Introduction to the Economics of Pollution Control: Health Issues

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

Ashgabad, November, 2005
Adapted from materials prepared by Maureen Cropper
The World Bank

GEF


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?

Caspian EVE 2005/UNDP and WBI
John A. Dixon, Economics of Pollution Control
GEF


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)

Caspian EVE 2005/UNDP and WBI
John A. Dixon, Economics of Pollution Control
GEF


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

Caspian EVE 2005/UNDP and WBI
John A. Dixon, Economics of Pollution Control
GEF


The numbers can be large! For example, in
2010 the Monetized Benefits from the US
Clean Air Act are estimated as follows:
Cost
Mortality
Chronic Bronchitis
Other Morbidity
Productivity
Visibility
Agriculture
0
Caspian EVE 2005/UNDP and WBI
John A. Dixon, Economics of Pollution Control

20

40

60

80

Billions of 1990 US$

GEF

100

120


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

Caspian EVE 2005/UNDP and WBI
John A. Dixon, Economics of Pollution Control
GEF

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

Caspian EVE 2005/UNDP and WBI
John A. Dixon, Economics of Pollution Control
GEF



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

Caspian EVE 2005/UNDP and WBI
John A. Dixon, Economics of Pollution Control
GEF


Projected Reductions in Illness due to the US
Clean Air Act, Titles I - V
Health Endpoint
Mortality
Age 30+

Chronic Illness
Chronic bronchitis
Chronic asthma
Hospitalization
Respiratory admissions
Cardiovascular admissions
Asthma-related emergency room visits
Minor Illness
Avoided respiratory illnesses and
symptom-days, asthma attacks, work
loss days, etc.

Pollutant

2010 Mean reduction

PM et al

23,000

PM
Ozone

20,000
7,200

PM, CO, NO2, SO2, Ozone
PM, Ozone

22,000

42,000
4,800

PM, NO2, SO2, Ozone

Millions of cases/incidence

PM, CO, NO2, SO2, Ozone

Caspian EVE 2005/UNDP and WBI
John A. Dixon, Economics of Pollution Control
GEF


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

Caspian EVE 2005/UNDP and WBI
John A. Dixon, Economics of Pollution Control
GEF


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)

Caspian EVE 2005/UNDP and WBI
John A. Dixon, Economics of Pollution Control
GEF


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

Caspian EVE 2005/UNDP and WBI
John A. Dixon, Economics of Pollution Control
GEF


How to Measure WTP for a
Reduction in Risk of Death?


Labor Market Studies




Contingent Valuation Studies




Use compensating wage differentials to value risks
of death
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

Caspian EVE 2005/UNDP and WBI
John A. Dixon, Economics of Pollution Control
GEF


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

Caspian EVE 2005/UNDP and WBI
John A. Dixon, Economics of Pollution Control
GEF


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

Caspian EVE 2005/UNDP and WBI
John A. Dixon, Economics of Pollution Control
GEF


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

Caspian EVE 2005/UNDP and WBI
John A. Dixon, Economics of Pollution Control
GEF

Health Effects in the US:
Valuation per health outcome (1990 $)
Endpoint

Pollutant

Valuation (mean est.)

Mortality

PM10

4,800,000

Per case

Chronic Bronchitis

PM10

260,000

Per case

Chronic Asthma

O3

25,000

Per case

Hospital Admissions
All Respiratory

SO2, NO2, PM10,O3

6,900

Per case

All Cardiovascular

SO2, NO2, CO, PM10,O3

9,500

Per case

194

Per case

Emergency Room Visits for Asthma

PM10,O3

Respiratory Illness and Symptoms

Acute Bronchitis

PM10

45

Per case

Asthma Attack or Moderate or Worse Asthma Day

PM10,O3

32

Per case

Acute Respiratory Symptoms

SO2, NO2, PM10,O3

18

Per case

Upper Respiratory Symptoms

PM10

19

Per case

Lower Respiratory Symptoms

PM10

12

Per case

Shortness of Breath, Chest Tightness, or Wheeze

PM10, SO2

5.3

Per day

PM10

83

Per day

PM10,O3

38

Per day

Work Loss Days
Mild Restricted
Activity Days
Caspian
EVE 2005/UNDP
and WBI
John A. Dixon, Economics of Pollution Control

GEF


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

Caspian EVE 2005/UNDP and WBI
John A. Dixon, Economics of Pollution Control
GEF