John A. Dixon johnkailua@aol.com Ashgabad, November, 2005 Adapted from materials prepared by Maureen Cropper The World Bank

1. GEF
Session 9A
Introduction to the Economics of
Pollution Control: Health Issues
John A. Dixon
johnkailua@aol.com
Ashgabad, November, 2005
Adapted from materials prepared by Maureen Cropper
The World Bank

2. Caspian EVE 2005/UNDP and WBI John A. Dixon, Econom
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?

3. Caspian EVE 2005/UNDP and WBI John A. Dixon, Econom
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)

4. Caspian EVE 2005/UNDP and WBI John A. Dixon, Econom
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

5. Caspian EVE 2005/UNDP and WBI John A. Dixon, Econom
GEF
The numbers can be large! For example, in
2010 the Monetized Benefits from the US
Clean Air Act are estimated as follows:
0 20 40 60 80 100 120
Agriculture
Visibility
Productivity
Other Morbidity
Chronic Bronchitis
Mortality
Cost
Billions of 1990 US$

6. Caspian EVE 2005/UNDP and WBI John A. Dixon, Econom
GEF
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

7. Caspian EVE 2005/UNDP and WBI John A. Dixon, Econom
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

8. Caspian EVE 2005/UNDP and WBI John A. Dixon, Econom
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

9. Caspian EVE 2005/UNDP and WBI John A. Dixon, Econom
GEF
Projected Reductions in Illness due to the US
Clean Air Act, Titles I - V
Health Endpoint Pollutant 2010 Mean reduction
Mortality
Age 30+ PM et al 23,000
Chronic Illness
Chronic bronchitis
Chronic asthma
PM
Ozone
20,000
7,200
Hospitalization
Respiratory admissions
Cardiovascular admissions
Asthma-related emergency room visits
PM, CO, NO2, SO2, Ozone
PM, CO, NO2, SO2, Ozone
PM, Ozone
22,000
42,000
4,800
Minor Illness
Avoided respiratory illnesses and
symptom-days, asthma attacks, work
loss days, etc.
PM, NO2, SO2, Ozone Millions of cases/incidence

10. Caspian EVE 2005/UNDP and WBI John A. Dixon, Econom
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

11. Caspian EVE 2005/UNDP and WBI John A. Dixon, Econom
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)

12. Caspian EVE 2005/UNDP and WBI John A. Dixon, Econom
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

13. Caspian EVE 2005/UNDP and WBI John A. Dixon, Econom
GEF
How to Measure WTP for a
Reduction in Risk of Death?
 Labor Market Studies
 Use compensating wage differentials to value risks
of death
 Contingent Valuation Studies
 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

14. Caspian EVE 2005/UNDP and WBI John A. Dixon, Econom
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

15. Caspian EVE 2005/UNDP and WBI John A. Dixon, Econom
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

16. Caspian EVE 2005/UNDP and WBI John A. Dixon, Econom
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

17. Caspian EVE 2005/UNDP and WBI John A. Dixon, Econom
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
Emergency Room Visits for Asthma PM10,O3 194 Per case
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
Work Loss Days PM10 83 Per day
Mild Restricted Activity Days PM10,O3 38 Per day

18. Caspian EVE 2005/UNDP and WBI John A. Dixon, Econom
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