Cost-Benefit News

Link: http://news.google.com/news?ned=us

...
The government uses dollar amounts for lives when trying to weigh the costs and benefits of regulating such things as pollution, but it has proven politically and emotionally charged.

Now, the Environmental Protection Agency wants to ... use different terminology....

The agency's first try for a replacement — ... "value of mortality risk" — was shot down as not quite right by its Science Advisory Board on January 20, 2011.

The EPA proposal would also put more value on preventing cancer deaths over other causes of death, like heart attacks.... because there's a bigger scare factor for cancer.... But critics say that puts a premium on touchy-feely emotions over science.
...
For decades, the government in analyzing whether regulations make economic sense has used something called "value of a statistical life."

The so-called price tag became a political hot topic in 2002, when the Bush administration tried to reduce the value of elderly people by 38 percent compared to people under 70.

Then quietly in 2004, the EPA reduced the value of life for everyone from $7.9 million to $7 million. The Associated Press uncovered the devaluation in 2008 and the EPA's move was criticized by Democrats and ridiculed by comedians. Soon after the Obama administration took over in 2009, the value of a statistical life was pushed back up to $7.9 million.

The EPA has proposed changing the term to "value of mortality risk" and instead of using dollars for a theoretical life, regulations would be measured in "dollars per micro-risk per year." A micro-risk is one in a million.

So instead of using the value of a life at $7.9 million when calculations are made about the benefits of a regulation, it would be using figures that talk about the benefits of reducing deaths by $7.90 per micro-risk per person per year.
...
But science board members said the proposed term is clunky and confusing. They suggested "value risk reduction." Eventually, the board will make a recommendation to EPA's chief, who will make the final decision.
...
In the proposal, the EPA is adding a 50 percent "cancer differential" to calculating death risks. This would say the risk of dying of cancer is 50 percent worse — or costlier — than the risk of dying in other ways. EPA associate environmental economics chief Nathalie Simon pointed to scientific studies, based on surveys that say people would be willing to pay more to avoid dying of cancer, when compared to other causes of death.

John Graham, the Bush administration regulation chief who proposed discounting the value of seniors, said people may say they fear cancer more, but their actions don't back that up. In an e-mail, Graham, now dean of Indiana University's school of public and environmental affairs, questioned whether a "cancer premium" can be justified "in light of the reluctance of citizens to monitor for radon in their homes, enroll in cancer screening programs, and eat their fruits and vegetables on a daily basis."
...
Associated Press (AP) via Google www.google.com
For full story go HERE

Additional information from the EPA regarding the meeting including the Federal Register notice and comments can be found HERE

Frequently asked questions about mortality risk reduction are answered by the U.S. EPA National Center for Environmental Economics (NCEE) at:
http://yosemite.epa.gov/ee/epa/eed.nsf/webpages/MortalityRiskValuation.html

The White Paper can be found at
http://yosemite.epa.gov/ee/epa/eerm.nsf/vwAN/EE-0563-1.pdf/$file/EE-0563-1.pdf
Table of Contents
1 Introduction .. 3
1.1 Key topics .. 3
1.2 Roadmap .. 5
2 Background.. 7
2.1 The valuation challenge .. 7
2.2 Existing EPA Guidance .. 10
2.3 Recommendations from prior expert committees .. 11
3 Key Issues for EPA .. 14
3.1 Fundamental Concepts and Recommended Terminology Changes .. 14
3.1.1 Fundamental Valuation Concept .. 14
3.1.2 Change in metric and terminology .. 15
3.2 Altruism and willingness to pay for mortality risk reductions .. 17
3.3 Valuing cancer risks .. 20
4 Review of stated preference and hedonic wage studies .. 26
4.1 Stated preference studies .. 28
4.1.1 Recent meta-analyses of SP studies.. 29
4.1.2 A new meta-analysis dataset .. 31
4.2 Hedonic wage studies .. 35
4.2.1 Data sources .. 36
4.2.2 Estimation issues .. 37
4.2.3 Recent meta-analyses of hedonic wage studies .. 38
4.2.4 A new meta-analysis of hedonic wage studies .. 41
5 Methods for Combining Data .. 46
5.1 Meta-analysis .. 47
5.1.1 Parametric distribution .. 47
5.1.2 Classical econometrics .. 48
5.1.3 Bayesian estimation .. 51
5.2 Structural benefit transfer .. 53
5.2.1 Static preference functions .. 55
5.2.2 Life-cycle preference functions .. 57 6 Conclusions .. 59
6.1 Addressing key issues: terminology, altruism, cancer valuation .. 59
6.2 Longer term analytical directions .. 60
6.2.1 Meta-analysis .. 60
6.2.2 Structural Benefit Transfer .. 61
6.3 Other research directions .. 61

1 Introduction

The valuation of human health benefits is often a crucial, but sometimes controversial, aspect of the application of benefit-cost analysis to environmental policies. Valuing the reduced risks of mortality, in particular, poses a special set of conceptual, analytical, ethical and empirical challenges for economists and policy analysts. This white paper addresses current and recent U.S. Environmental Protection Agency (EPA) practices regarding the valuation of mortality risk reductions, focusing especially on empirical estimates of the ‚value of a statistical life‛ (VSL) from stated preference and hedonic wage studies and how they might be summarized and applied to new policy cases using some form of benefit transfer. Benefit transfer concepts will be highlighted throughout the paper, since any application of existing empirical estimates of values for health risk reductions to new policy cases is inherently a benefit transfer problem.

The main intended audience for this paper is EPA’s Science Advisory Board-Environmental Economics Advisory Committee (EEAC). The main objectives of the paper are to highlight some key topics related to the valuation of mortality risks, and to describe several possible approaches for synthesizing the empirical estimates of values for mortality risk reductions from existing hedonic wage and stated preference studies for the purpose of valuing mortality risk reductions associated with future EPA policies. Some of these approaches could be implemented in the short term, but others will likely require longer term research. We are soliciting general feedback and specific recommendations from the SAB-EEAC on each of these key topics and approaches.
...
EPA’s draft Guidelines for Preparing Economic Analyses (2008) (hereafter, the draft Guidelines) retains the recommendation from the 2000 version, a default central VSL value $4.8 million in 1990 real dollars. This estimate, after adjusting for inflation and real income growth, is to be applied to mortality risk reductions for all types of policies, no matter the source of the risk.2 The estimate is based on the mean of a probability distribution fit to twenty-six published VSL estimates. The draft Guidelines also indicates that the distribution itself can be used for formal uncertainty analysis. The underlying studies, the probability distribution parameters, and other useful information are available in Appendix B of the draft Guidelines (USEPA 2008).
...
Focusing on cancer risks from hazardous waste sites Alberini, et al. (2010) estimated a cancer VSL of approximately $5.6 million (2009 dollars) using the results of choice experiments in Italy. Carson and Mitchell (2006) examined willingness to pay for installing a water filtration system to remove trihalomethanes (THM) in public drinking water. Estimated values depend upon an assumed latency and discount rate, as well as the specific risk reduction, but generally range from $3.4 to $8.0 at the smallest risk changes for a 25-year latency. Buzby et al. (1995) used a telephone-mail survey to examine the value of reduced fatal cancer risk from exposure to pesticides in grapefruit, and estimated a value of statistical cancer fatality at $6.99 million based on exposure assumptions.

...