Economic Value of Reducing Exposure to Environmental Health Risks

Abstract

Valuing the benefit of reduced exposures to environmental health risks requires assessment of the willingness to pay for the risk reduction. Usual measures typically estimate individual local rates of substitution between money and the reduced probability of the adverse health impact. Benefit-cost analyses then aggregate individuals’ willingness to pay to calculate society’s willingness to pay for the health risk reduction benefit. The theoretical basis for this approach is well established and is similar for mortality risks and health outcomes involving morbidity effects. Researchers have used both stated preference methods and revealed preference data that draw on values implicit in economic decisions. Continuing controversies with respect to valuation of environmental health impacts include the treatment of behavioral anomalies, such as the gap between willingness-to-pay and willingness-to-accept values, and the degree to which heterogeneity in values because of personal characteristics such as income and age should influence benefit values. A considerable literature exists on the value of a statistical life (VSL), the local tradeoff between fatality risk and money, which is used to value mortality risk reductions. Many VSL estimates use data from the United States for regulatory analyses of environmental policies, but several other countries have distinct valuation practices. There are empirical estimates of the benefits associated with reducing the risks of many environmental health effects, including cancer, respiratory diseases, gastrointestinal illnesses, and other health consequences that have morbidity effects.