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- Describe the different methods that might be used to value human health, and discuss their strengths and weaknesses.
Economists have developed a range of approaches to estimate the economic value of nonmarket or intangible impacts. There are several procedures that share the common Feature of using market information and behavior to infer the economic value of an Associated non-market impact.
These approaches have different conceptual bases. Methods based on hedonic pricing utilise the fact that some market goods are in fact bundles of characteristics, some of which are intangible goods (or bads). By trading these market goods, consumers are thereby able to express their values for the intangible goods, and these values can be uncovered through the use of statistical techniques. This process can be hindered, however, by the fact that a market good can have several intangible characteristics, and that these can be collinear.
By overview the revealed preference methods that refre to non-market valuation impact by watching the real bahviour and precisely , purchases made in actual markets
There are a number of different approaches that have been proposed to fulfil this objective
- hedonic pricing;
- travel cost;
- averting or defensive behaviour; .
- costs of illness.
the conceptual framework underpinning each approach is different
The last two methods might be used to determine the value of human health
So I will discuss both of them seperatly :
- Averting behaviour and defensive expenditure: Methods based on averting behaviour take as their main premise the notion that individuals and households can insulate themselves from a non-market bad by selecting more costly types of behaviour. These behaviours might be more costly in terms of the time
requirements they imply, or of the restrictions they impose on what the individual would
otherwise wish to do. Alternatively, individuals might be able to avoid exposure to
non-market bads via the purchase of a market good. These financial outlays are known as
defensive expenditures. The value of each of these purchases represents an implicit price for the non-market good or bad in question. For instance , offer the example of households
installing double-glazed windows to decrease exposure to road traffic noise
levels decrease for other reasons – perhaps as a result of a local authority’s implementation
of traffic calming measures – then households will spend less on these defensive outlays.
Changes in expenditures on this substitute good provide a good measure of households’
valuations of traffic calming policies that decrease noise pollution (a bad) and,
correspondingly, increase the supply of peace and quiet (a good).
A number of interesting complications arise in the practical application of averting
behaviour and defensive expenditure approaches to valuing non-market goods. Two, in
particular, are worth noting here. Firstly, defensive expenditures typically represent a
partial or lower bound estimate of the value of the impact of the non-market bad on wellbeing.
For example in the double-glazing case, greater indoor tranquility maybe achieved, but gardens
will still be exposed to road traffic noise at the same levels,so double-glazing will not help homeowners to
avoid the costs of road traffic noise completely.Secondly, manyavertive behaviours or defensive expenditures
create joint products. For instance, time spent indoors avoiding air pollution is not otherwise
wasted. This time can also be put to other productive uses that have value, such as
undertaking household chores, indoor leisure activities or working from
home. The double-glazing case also creates joint products – e.g. energy conservation. It is the net cost of the expenditure or change in behaviour – that is, the cost after taking account of the value of alternative uses of time, for instance, or energy savings – which is the correct measure of the value of the associated
reduction in the non-market bad. However, distinguishing the determinant of behaviour
that is of interest, and the costs of the various components, might not be an easy matter in practice.
- Cost of illness and lost output approaches
The cost of illness (COI) approach is similar to the defensive expenditures method
described in the previous section in that it focuses on expenditure on medical services and
products made in response to morbidity and other health effects of non-market impacts.
For example, the costs of the health impacts of air pollution can be valued by looking at
expenditure which affected individuals make on drugs to counter the resulting headaches,
fever and other flu-like symptoms which some air pollutants are thought to cause. The
difference between the COI and defensive expenditure approaches is that often the
decision to incur these health care expenditures is not made by the individual alone, but by social administrators and ultimately the taxpayer. However,
expenditure decisions made by social administrators, politicians and so on might reflect other
considerations, including politics and ethics. A decision to increase expenditure in a particular
area might then appear to have made the problem worse (since costs of illness have increased),
even though an individual’s real health status might actually have improved.
The difficulty with the COI approach can be that changes in expenditure on
treatments of the health impacts of air pollution, for instance, are often not observed
directly with ease
This can be the case for a number of reasons, including the fact that the
link between health and air pollution is stochastic, and that air pollution tends to cause
health impacts which can arise for a range of other reasons. In these cases, the costs of
illness are often calculated using an approach similar to that used for calculating lost output.
The lost output approach is related to the COI/defensive expenditure approaches since it
uses observed or estimated market prices as the measure of value. Examples are agricultural
prices for changes in agricultural yields, or wages rates for changes in labour supply.
However, unlike COI, the approach does not require an actual transaction to take place
whereby costs are incurred or expenditures made. Rather, the existence of an observed or
estimated price is taken as evidence that such a transaction would have occurred had the nonmarket impact
not had an effect.
In practice, many of t
hese economic valuation issues can be overcome through careful
characterisation of the effects of a given impact on an individual’s well-being and
capability. Often, the greater difficulty arises because of a lack of good evidence on
“exposure-response” or other relationships relating to physical impacts or quantities.
Economic valuation using the lost output approach is greatly hindered, and often made
impossible, by an absence of this type of evidence.
- Stated Preference Approaches I: Contingent Valuation Method
Stated preference techniques of valuation utilise questionnaires which either directly ask
respondents for their willingness to pay (accept), or offer them choices between “bundles”
of attributes and from which choices the analysts can infer WTP (WTA).
Stated preference methods more generally offer a direct survey approach to estimating
individual or household preferences and more specifically WTP amounts for changes in
provision of (non-market) goods, which are related to respondents’ underlying preferences
in a consistent manner. Hence, this technique is of particular worth when assessing
impacts on non-market goods, the value of which cannot be uncovered using revealed
- Choice Modelling –enviremnet
Page 21 -25
- In your view, should such valuations vary with age?
In terms of practical guidelines, the age of the respondent who is valuing the risk matters.
Age may or may not be relevant in valuing immediate risks – the literature is ambiguous.
The general rule, then, is to ensure that age is controlled for in any primary valuation study.
For “benefits transfer” the rule might be one of adopting a default position in which
immediate risks are valued the same regardless of age (i.e. the VOSL does not vary with
age), with sensitivity analysis being used to test the effects of lower VOSLs being relevant
for older age groups. Age is very relevant for valuing future risks. Thus a policy which
lowers the general level of exposure to pollution should be evaluated in terms of the (lower
than immediate VOSL) valuations associated with younger people’s valuations of future
risks, plus older persons’ valuation of that risk as an immediate risk.
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