Introduction to the Economics of Pollution Control: Health Issues

Valuing Environmental Health EffectsDamage Function Approach  Value of number of cases of illness/death avoided = Number of Cases Avoided * Value per Case  Value per Case Avoided shoul

Session 9A

Introduction to the Economics of Pollution Control: Health Issues

John A Dixon

johnkailua@aol.com

Ashgabad, November, 2005 Adapted from materials prepared by Maureen Cropper

The World Bank

What Questions Can Economic Valuation/BCA Help Answer?

 How stringent should environmental standards be for

 Air quality?

 Surface water quality?

 Drinking water quality?

 What about POPs?

 Any other pollutant?

Benefits and Costs of Pollution

Control

 Four categories of benefits could be examined:

 Human health (the focus here)

 Visibility (amenity values)

 Ecological Effects (and ecosystem

services)

 Agricultural Benefits (change in

production)

Valuing Environmental Health Effects

Damage Function Approach

 Value of number of cases of illness/death avoided =

Number of Cases Avoided * Value per Case

 Value per Case Avoided should reflect individual’s

willingness to pay (WTP) to avoid illness or risk of death

 Human Capital/Cost of Illness Approach, which

focuses on lost productivity, medical costs, generally serves as a lower bound to WTP

The numbers can be large! For example, in

2010 the Monetized Benefits from the US

Clean Air Act are estimated as follows:

0 20 40 60 80 100 120 Agriculture

Visibility Productivity Other Morbidity Chronic Bronchitis

Mortality

Cost

Billions of 1990 US$

Steps in Calculating Health Benefits for Air or Water Quality Improvements

 Predict change in emissions of criteria pollutants associated

with air/ water quality regulations

 Translate changes in emissions into population-weighted

changes in ambient exposures

 Calculate associated changes in health outcomes

 Reduced premature mortality

 Reduced hospital admissions

 Fewer cases of chronic bronchitis or diarrhea

 Assign a dollar value to cases of illness, mortality avoided

Air Pollution Example:

Studies of the Health Impacts

 Examine effects of acute air pollution exposure on

 Premature death

 Hospital admissions for heart, lung disease

 Emergency room visits for heart, lung disease

 Work-loss days

 Examine effects of chronic exposure on

 Premature death

 Chronic bronchitis

Interpretation of Dose-Response Function (or DRR)

 Dose-response function relates health effects to air

pollution concentrations and other factors affecting health

 Slope of dose-response function measures the percentage

change in the health outcome for a one unit change in

PM10

 For example, a 10 microgram reduction in PM10 reduces

deaths by about 4% in studies of the impact of long-term exposure to air pollution on deaths

Projected Reductions in Illness due to the US

Clean Air Act, Titles I - V

Mortality

Chronic Illness

Chronic bronchitis

Chronic asthma

PM Ozone

20,000 7,200

Hospitalization

Respiratory admissions

Cardiovascular admissions

Asthma-related emergency room visits

PM, CO, NO2, SO2, Ozone

PM, CO, NO2, SO2, Ozone

PM, Ozone

22,000 42,000 4,800

Minor Illness

Avoided respiratory illnesses and

symptom-days, asthma attacks, work

loss days, etc. PM, NO2, SO2, Ozone Millions of cases/incidence

Valuing Environmental Health Effects

The Damage Function Approach:

 Value of number of cases of illness/death avoided = Number of

Cases Avoided * Value per Case

 Value per Case Avoided should reflect individual’s willingness to

pay (WTP) to avoid illness or risk of death

 Human Capital/Cost of Illness Approach, which focuses on lost

productivity, medical costs, generally serves as a lower bound to WTP

Valuing Risks to Life: What Is to Be Valued?

 Epidemiologic studies predict number of deaths

avoided

 Treat these as equivalent to reducing risk of death

for each person in the exposed population

 Risk reduction per person =

(Number of deaths avoided)/(Size of exposed population)

Key Concepts

 Concept of a Statistical Life

 Reducing risk of death by 1 in 10,000 for each

of 10,000 people saves one statistical life

 Value of a Statistical Life (VSL)

 If each of the 10,000 people is willing to pay

$500 for the 1 in 10,000 risk reduction

 the Value of a Statistical Life is = 10,000 x

$500 = $5,000,000

How to Measure WTP for a

Reduction in Risk of Death?

 Labor Market Studies

 Use compensating wage differentials to value risks

of death

 Contingent Valuation Studies

 Ask people directly what they would pay for a

change in risk of death

 Use data on seatbelt use, purchase of smoke detectors,

switch to low-tar cigarettes

Empirical Estimates of Value of a

Statistical Life (VSL) in the US

 Value of Statistical Life estimates range between $ 1 - 10

million (1990 USD); USEPA’s preferred estimate is $4.8M (1990 USD)

 Problems:

 Average age of worker is 40—older than average age

of person whose life is extended by an environmental program

 Estimates of VSL from Averting Behavior Studies

almost one order of magnitude lower than in Labor Market Studies

Valuing Reductions in Morbidity (sickness)

 Private WTP for a reduction in risk of illness

should reflect:

 Value of lost work time

 Value of lost leisure time

 Value of expenditures to treat illness

 Value of expenditures to avoid illness

 Discomfort (pain) of illness

 Value to Society of the Risk Reduction = Individual’s WTP plus reduction in costs borne by society

 Cost of Illness = Value of lost work time + Value of medical expenditures

Approaches to Valuing Morbidity

 Ask directly WTP to avoid illness or risk of

illness

 Look at rate of substitution of one risk for

another (Risk-Risk Tradeoffs)

 Use Cost of Illness estimates as a lower

bound to WTP

Health Effects in the US:

Valuation per health outcome (1990 $)

Endpoint Pollutant Valuation (mean est.)

Chronic Bronchitis PM 10 260,000 Per case

Hospital Admissions

All Respiratory SO 2 , NO 2 , PM 10 ,O 3 6,900 Per case All Cardiovascular SO 2 , NO 2 , CO, PM 10 ,O 3 9,500 Per case Emergency Room Visits for Asthma PM 10 ,O 3 194 Per case Respiratory Illness and Symptoms

Acute Bronchitis PM 10 45 Per case Asthma Attack or Moderate or Worse Asthma Day PM 10 ,O 3 32 Per case Acute Respiratory Symptoms SO 2 , NO 2 , PM 10 ,O 3 18 Per case Upper Respiratory Symptoms PM 10 19 Per case Lower Respiratory Symptoms PM 10 12 Per case Shortness of Breath, Chest Tightness, or Wheeze PM 10 , SO 2 5.3 Per day

Valuing Morbidity and Mortality in the Caspian region

 Persian Gulf Environmental Damages (air pollution

from burning oil wells)

 VSL calculations from Iran

 Other examples

 And don’t forget the other types of values:

 Amenities

 Ecosystem effects

 Agricultural/ fisheries production