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.

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 ... (more »)

We assessed how much, if anything, people would pay for a laboratory test that predicted their future disease status. A questionnaire was administered via an internet-based survey to a random sample of adult US respondents. Each respondent answered questions about two different scenarios, each of which specified: one of four randomly selected diseases (Alzheimer's, arthritis, breast cancer, or prostate cancer); an ex ante risk of developing the disease (randomly designated 10 or 25%); and test accuracy (randomly designated perfect or 'not perfectly accurate'). Willingness-to-pay (WTP) was elicited with a double-bounded, dichotomous-choice approach. Of 1463 respondents who completed the survey, most (70-88%, depending on the scenario) were inclined to take the test. Inclination to take the test was lower for Alzheimer's and higher for prostate cancer compared with arthritis, and rose somewhat with disease prevalence and for the perfect versus imperfect test [Correction made here after initial online publication.]. Median WTP varied from $109 for the imperfect arthritis test to $263 for the perfect prostate cancer test. Respondents' preferences for predictive testing, even in the absence of direct treatment consequences, reflected health and non-health related factors, and suggests that conventional cost-effectiveness analyses may underestimate the value of testing.

We assessed how much, if anything, people would pay for a laboratory test that predicted their future disease status. A questionnaire was administered via an internet-based survey to a random sample of adult US respondents. Each respondent answ... (more »)

Fish consumption advisories instruct vulnerable consumers to avoid high mercury fish and to limit total fish intake to reduce neurotoxic risk. Consumption data from the U.S. suggest that nontarget consumers also respond to such advice. These consumers reduce exposure to mercury and other toxicants at the cost of reduction in cardioprotective fatty acids. We present a probabilistic model to assess these risk trade-offs. We use NHANES consumption data to simulate exposure to contaminants and nutrients in fish, employ dose-response relationships to convert exposure to health end points, and monetize them using benefit transfer. Our results suggest that newborns gained on average 0.033 IQ points from their mothers' compliance with the prominent FDA/EPA advisory. The welfare gain for a birth cohort is estimated at $386 million. This gain could be fully offset by increments in cardiovascular risk if 0.6% of consumers aged 40 and older reduced fish intake by one monthly meal until they reached the age of 60 or if 0.1% of them permanently reduced fish intake.

Fish consumption advisories instruct vulnerable consumers to avoid high mercury fish and to limit total fish intake to reduce neurotoxic risk. Consumption data from the U.S. suggest that nontarget consumers also respond to such advice. These consu... (more »)

OBJECTIVES:

Population-based HIV testing surveys have become central to deriving estimates of national HIV prevalence in sub-Saharan Africa. However, limited participation in these surveys can lead to selection bias. We control for selection bias in national HIV prevalence estimates using a novel approach, which unlike conventional imputation can account for selection on unobserved factors.

METHODS:

For 12 Demographic and Health Surveys conducted from 2001 to 2009 (N=138 300), we predict HIV status among those missing a valid HIV test with Heckman-type selection models, which allow for correlation between infection status and participation in survey HIV testing. We compare these estimates with conventional ones and introduce a simulation procedure that incorporates regression model parameter uncertainty into confidence intervals.

RESULTS:

Selection model point estimates of national HIV prevalence were greater than unadjusted estimates for 10 of 12 surveys for men and 11 of 12 surveys for women, and were also greater than the majority of estimates obtained from conventional imputation, with significantly higher HIV prevalence estimates for men in Cote d'Ivoire 2005, Mali 2006 and Zambia 2007. Accounting for selective non-participation yielded 95% confidence intervals around HIV prevalence estimates that are wider than those obtained with conventional imputation by an average factor of 4.5.

CONCLUSIONS:

Our analysis indicates that national HIV prevalence estimates for many countries in sub-Saharan African are more uncertain than previously thought, and may be underestimated in several cases, underscoring the need for increasing participation in HIV surveys. Heckman-type selection models should be included in the set of tools used for routine estimation of HIV prevalence.

OBJECTIVES:

Population-based HIV testing surveys have become central to deriving estimates of national HIV prevalence in sub-Saharan Africa. However, limited participation in these surveys can lead to selection bias. We control for selectio... (more »)

Using contemporary population data from Taiwan, we examine the relationships between parental age difference, educationally assortative mating, income and offspring count. Controlling for women's reproductive value (measured by age at first birth), we find that an older husband is associated with fewer offspring, whereas a husband with similar or higher education is associated with more offspring. Concerning resources, we find that women's income is negatively associated with fertility and husband's income is positively associated with fertility among highly educated women. These results are consistent with the view that women compensate for trade-offs between education, income generation and childbearing by seeking mates with a higher status.

Using contemporary population data from Taiwan, we examine the relationships between parental age difference, educationally assortative mating, income and offspring count. Controlling for women's reproductive value (measured by age at first bir... (more »)

We design and conduct a stated-preference survey to estimate willingness to pay (WTP) to reduce foodborne risk of acute illness and to test whether WTP is proportional to the corresponding gain in expected quality-adjusted life years (QALYs). If QALYs measure utility for health, then economic theory requires WTP to be nearly proportional to changes in both health quality and duration of illness and WTP could be estimated by multiplying the expected change in QALYs by an appropriate monetary value. WTP is elicited using double-bounded, dichotomous-choice questions in which respondents (randomly selected from the U.S. general adult population, n = 2,858) decide whether to purchase a more expensive food to reduce the risk of foodborne illness. Health risks vary by baseline probability of illness, reduction in probability, duration and severity of illness, and conditional probability of mortality. The expected gain in QALYs is calculated using respondent-assessed decrements in health-related quality of life if ill combined with the duration of illness and reduction in probability specified in the survey. We find sharply diminishing marginal WTP for severity and duration of illness prevented. Our results suggest that individuals do not have a constant rate of WTP per QALY, which implies that WTP cannot be accurately estimated by multiplying the change in QALYs by an appropriate monetary value.

We design and conduct a stated-preference survey to estimate willingness to pay (WTP) to reduce foodborne risk of acute illness and to test whether WTP is proportional to the corresponding gain in expected quality-adjusted life years (QALYs). I... (more »)

Nord (2011) criticizes standard arguments which assert that consistency requires that future health benefits must be discounted at the same rate as future costs in cost-effectiveness analysis (CEA). He suggests these arguments are misguided because they require transitivity of preferences across decision contexts and that it can be appropriate to discount health at different rates depending on the programs to be compared. I claim that rejecting transitivity is unwarranted and would sharply diminish the utility of CEA. Factors that tempt Nord to reject consistency can be accommodated by recognizing that CEA does not perfectly mimic normative social preferences because it omits factors (like distribution of health in a population) that can be normatively significant. A better approach is to maintain consistency in application of CEA but authorize decision makers to depart from rankings implied by CEA when justified and to explain which specific factors justify the decision. Finally, the assertion that health must be discounted at the same rate as costs requires the additional assumption that the dollar value of health does not change over time, a point that is not always recognized in standard arguments

Nord (2011) criticizes standard arguments which assert that consistency requires that future health benefits must be discounted at the same rate as future costs in cost-effectiveness analysis (CEA). He suggests these arguments are misguided bec... (more »)

Behavioral economics has captured the interest of scholars and the general public by demonstrating ways in which individuals make decisions that appear irrational. While increasing attention is being focused on the implications of this research for the design of risk-reducing policies, less attention has been paid to how it affects the economic valuation of policy consequences. This article considers the latter issue, reviewing the behavioral economics literature and discussing its implications for the conduct of benefit-cost analysis, particularly in the context of environmental, health, and safety regulations. We explore three concerns: using estimates of willingness to pay or willingness to accept compensation for valuation, considering the psychological aspects of risk when valuing mortality-risk reductions, and discounting future consequences. In each case, we take the perspective that analysts should avoid making judgments about whether values are "rational" or "irrational." Instead, they should make every effort to rely on well-designed studies, using ranges, sensitivity analysis, or probabilistic modeling to reflect uncertainty. More generally, behavioral research has led some to argue for a more paternalistic approach to policy analysis. We argue instead for continued focus on describing the preferences of those affected, while working to ensure that these preferences are based on knowledge and careful reflection.

Behavioral economics has captured the interest of scholars and the general public by demonstrating ways in which individuals make decisions that appear irrational. While increasing attention is being focused on the implications of this research... (more »)

As traditionally conducted, benefit-cost analysis is rooted in neoclassical welfare economics, which, in its most simplified form, assumes that individuals act rationally and are primarily motivated by self-interest, making decisions that maximize their welfare. Its conduct is evolving to reflect recent work in behavioral economics, which explores the psychological aspects of decisionmaking. We consider several implications for analyses of social programs, focusing largely on economic valuation. First, benefit-cost analysis often involves valuing nonmarket outcomes such as reductions in health and environmental risks. Behavioral research emphasizes the need to recognize that these values are affected by psychological as well as physical attributes. Second, benefit-cost analysis traditionally uses exponential discounting to reflect time preferences, while behavioral research suggests that individuals’ discounting may be hyperbolic. While the appropriate rates and functional form are uncertain, market rates best represent the opportunity costs associated with diverting funds to support a particular social policy or program. Such rates reflect the intersection between technological progress and individual preferences, regardless of whether these preferences fit the standard economic model or a behavioral alternative. Third, behavioral research emphasizes the need to consider the influence of other-regarding preferences on valuation. In addition to acting altruistically, individuals may act reciprocally to reward or punish others, or use the status of others as the baseline against which to assess their own well-being. Fourth, behavioral economics identifies factors that can help researchers develop valuation studies that provide well-informed, thoughtful preferences. Finally, while behavioral research has led some to argue for a more paternalistic approach to policy analysis, an alternative is to continue to focus on describing the preferences of those affected by the policy options while working to ensure that these preferences are based on knowledge and careful reflection. Benefit-cost analysis can be best viewed as a pragmatic framework for collecting, organizing, and evaluating relevant information.

As traditionally conducted, benefit-cost analysis is rooted in neoclassical welfare economics, which, in its most simplified form, assumes that individuals act rationally and are primarily motivated by self-interest, making decisions that maxim... (more »)

This study uses a unique longitudinally-linked employer–employee dataset to estimate the magnitude of bias in estimating the value per statistical life (VSL) that arises from the conventional use of industry-average occupational risk. This unique dataset, covering workers in Taiwan over the period 1998–2002, allows us to distinguish among potential sources of bias including omitted variables and to control for the potential endogeneity of firm-specific job risk with respect to unobserved worker and firm characteristics. We find that VSL estimates based on risk data aggregated by three-digit manufacturing SIC codes are biased downward by an order of magnitude compared with estimates using firm-specific risk that control for endogeneity.

This study uses a unique longitudinally-linked employer–employee dataset to estimate the magnitude of bias in estimating the value per statistical life (VSL) that arises from the conventional use of industry-average occupationa... (more »)

Despite substantial attention toward environmental tobacco smoke (ETS) exposure, previous studies have not provided adequate information to apply broadly within community-scale risk assessments. We aim to estimate residential concentrations of particulate matter (PM) from ETS in sociodemographic and geographic subpopulations in the United States for the purpose of screening-level risk assessment. We developed regression models to characterize smoking using the 2006-7 Current Population Survey-Tobacco Use Supplement, and linked these with air exchange models using the 2007 American Housing Survey. Using repeated logistic and log-linear models (n=1000), we investigated whether household variables from the 2000 United States census can predict exposure likelihood and ETS-PM concentration in exposed households. We estimated a mean ETS-PM concentration of 16 μg/m(3) among the 17% of homes with non-zero exposure (3 μg/m(3) overall), with substantial variability among homes. The highest exposure likelihood was in the South and Midwest regions, rural populations, and low-income households. Concentrations in exposed households were highest in the South and demonstrated a non-monotonic association with income, related to air exchange rate patterns. We provide estimates of ETS-PM concentration distributions for different subpopulations in the United States, providing a starting point for communities interested in characterizing aggregate and cumulative risks from indoor pollutants.

Despite substantial attention toward environmental tobacco smoke (ETS) exposure, previous studies have not provided adequate information to apply broadly within community-scale risk assessments. We aim to estimate residential concentrations of ... (more »)

The value of mortality risk reduction is an important component of the benefits of environmental policies. In recent years, the number, scope, and quality of valuation studies have increased dramatically. Revealed-preference studies of wage compensation for occupational risks, on which analysts have primarily relied, have benefited from improved data and statistical methods. Stated-preference research has improved methodologically and expanded dramatically. Studies are now available for several health conditions associated with environmental causes, and researchers have explored many issues concerning the validity of the estimates. With the growing numbers of both types of studies, several meta-analyses have become available that provide insight into the results of both methods. Challenges remain, including better understanding of the persistently smaller estimates from stated-preference than from wage-differential studies and of how valuation depends on the individual's age, health status, and characteristics of the illnesses most frequently associated with environmental causes.

The value of mortality risk reduction is an important component of the benefits of environmental policies. In recent years, the number, scope, and quality of valuation studies have increased dramatically. Revealed-preference studies of wage compen... (more »)

The income elasticity of the value per statistical life (VSL) is an important parameter for policy analysis. Mortality risk reductions often dominate the quantified benefits of environmental and other policies, and estimates of their value are frequently transferred across countries with significantly different income levels. U.S. regulatory agencies typically assume that a 1.0 percent change in real income over time will lead to a 0.4 to 0.6 percent change in the VSL. While elasticities within this range are supported by substantial research, they appear nonsensical if applied to populations with significantly smaller incomes. When transferring values between high and lower income countries, analysts often instead assume an elasticity of 1.0, but the resulting VSL estimates appear large in comparison to income. Elasticities greater than 1.0 are supported by research on the relationship between long-term economic growth and the VSL, by cross-country comparisons, and by new research that estimates the VSL by income quantile. Caution is needed when applying these higher elasticities, however, because the resulting VSLs appear smaller than expected future earnings or consumption in some cases, contrary to theory. In addition to indicating the need for more research, this comparison suggests that, in the interim, VSL estimates should be bounded below by estimates of future income or consumption.

The income elasticity of the value per statistical life (VSL) is an important parameter for policy analysis. Mortality risk reductions often dominate the quantified benefits of environmental and other policies, and estimates of their value are fre... (more »)

BACKGROUND: A 26-valent Group A Streptococcus (GAS) vaccine candidate has been developed that may provide protection against pharyngitis, invasive disease and rheumatic fever. However, recommendations for the use of a new vaccine must be informed by a range of considerations, including parents' preferences for different relevant health outcomes. Our objectives were to: (1) describe parent preferences for GAS disease and vaccination using willingness-to-pay (WTP) and time trade-off (TTO) methods; and (2) understand how parents' implied WTP for a quality-adjusted life year (QALY) gained might vary depending on the particular health outcome considered (e.g. averted GAS disease vs. vaccine adverse events). METHODS: Telephone interviews were conducted with parents of children diagnosed with GAS pharyngitis at 2 pediatric practice sites in the Boston metropolitan area. WTP and TTO (trading parental longevity for child's health) questions for 2 vaccine and 4 disease-associated health states were asked using a randomly selected opening bid, followed by a 2nd bid and a final open-ended question about the amount willing to pay or trade. Descriptive analyses included medians and interquartile ranges for WTP and TTO estimates. The Wilcoxon signed-rank test was used to assess differences in WTP/QALY values for vaccine adverse events vs. disease states. RESULTS: Of 119 respondents, 100 (84%) and 96 (81%) provided a complete set of responses for WTP and TTO questions, respectively. The median WTP and discounted (at 3% per year) TTO values to avoid each health state were as follows: local reaction, $30, 0.12 days; systemic reaction, $50, 0.22 days; impetigo, $75, 1.25 days; strep throat, $75, 2.5 days; septic arthritis, $1,000, 6.6 days; and toxic shock syndrome, $3,000, 31.0 days. The median WTP/QALY was significantly higher for vaccine adverse events (approximately $60,000/QALY) compared to disease states ($18,000 to $36,000/QALY). CONCLUSIONS: Parents strongly prefer to prevent GAS disease in children compared to vaccine adverse events. However, implied WTP/QALY ratios were higher for the prevention of vaccine adverse events. Regret for errors of commission vs. omission may differ and should be considered by vaccine policymakers.

BACKGROUND: A 26-valent Group A Streptococcus (GAS) vaccine candidate has been developed that may provide protection against pharyngitis, invasive disease and rheumatic fever. However, recommendations for the use of a new vaccine must be inform... (more »)

We developed a probabilistic model to characterize the plausible distribution of health and economic benefits that would accrue to the U.S. population following reduction of methyl mercury (MeHg) exposure. MeHg, a known human developmental neurotoxicant, may increase fatal heart attack risks. Model parameters reflect current understanding of the relationships between MeHg intake, health risks, and societal valuation of these risks. The expected monetary value of the annual health benefits generated by a 10% reduction in U.S. population exposure to MeHg for one year is $860 million; 80% of this is associated with reductions in fatal heart attacks and the remainder with IQ gains. The plausible distribution of the benefits is quite broad with 5th and 95th percentile estimates of approximately $50 million and $3.5 billion, respectively. The largest source of uncertainty is whether epidemiological associations between MeHg exposure and fatal heart attacks reflect causality. The next largest sources of uncertainty concern the slope of the relationship between maternal MeHg exposure and reduced intelligence among children and whether this relationship exhibits a threshold. Our analysis suggests that the possible causal relationship between MeHg exposure and fatal heart attacks should be better characterized, using additional epidemiological studies and formally elicited expert judgment.

We developed a probabilistic model to characterize the plausible distribution of health and economic benefits that would accrue to the U.S. population following reduction of methyl mercury (MeHg) exposure. MeHg, a known human developmental neur... (more »)