefGoogle Scholar
Kling, C. L., & Swackhamer, D. L. (2011). Review of ‘valuing mortality risk reductions for environmental policy: a white paper’ (December 10, 2010). Memorandum to Lisa P. Jackson, EPA Administrator from the EPA Science Advisory Board and Environmental Economics Advisory Committee. EPA-SAB-11-011.Google Scholar
Knetsch, J. L. (2010). Values of gains and losses: reference states and choices of measure. Environment and Resource Economics 46(2), 179188.Google Scholar
Krupnick, A. (2007). Mortality-risk valuation and age: stated preference evidence. Review of Environmental Economics and Policy 1(2), 261282.Google Scholar
Lipscomb, J., Drummond, M., Fryback, D., Gold, M., & Revicki, D. (2009). Retaining, and enhancing, the QALY. Value in Health 12(Supp. 1), S18S26.Google Scholar
Lindhjem, H., Navrud, S., Braathen, N. A., & Biausque, V. (2011). Valuing mortality risk reductions from environmental, transport, and health policies: a global meta-analysis of stated preference studies. Risk Analysis 31(9), 13811407.Google Scholar
Lund, J. L., Yabroff, K. R., Ibuka, Y., Russell, L. B., Barnett, P. G., Lipscomb, J., ... Brown, M. L. (2009). Inventory of data sources for estimating health care costs in the United States. Medical Care 47(7), S120S126.Google Scholar
Murray, C. J. L., & Lopez, A. D. (Eds.) (1996). The global burden of disease: a comprehensive assessment of mortality and disability from diseases, injuries, and risk factors in 1990 and projected to 2020. Cambridge: Harvard University Press.Google Scholar
National Academies. (2008). Estimating mortality risk reduction and economic benefits from controlling ozone air pollution. Committee on estimating mortality risk reduction benefits from decreasing tropospheric ozone exposure. Washington, D.C.: National Academies Press.Google Scholar
NERA Economic Consulting. (2011). Updating the VPF and VPIs: phase 1: final report. Prepared for the United Kingdom Department for Transport.Google Scholar
Organisation for Economic Co-operation and Development. (2012). Mortality risk valuation in environment, health and transport policies. Paris: OECD Publishing.Google Scholar
Robinson, L. A. (2007). How U.S. government agencies value mortality risk reductions. Review of Environmental Economics and Policy 1(2), 283299.Google Scholar
Robinson, L. A. (2009). Valuing lives, valuing risks, and respecting preferences in regulatory analysis. Regulation and Governance 3(3), 298305.Google Scholar
Robinson, L. A., & Hammitt, J. K. (2011a). Valuing health and longevity in regulatory analysis: current issues and challenges. In: Levi-Faur, D. (Ed.), The handbook of the politics of regulation. Cheltenham and Northampton: Edward Elgar.Google Scholar
Robinson, L. A., & Hammitt, J. K. (2011b). Behavioral economics and the conduct of benefit-cost analysis: towards principles and standards. Journal of Benefit-Cost Analysis 2(2), Art. 5.Google Scholar
Shaw, J. W., Johnson, J. A., & Coons, S. J. (2005). US valuation of the EQ-5D health states: development and testing of the D1 valuation model. Medical Care 43, 203220.Google Scholar
Sullivan, P. W., & Ghushchyan, V. (2006). Preference-based EQ-5D index scores for chronic conditions in the United States. Medical Decision Making 26(4), 410420.Google Scholar
Svensson, M., & Johansson, M. V. (2010). Willingness to pay for private and public road safety in stated preference studies: why the difference? Accident Analysis and Prevention 42, 12051212.Google Scholar
Thorat, T., Cangelosi, M., & Neumann, P. J. (2012). Skills of the trade: the Tufts cost-effectiveness analysis registry. Journal of Benefit-Cost Analysis 3(1), Art. 1.Google Scholar
Treasury Board of Canada, Secretariat. (2007). Canadian cost-benefit analysis guide: regulatory proposals (Interim).Google Scholar
Tversky, A., & Kahneman, D. (1974). Judgment under uncertainty: heuristics and biases. Science 185(4157), 11241131.Google Scholar
US Department of Transportation. (2011). Treatment of the economic value of a statistical life in departmental analyses – 2011 interim adjustment. Memorandum to Secretarial Officers and Modal Administrators from P. Trottenberg, Assistant Secretary For Transportation Policy, and R. Rivkin, General Counsel.Google Scholar
US Environmental Protection Agency. (2010a). Valuing mortality risk reductions for environmental policy: a white paper (Review Draft). Prepared by the National Center for Environmental Economics for consultation with the Science Advisory Board – Environmental Economics Advisory Committee.Google Scholar
US Environmental Protection Agency. (2010b). Guidelines for preparing economic analysis. EPA 240-R-10-001.Google Scholar
US Office of Management and Budget. (2003). Circular A-4: regulatory analysis.Google Scholar
Van Houtven, G., Powers, J., Jessup, A., & Yang, J.-C. (2006). Valuing avoided morbidity using meta-regression analysis: what can health status measures and QALYs tell us about WTP? Health Economics 15, 775795.Google Scholar
Viscusi, W. K., & Aldy, J. E. (2003). The value of a statistical life: a critical review of market estimates throughout the world. Journal of Risk and Uncertainty 27(1), 576.Google Scholar
Viscusi, W. K. (2009). The devaluation of life. Regulation and governance 3, 103127.Google Scholar
Willig, R. D. (1976). Consumer’s surplus without apology. The American Economic Review 66(4), 589597.Google Scholar
Yabroff, K. R., Brown, M. L., Lawrence, W. F., Barnett, P. G., & Lipscomb, J. (Eds.). (2009). Health care costing: data, methods, future directions. Medical Care 47(7), Supplement 1.Google Scholar
Zeckhauser, R., & Shepard, D. (1976). Where now for saving lives? Law and Contemporary Problems 40(4), 545.Google Scholar