Session 9A Introduction to the Economics of Pollution Control: Health Issues

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Session 9A Introduction to the Economics of
Pollution Control Health Issues

• John A. Dixon
• johnkailua_at_aol.com
• Ashgabad, November, 2005
• Adapted from materials prepared by Maureen
  Cropper
• The World Bank

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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?

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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)

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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
  individuals 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

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The numbers can be large! For example, in 2010
the Monetized Benefits from the US Clean Air Act
are estimated as follows
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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

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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

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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

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Projected Reductions in Illness due to the US
Clean Air Act, Titles I - V
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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
  individuals 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

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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)

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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

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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
• Averting Behavior Studies
• Use data on seatbelt use, purchase of smoke
  detectors, switch to low-tar cigarettes

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Empirical Estimates of Value of a Statistical
Life (VSL) in the US

• Value of Statistical Life estimates range between
  1 - 10 million (1990 USD) USEPAs preferred
  estimate is 4.8M (1990 USD)
• Problems
• Average age of worker is 40older 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

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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
  Individuals WTP plus reduction in costs borne by
  society
• Cost of Illness Value of lost work time Value
  of medical expenditures

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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

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Health Effects in the US Valuation per health
outcome (1990 )
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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 dont forget the other types of values
• Amenities
• Ecosystem effects
• Agricultural/ fisheries production