**United States Office of Policy Analysis EPA-230-07-85-009**

**Environmental Protection Washington, DC 20460**

**Agency**

**EPA Executive Summary**

**Estimates of Willingness**

**to Pay for Pollution-Induced**

**Changes in Morbidity:**

**A Critique for**

**Benefit Cost Analysis**

**of Pollution Regulation**

Environmental Benefits

Analysis Series

**[EXECUTIVE SUMMARY]{.underline}**

**ESTIMATES OF WELLINGNESS TO PAY FOR POLLUTION-INDUCED**

**CHANGES IN MORBIDITY:**

**A CRITIQUE FOR BENEFIT-COST ANALYSIS OF POLLUTION REGULATION**

Prepared for:

U.S. Environmental Protection Agency, Washington D.C.

Prepared by:

Lauraine G. Chestnut

Daniel M. Violette

Energy and Resource Consultants, Inc.

P.O. Drawer 0

Boulder, CO 80306

\(303\) 449-5515

September 1984

The information in this document has been funded wholly or in part by
the United States Environmental Protection Agency under Contract
#68-01-6543. It has been subject to the Agency\'s peer and
administrative review, and it has been approved for publication as an
EPA document. Mention of trade names or commercial products does not
consititute endorsement or recommendation for use.

MORB5 (123C)

**[EXECUTIVE SUMMARY]{.underline}**

**PURPOSE AND GOALS OF THE REPORT**

This report reviews estimates of willingness to pay for the reduction or
prevention of pollution-induced morbidity. Its purpose is to provide
information that may assist in decisions concerning the regulation of
environmental pollution. An important motivation for this review is
Executive Order 12291, which requires an assessment of potential
benefits and costs before any major regulation is adopted. Benefits and
costs are to be quantified in dollar terms whenever possible. Although
the protection of human health is only one type of benefit from
regulating impacts on the environment, it may be the most important.
Whenever such benefits can be estimated in dollar terms, comparison with
other types of benefits, and with costs, will be facilitated.

This review critiques studies that have estimated willingness to pay
(WTP) and willingness to accept compensation (WTA), and related efforts,
specifically for changes in morbidity. Four types of studies are
reviewed:

> 1\) Health production function (HPF) studies specify a relationship
> between the individuals health and his expenditures of time and money
> in response to and for prevention of illness. These studies provide a
> theoretical analysis of the determinants of an individual's WTP (WTA)
> for changes in morbidity and some preliminary empirical estimates have
> been based on this approach.

2.  Cost of illness (COI) studies typically estimate the direct and
    indirect dollar costs associated with illness, which consist
    primarily of medical expenditures and income lost due to being sick.
    COI estimates are not equivalent to WTP (WTA) estimates for changes
    in morbidity, but under some circumstances they may provide a lower
    bound. There is an extensive COI literature and a wide range of
    applications. Two important COI studies are reviewed in detail and
    issues in applying

3.  COI methods for morbidity related to environmental pollution are
    discussed.

> 3\) Contingent valuation (CV) approaches use surveys designed to
> elicit WTP or WTA estimates from individual respondents. These
> approaches are in developmental stages when it comes to estimating WTP
> (WTA) for changes in pollution related morbidity. Five empirical
> estimates are reviewed.
>
> 4\) The health status index (HSI) research, from the psychology and
> public health literature research typically involves a subjective
> weighting or rating of different states of health in order to evaluate
> programs with different kinds of health outcomes. These studies do not
> provide estimates of WTP (WTA), but they provide information about the
> relative disutility of different types of morbidity. They also suggest
> some directions for future research efforts to estimate the WTP or WTA
> for changes in morbidity.

**ECONOMIC CONCEPTS OF BENEFITS FOR CHANGES IN MORBIDITY**

The motivation for this review is the desire to develop dollar estimates
of the benefits of reducing or preventing morbidity due to environmental
pollution. These estimates may then be used in benefit-cost analysis of
environmental regulations. Conversely, such values can be used in
estimating the loss of health benefits if environmental regulations are
relaxed. Economic theory suggests that the appropriate measure of the
social benefit of any program should reflect the total increase in
well-being that it provides for everyone whom it affects. Maximum WTP
(and minimum WTA) reflect how much of other goods and services the
individual is willing to give up in order to obtain a reduction or
prevent an increase in morbidity for himself and for others. This,
therefore, gives a dollar measure of the change in well-being that the
individual expects to experience. Summing this measure of maximum
individual WTP across all affected individuals provides an estimate of
the total social benefits.

**SUMMARY OF CONCLUSIONS**

A summary of the studies reviewed in this report is provided in Table 1.
Overall, very few satisfactory estimates of WTP for changes in morbidity
have been obtained. COI studies currently provide the most comprehensive
information on morbidity benefits, but theoretical analysis (Harrington
and Portney, 1982) and empirical evidence (Rowe and Chestnut, 1984)
suggest that these estimates understate society\'s total WTP for changes
in morbidity. On the positive side, the lower bound estimates provided
by the COI measure are useful in benefit-cost studies and for most
applications represent the best information currently available. The CV
approach to estimating WTP (WTA) for changes in pollution-induced
morbidity is promising, but has had limited application. Two CV studies
provide WTP estimates for specific kinds of respiratory symptoms, which
may be useful for policy decisions regarding those kinds of health
effects. The HPF studies have not provided very useful WTP estimates to
date due to data limitations or restrictive theoretical assumptions, but
they have provided useful conceptual analyses of the morbidity valuation
problem. The conceptual contributions of the HPF studies illustrate the
limitations of the COI estimates and provide insights that could prove
useful in performing CV studies. The extensive data requirements of the
HPF approach for estimating WTP (WTA) for changes in morbidity are
problematic. The HSI studies provide interesting descriptions and
rankings of health states but have not estimated WTP. The reviews of
these studies are summarized below.

Some general points have emerged during this review that are important
to consider in any application of estimates of WTP (WTA) for changes in
morbidity, whether new estimates are being made or whether estimates
from previous studies are being applied.

1\. [Society\'s WTP and the individuals WTP may differ]{.underline}.
What an individual is willing to pay to prevent or reduce his own
morbidity may differ from what society is willing to pay due to the
availability of subsidized medical care and sick leave, due to the worry
and inconvenience suffered by family and friends, and due to the
altruism of others. It is possible to have a comprehensive theoretical
definition of the individual\'s WTP (WTA) as that which he is willing to
pay to prevent or reduce his own and others\' morbidity, but empirical
estimates may or may not be comprehensive depending on how, they are
obtained. An evaluation of public policy requires consideration of all
costs and benefits to society, so analysts should be clear about whether
they have estimates of the individuals\' or society\'s WTP (WTA).

Table 1

Summary of Studies Reviewed

Usefulness for

Important Pollution-Related

Authors Type of Data Findings Morbidity Valuation

(Year) Approach Brief Description Crucial Assumptions Sources (1983
dollars) and Other Comments

Cropper Health pro- An expression for WTP for - Health affects the indi-
Michigan Panel The outcome of the The usefulness is lim-

\(1981\) duction func- changes in pollution was de- vidual's well-being
only [via]{.underline} of Income Dy- theoretical analysis ited due to
the re-

tion rived from a health produc- changes in time lost from namics for
1970, was that WTP is 2 strictive assumptions

tion function model, and es- work and in health enhanc- 1974 and 1976.
times the value of of the model.

timated for employed men ing or protecting expendi- time lost due to
ill-

ages 18 to 45 with work loss tures.

days as the measure of time

spent sick and SO~2~ as the pol- - Specific functional forms

lution measure. were assumed for the rela-

tionships in the model

Gerking [et al]{.underline}. Health pro- An expression for WTP for
Individuals are able to obtain St. Louis Health The outcome of the The
WTP estimates

\(1983\) duction func- changes in pollution was de- an optimal amount of
preven- Survey theoretical analysis obtained are not use-

tion rived from a health produc- tive medical care and other was that
WTP can be ful for policy analysis

tion function model that in- defensive efforts such that expressed in
relation- due primarily to the

corporated direct utility the marginal costs equal the ships that are
poten- limitations of the

effects of health. The WTP marginal benefits. tially observable. data
used.

expression was then estimated

for St. Louis residents and air

pollution effects on health.

Harrington Health pro- A health production function - Individuals are
able to ob- None The outcome of the The conclusions of

and Portney duction func- model was used to analyze the tain an optimal
amount of theoretical analysis the analysis support

\(1982\) tion components of WTP for preventive medical care was that the
indi- the use of COI esti-

changes in pollution. and other defensive efforts vidual's WTP can be
mates for as a lower

such that the marginal expected to exceed bound for WTP.

costs equal the marginal COI incurred by the

benefits. individuals.

\- The health production func-

tion is such that when pol-

lution increases defensive

efforts do not decrease

and/or health does not im-

prove.

Table 1

Summary of Studies Reviewed

(continued)

Usefulness for

Important Pollution-Related

Authors Type of Data Findings Morbidity Valuation

(Year) Approach Brief Description Crucial Assumptions Sources (1983
dollars) and Other Comments

Cropper and Cost of ill- Developed cost of illness All costs were
allocated - National Center for - Total direct medical ex- The results
can be

Rice (1976) ness - prev- estimates covering med- according to primary
Health Statistics penditures in 1972 were used to estimate a

alence based ical expenditures and diagnosis. \$179,050 million. lower
bound on WTP

productivity losses due - Health Care Fi for broad categories

to an illness for 1972 for nancing Adminis- - Total productivity losses
of illnesses when

the U.S. divided into 16 stration due to morbidity in 1972 prevalence
based

major disease categor- were \$100,728 million. costs are relevant and

ies. - National Diseases when the portion of

and Therapeutic illness (and costs) at-

Index tributable to pollution

can be estimated.

\- Current Population

Survey

Hartunian [et]{.underline} Cost of ill- Developed incidence Projections
of future Many - see Table 3.9 - Incidence based costs are The results
can be

[al]{.underline}. (1980, ness - inci- based cost of illness costs for
cases begun in (in full report) quite different than used to estimate a

1981\) dence based methodology and esti- 1975 can be approximat-
prevalence based costs. lower bound on WTP

mates for 1975 for cate- ed by costs of previous for these categories

gories of disease: can- cases. - Average total cost per of illnesses
when in-

cer, stroke, coronary incident (present value): cidence based costs

heart disease and motor Cancer: \$64,818 are relevant and when

vehicle injuries Stroke: \$47,232 the portion of illness

Coronary (and costs) attributa-

Heart Disease: \$38,450 ble to pollution can

Motor Vehicle Accidents: be estimated.

\$6,253

Note: The reported

results include losses

due to premature

death as well as mor-

bidity.

Table 1

Summary of Studies Reviewed

(continued)

Usefulness for

Important Pollution-Related

Authors Type of Data Findings Morbidity Valuation

(Year) Approach Brief Description Crucial Assumptions Sources (1983
dollars) and Other Comments

Loehman [et]{.underline} Contingent A mail survey of Tampa, - Mail
survey is ade- General pop- - Estimated median WTP - Relevant for short

[al]{.underline}. (1979) and valuation Florida, residents obtained quate
for CV ap- ulation survey for avoidance of 1 day of term respiratory

Loehman and WTP estimates for avoid- proach. respiratory symptoms:
symptoms.

De (1982) ance of minor and severe minor - \$3 to \$8

respiratory symptoms for 1 - Preference for use of severe - \$11 to
\$18 - Ambiguity in refer-

day, 1 week or 3 months median rather than ence to decreases in

each year. mean WTP. - WTP was much higher existing symptoms or

for those without medi- prevention of addi-

cal insurance. tional symptoms

makes responses for 1

\- WTP influenced by cur- week and 3 months

rent health status. especially suspect

Rowe and Contingent A study of asthmatics in a - Use of Individual de-
Survey of a pa- - Mean WTP for a 50% re- - Relevant for valuation

Chestnut valuation high pollution area near fined "bad asthma nel of
asthma- duction In "bad asthma of Impacts of air pol-

\(1984\) Los Angeles, In conjunction day tics days" per year: \$400 or
lution as it aggravates

with a UCLA epidemiologi- - Ranking of benefits of \$21 per \"bad asthma
day\" asthma.

cal study, to explore WTP reducing asthma reduced. - Conclusion that WTP

versus COI for reductions symptoms can be in- - Individuals WTP exceeds
exceeds COI 1.6 to 2.3

in asthma symptoms and terpreted so that WTP COI Incurred by the In-
times Is subject to In-

mitigating behavior. for benefits would be dividual by 1.6 to 2.3
terpretatim of the

In same order. times. rankings of benefits.

\- Provides evidence that

mitigating behavior does

occur.

Brookshire [et]{.underline} Contingent Survey of Los Angeles area - WTP
to prevent health General pop - WTP to reduce health WTP estimates not

[al]{.underline}. (1979) valuation residents concerning WTP and
aesthetic impacts ulation survey effects is about 2/3 of useful for
morbidity

for reductions In air pollu- are additive. total WTP to reduce pol-
valuation due to un- tion,separating acute and - General public is able
lution, on average. certainty about the

chronic health effects and to reasonably aswss - Income is positively
re- change in morbidity

visibility effects. air pollution impacts lated to WTP. being valued.

and provide meaning-

ful valuation.

Table 1

Summary of Studies Reviewed

(continued)

Usefulness for

Important Pollution-Related

Authors Type of Data Findings Morbidity Valuation

(Year) Approach Brief Description Crucial Assumptions Sources (1983
dollars) and Other Comments

Loehman [et]{.underline} Contingent Survey of San Francisco General
public is able to General pop- - WTP to reduce or pre- WTP estimator are
not

[al]{.underline}. (1981) valuation area residents concerning reasonably
assess air ulation survey vent health effects is useful for morbidity

WTP for reductions In air pollution impacts and about 1/2 of total WTP
valuation due to

pollution, separating health provide meaningful to reduce pollution, on
uncertainty about the

and visibility effects. Rep- valuation. average, but WTP for change in
morbidity

lication of Brookshire [et al]{.underline}. health and visibility are
being valued.

(1979). not necessarily additive.

\- Current health and in-

come affect WTP.

Schulze [et al]{.underline}. Contingent Survey of Los Angeles area
Responses about a General pop- WTP Is influenced by in- WTP estimates
are not

\(1993\) valuation residents regarding a specific episode in the ulation
survey dividual's preferences for useful for morbidity

severe ozone episode that past can be generalized. outdoor recreation.
valuation because

recently occurred, asking interpretation of WTP to

WTP to prevent the have avoided a past

episode, focusing on the episode is not clear.

health effects of high lev-

els of ozone.

Sintonen Health Status A health Index was deve- - An additive model im-
General pop- - Two health index It Is useful In that it

\(1991\) Index loped using 12 health plying independence ulation survey
functions were estimated constructs a ranking of

dimensions with 5 to 7 between the health using different scaling health
states that is

levels of health in each dimensions is approp- techniques. The value
based on function

dimension. Two psy- riate. rankings implied by each impairment and is
dis-

chometric scaling tech- - Individuals can accur- function were closely
ease independent with

niques were used - the ately rank the desir- correlated. weights
obtained from a

category method and mag- ability of different general population sur-

nitude method - by a health states. - The survey participants vey.

general population sample indicated that the

to estimate weights for the approach was under- - This approach does

index. standable. not estimate the value

in monetary terms of

alternative health

states. However, it

provides a base de-

scription and ranking

of health states that

could be used in a

contingent valuation

study.

Table 1

Summary of Studies Reviewed

(concluded)

Usefulness for

Important Pollution-Related

Authors Type of Data Findings Morbidity Valuation

(Year) Approach Brief Description Crucial Assumptions Sources (1983
dollars) and Other Comments

Torrance et Health Status A four dimensional health A multiplicative
func- General pop- The study found the differ- The study constructs a

a1. (1992) Index state classification system tional form is an approp-
ulation survey in ent health dimensions to be helath status index

was used as the basis for a riate approximation of Ontario, Canada
complements for the indi- based on a functional

health status index. A the individual's utility viduals interviewed. The
classification that is

multiattribute utility function - indenpendence condition of additive
inde- disease independent.

function was constructed between health dimen- pendence was tested and.
This health state classi-

that allowed for health sions was not assumed, rejected fication could
be used in

dimensions to be either but the interaction be- a contingent valuation

substitutes or com- tween the dimensions - Survey participants study to
obtain mone-

plements. was subject to a number claimed to understand tary valuations
for

of constraints. the questionnaire and changes in helath status.

procedures.

Rosser and Health Status A simple set of health The simplified health A
survey of - Individuals' perceptions This type of simplified

Kind (1978) Index states was constructed state classification sys-
health profes- of the desirability of function/dysfunction an-

using two dimensions - one tem used is an adequate sionals and health
states changed alysis of health states

relating to physical and description of alterna- selected pa- over the
course of the that is disease independ-

mental disability, and the tive health states. tients interview. ent
could be very useful

second relating to pain and as a starting point for a

distress. An Index for - The rankings of states contingent valuation

these health states was varied with current ex- study.

constructed using magni- perience of illness but

tude and ratio scaling not past experience.

methods.

\- Socioeconimic variables

did not influence health

state rankings.

2\. [Acute and chronic illness should be approached
differently]{.underline}. Acute illnesses can typically be accomodated
in an individual's life by temporary changes in work and leisure
activities, allowing the individual to return to the same lifestyle once
he or she recovers. Chronic illnesses, on the other hand, typically mean
a permanent change in an individuals routine and lifestyle. In general,
the estimation of WTP (WTA) for changes in acute illness is less
complicated than for changes in chronic illness, because permanent
lifestyle changes are difficult to evaluate. For example, CV surveys are
known to be more effective when concerned with experiences that are
familiar to respondents, implying that obtaining CV estimates for
changes in the risks of experiencing short term respiratory infections
would be less problematic than obtaining CV estimates for changes in the
risks of experiencing a chronic condition such as emphysema with which
the respondent has little familiarity. The impacts of developing a
chronic condition could include substantial effects on family members
and friends as well as on the affected individual. A long term
disability can change the individuals role in a family and in a
community. Current WTP (WTA) estimation approaches are very limited in
their ability to quantify these kinds of impacts. Acute illnesses can
also affect family, friends, employers and taxpayers, but these impacts
are defined more easily.

3\. [The appropriate measure of morbidity may vary]{.underline}. For any
effort to estimate WTP (WTA) for changes in morbidity, the change in
morbidity must be clearly defined. It might be defined as a change in
the number of people expected to come down with a specific illness in a
given time period, or it might be measured as a change in a general
level of illness, such as work loss days or restricted activity days. It
might also be measured as a change in some sort of health status
dimension used in the HSI studies. The choice of a measure of morbidity
will depend in part on the information available about the effects of
the pollutants under consideration, and the choice of a morbidity
measure will in turn influence the approach used for estimating WTP
(WTA) for the change in morbidity. Most important, the appropriate
measure of morbidity will depend on the potential change in pollution
being evaluated and what the morbidity effects are expected to be.

4\. [WTP (WTA) for changes in morbidity is influenced by the current
health of the individual]{.underline}. There is some evidence that
individuals who are in worse health are willing to pay more to prevent
additional morbidity or to reduce current morbidity. This is consistent
with what might be expected on theoretical grounds since those

with lower health levels may value increments of health more highly.
This is important for environmental policy considerations because in
many instances the group at risk is a \"sensitive\" population that
already has some health problems rather than the general public.

**SUMMARY OF THE REVIEWS**

**[HPF Studies]{.underline}**

Cropper (1981), Gerking [et al]{.underline}. (1983) and Harrington and
Portney (1982) have developed models of individual behavior that
incorporate the concept that people make expenditures of time and money
in order to protect and maintain their health.^1^ This means that the
observed effects of pollution on human health reflect only part of the
disutility of pollution. The other part is the opportunity cost of the
resources devoted to avoiding or mitigating additional health effects.
The HPF models show the different ways pollution can be expected to
affect an individuals utility, through actual or potential effects on
his own health.

Expressions for WTP (WTA) for changes in pollution have been derived
from these models. The results of these analyses suggest ways to
approach the estimation of WTP (WTA) and give criteria by which to
evaluate the completeness of other WTP (WTA) estimates. This is the most
useful contribution of these studies to date. The empirical estimates
that have been made must be interpreted in the context of the data
limitations and assumptions used. More work needs to be done before
policy relevant estimates of WTP (WTA) can be obtained with this
approach.

Harrington and Portney provide a more general HPF model than Gerking et
al. or Cropper. The expression that they derive for WTP (WTA) for
changes in health related pollution includes the following four
components:

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

^1^An extensive HPF literature has developed since the seminal article
by Grossman (1972) with a wide variety of applications. This review is
limited to those HPF studies that specifically address WTP (WTA) for
pollution-induced changes in morbidity.

ο The opportunity cost of the change in time spent sick due to the
change in pollution

> ο The change in medical expenditures associated with the change in
> time spent sick as a result of the change in pollution
>
> ο The change in defensive expenditures associated with the change in
> pollution
>
> ο The direct disutility (the pain and discomfort) associated with the
> effect of the change in pollution on the individuals health

In all of the HPF models the opportunity cost of time spent sick is
interpreted as the individual's marginal wage rate. If this assumption
is accepted it allows a fairly straight-forward approach to estimating a
value for this component. Available information about medical
expenditures can also be used to estimate a value for the second
component. The third and fourth components pose more problems, which the
Cropper and Gerking [et]{.underline} [al]{.underline}. studies have
tried to address, at least in part. On the basis of their expression for
WTP (WTA) Harrington and Portney argue that under reasonable assumptions
WTP (WTA) can be expected to exceed income lost and medical expenditures
incurred due to illness.

The model developed by Cropper includes only the first and third
components of WTP (WTA) for changes in pollution. In other words, it was
assumed the only avenues by which pollution affects the individuals
well-being are through the opportunity cost of changes in time spent
sick and through defensive expenditures and activities (including
preventive medical care). Assuming specific functional forms for the
relationship in the model, Cropper demonstrated that these two
components of WTP (WTA) would be equal. The empirical estimate of WTP
for a change in pollution was therefore simply two times the change in
time spent sick, times the wage rate.

Gerking [et al]{.underline}. include the direct utility effects of
health in their model, as well as the opportunity cost of time spent
sick and defensive expenditures in response to pollution. They, however,
derive an expression for WTP (WTA) that depends only on the
rel-ationships between health and pollution and between health and
defensive expenditures and on the price of defensive expenditures. This
expression shows promise for empirical estimation because the direct
effects of utility, which cannot be directly observed, have

been eliminated. The empirical estimates are acknowledged by Gerking [et
al]{.underline}. to be flawed by data limitations. These problems
illustrate the difficulties in specifying a health production function
that is useful for empirical analysis.

**[COI Studies]{.underline}**

The COI studies refer to an extensive research area that has been
concerned with esti-mating the economic burden of illness on society.
Three categories of costs are typically discussed in the COI literature:

> 1\. [Direct costs]{.underline} are for preventive medical care,
> treatment, extended care, and rehabilitation related to illness.
>
> 2\. [Indirect costs]{.underline} are goods and services that do not
> get produced due to morbidity or premature mortality.
>
> 3\. [Psychosocial costs]{.underline} are the pain, suffering and
> emotional distress in-curred by patients, family and friends.

Most COI studies develop quantitative estimates of direct and indirect
costs associated with all illness or with specific diseases.
Psychosocial costs are usually acknowledged as potentially important,
but are treated as nonquantifiable. For evaluating programs to prevent
or reduce health related effects of environmental pollution, the
question is how direct and indirect costs of illness can be expected to
be related to WTP (WTA) for changes in health. For the most part, they
can be expected to be a lower bound on total social WTP (WTA) for
changes in pollution-induced morbidity, because they do not include all
the expenses of time and resources associated with the preventive
medical care or mitigation of health effects (such as exercise or
changes in activities to reduce exposure to pollution), or the pain and
inconvenience associated with illness for the patient as well as family
and friends. In this light, COI studies are a useful source of
information for policy makers concerned with the health effects of
environmental pollution.

The COI literature is extensive and a detailed review was beyond the
scope of this report. Hu and Sandifer (1991) review 238 COI studies for
specific illnesses. In many cases there is enough information readily
available to develop new COI estimates for a

specific pollution related health effect under consideration. Mullner
[et al]{.underline}. (1983) have compiled an inventory of national
health care information data bases that might be of use for COI studies.

Specific applications of COI for environmental policy issues should
consider whether to use incidence or prevalence based estimates.
Incidence based estimates are all the costs associated with each case of
a disease that begins in a given year, from \'its onset until recovery
or death occurs. Prevalence based costs reflect all the costs associated
with all cases of a disease (new or old) that are incurred in a given
year. Incidence based costs may be more relevant for pollution induced
health effects, if, for example, a reduction in pollution means that
fewer people will come down with a specific illness. Incidence based
cost estimates are, however, more difficult to obtain and have received
less attention in the COI literature. On the other hand, if the
reduction in pollution shortens the time spent ill (for any average
case), prevalence-based costs may adequately reflect both the reduction
in number of cases and in the length of illness.

An important difference between standard COI estimates and pollution
induced health issues is that the latter are typically concerned with a
[change]{.underline} in the incidence or prevalence of a condition,
while COI estimates are typically for all cases of a given condition.
This means that some procedure must be used to determine what
[part]{.underline} of the COI estimate would be associated with a given
change in pollution. The appropriate procedure will depend on the
pollution change being considered and the type of information available
to the analyst. It is often assumed that changes in COI are proportional
to the change in illness. This implies an assumption that the people
affected by the pollution are representative of the population of all
people with that illness in terms of socioeconomic characteristics, such
as income. It also assumes that the pollution induced health effect is
typical of most cases of that illness in terms of medical costs. The
validity of these assumptions and the possibility of making adjustments
when they are not considered acceptable will have to be considered on a
case by case basis.

Cooper and Rice and (1976) Hartunian [et al]{.underline}. (1980, 1981)
are two COI studies that were reviewed in more detail because they
illustrate current practice in COI estimation methods and their results
are potentially useful for pollution related COI studies. Cooper and
Rice developed prevalence based COI estimates for all illness and
premature death in the U.S. in 1972. These costs were allocated among 16
disease categories. Their results have been frequently applied to more
specific COI questions. They are useful for

developing quick COI estimates for broad categories of morbidity. For
example, Manual [et al]{.underline}. (1983) use the Cooper and Rice
results to estimate the change in direct medical expenditures that could
be expected to be associated with a change in work loss days as a result
of a change in ambient particulate levels.

Hartunian [et al]{.underline}. (1996, 1981) estimate incidence based COI
estimates for 1975 for four types of conditions: cancer, motor vehicle
injuries, coronary heart disease and stroke. The Hartunian [et
al]{.underline}. studies set the methodological example for incidence
based COI estimation and their results are potentially useful for
environmental pollution applications for the disease categories covered.

**[CV Studies]{.underline}**

Two CV studies (Loehman [et al]{.underline}., 1979, and Rowe and
Chestnut, 1984) provide estimates of WTP for changes in specific kinds
of morbidity: acute respiratory symptoms for the general population and
changes in the frequency of symptoms for people who already have asthma.
Due to uncertainties in any CV estimation, these numbers should be used
cautiously until they are verified in repeated estimations. CV
approaches of this type seem to be most applicable for changes in acute
illness that are familiar to the survey population (this includes
aggravation of chronic conditions that people already have).

The results of the study by Loehman [et al]{.underline}. are applicable
with regard to the prevention of some short term respiratory symptoms.
These include shortness of breath, head congestion and
coughing/sneezing. These symptoms were characterized as minor, causing
little interference with normal daily activities, or severe, causing
considerable interference with normal daily activities. Median WTP
estimates obtained were highest for shortness of breath and lowest for
coughing/sneezing. Median WTP to prevent one day of minor symptoms
ranged from about \$3 to \$8 (1983 dollars), and to prevent one day of
severe symptoms ranged from about \$11 to \$18.

Rowe and Chestnut (1984) found mean WTP by a sample of asthmatics for a
50 percent reduction in \"bad asthma days\" to be about \$400 (1983
dollars) per year. The respondents were asthmatics with an average of 38
\"bad asthma days\" per year, so this was an average of about \$21 per
bad asthma day reduced. The results of this study also indicate that an
individuals WTP for a reduction in asthma symptoms is as much as 1.6 to
2.3

times the estimated sum of direct medical expenditures and income lost
[incurred by the individual]{.underline}.

Other contingent valuation studies (Brookshire [et al]{.underline}.,
1979; Loehman [et al]{.underline}., 1981; and Schulze [et
al]{.underline}., 1983) were discussed that do not provide estimates of
WTP for specific changes in morbidity, but provide some information
about WTP for changes in pollution levels that are associated with
health effects. The results of these studies and the two mentioned above
support the following points concerning WTP for changes in morbidity:

> ο WTP to prevent a deterioration in health can be expected to exceed
> WTP to obtain the same size improvement in health.
>
> ο WTP of people in poor health tends to exceed WTP of people in good
> health.
>
> ο Higher household income may mean higher WTP.
>
> ο Total WTP of men and women are not significantly different (in
> contra-diction to COI estimates that show higher values for men due to
> higher wages).
>
> ο Insurance coverage may mean lower individual WTP.

**[HSI Studies]{.underline}**

The HSI studies reviewed do not provide any dollar estimates of value
for changes in morbidity, but they provide guidelines for characterizing
changes in morbidity that could be used in future valuation studies. The
health status classifications developed in this literature are typically
function and symptom oriented, not disease specific. This
function/dysfunction approach is appealing for benefits analysis because
it incorporates the factors that directly influence an individuals
quality of life with respect to health. In addition, a suitable health
status classification system could simplify the benefits estimation
problem. The number of possible health effects that are environmentally
caused or aggravated is potentially large. It would be very difficult to
conduct a separate benefits study for each illness. A more tractable
approach may be to define a set of

health dimensions, similar to those developed in the HSI literature by
Torrance [et al]{.underline}. (1982), Sintonen (1981) and Rosser and
Kind (1978), that could be used to characterize the health effects of
different pollutants. Changes in these function/dysfunction based health
states could then be valued and used to deduce the benefits of
preventing or reducing illnesses that cause these symptoms. This
classification system could incorporate a time dimension so that both
chronic and acute effects could be included. However, health status
index studies to date have not incorporated time in this manner.

HSI studies ask individuals to rank different health status levels
according to the perceived disutility, or utility, associated with each
health state. The results of these rankings provide useful information
for future surveys concerning the valuation of health. Rosser and Kind
demonstrate that individuals do not necessarily have well formulated
values, especially with respect to health states with which they have no
previous experience. When conducting CV studies or surveys to construct
a health status index, the standard assumption is that individuals have
well formulated values and the goal of the survey is to elicit those
values. However, in some instances individuals may not have previously
considered the tradeoffs in the way they are being addressed in the
study and may have to formulate their opinions during the course of the
interview. Some respondents found that their values had changed from the
beginning to the end of the exercise. This means that the survey
instrument itself is extremely important because it can influence this
value formulation process.

Rosser and Kind also investigated whether different socioeconomic
subpopulations rated the health states differently. They found no
significant differences between the ratings of the subgroups, except for
those with different current health problems.

Most HSI surveys were well received by the subjects. Sintonen (1981)
reported that the subjects generally found the questions easy to
understand, although sometimes difficult to answer. Also, few subjects
objected to the elicitation or found the questions impossible to answer.
The HSI surveys may be more favorably received than similar willingness
to pay studies would be, due to the additional difficulties of valuing
changes in health in dollar terms.

**RECOMMENDATIONS FOR FUTURE RESEARCH**

Given the overall conclusion that we know very little about dollar
values for pollution-induced changes in morbidity, additional research
in any of the areas discussed would be useful. This section focuses on
some specific research suggestions aimed at improving information about
WTP (WTA) for changes in morbidity and applying the estimation
techniques in ways for which they are most suited. They are presented
roughly in order of priority, as perceived by these authors.

**[A contingent valuation study coriceminit work loss days and
restricted activity days]{.underline}.** Data on work loss days
(WLD\'s), restricted activity days (RAD\'s) and bed days (BO\'s) due to
illness are collected annually for the U.S. population by the National
Center for Health Statistics (NCHS). These data have been used in
several epidemiological studies concerning the health effects of
pollutants. (See for examples Ostro, 1983, and Portney and Mullahy,
1983.) Estimates of dollar values for changes in these measures of
morbidity have typically been based simply on the average wage rate as a
proxy for the opportunity cost of time spent sick. This can be expected
to provide a lower bound on total social WTP for changes in WLD\'S,
RAD\'s or BD\'s, but how much \"true\" WTP might be is unknown. Better
measures of value for changes in WLD\'S, BD\'s and RAD\'s would be
useful because these measures of health effects are likely to continue
to be extensively used. A suitable application of a CV approach would be
to estimate individual WTP to reduce or prevent WLD\'S, RAD\'S, and
BD\'s. Short term illnesses that interfere temporarily with normal daily
activities are familiar experiences for most people, and are therefore
readily addressed in a CV survey.

**[Health status indices and benefits research]{.underline}.** The
research on health status characteriza-tion and indices may provide a
useful starting point for obtaining economic values for changes in
health in a CV study. These health status classifications emphasize the
func-tion/dysfunction aspects of illness, including such things as the
ability to perform the usual activities for an individuals social role
as well as certain \"quality of life\" aspects. This type of health
measure would be useful for pollution control benefits studies because
it can reflect factors that affect quality of life and can incorporate a
wide variety of potential health effects since it is disease
independent. A health status classification that encompasses the
functional effects of a variety of environmentally caused or

aggravated illness need not be complicated. The classification used by
Rosser and Kind (1978), for example, resulted in thirty-two combinations
describing different health states. This is few enough to allow for the
direct valuation of changes between states using CV methods.

**[Health production function estimation]{.underline}**. The estimation
of WTP for changes in morbidity by Gerking [et al]{.underline}. (1983)
was not an adequate demonstration of the possibilities of the HPF
approach due to the limitations of the data that were used. An estimate
of the expression for WTP that Gerking [et al]{.underline}. derived from
the HPF model would be useful because the model incorporates the pain
and suffering associated with illness for the individual, although the
theoretical limitations of the model would first have to be thoroughly
explored. The estimation of this expression for changes in pollution
requires an estimate of the health production function \-- the
relationship between health and medical care, pollution and other
characteristics of the individual \-- and an estimate of the price of
medical care. A survey probably would be needed to obtain adequate data
for this estimation.

**[Cost of illness studies]{.underline}**. The priorities for research
concerning the value of changes in morbidity for use in benefit-cost
should be to develop estimates of willingness to pay. However, the lack
of adequate estimates of willingness to pay for changes in morbidity
means that COI estimates will continue to be useful. It will therefore
be important to keep track of new developments in the COI literature,
especially in the area of incidence based costs. Improved information
about marginal costs of illness versus average costs and about per
person or per incident costs would also be useful for applications to
pollution control issues. It would also be useful to continue to explore
the expected relationship between COI and WTP estimates, as well as
comparing estimates of WTP based on other estimation methods with what
comparable COI estimates would have been. Effort to expand COI estimates
to include more of the expected components of WTP would be useful.
Mushkin (1979b) provides an example of this kind of expansion.

**[Morbidity as related to mortality]{.underline}.** Many regulatory
actions will affect both morbidity and mortality, so that it may be
difficult to find data sets where the two effects can be assessed
separately, particularly when chronic illness is involved. Since the
policy need

is for a total benefit measure, a useful theoretical development would
be the creation of models that combine morbidity and mortality
considerations. One step in this direction would be the extension of
morbidity models to allow for multiperiod decision making. Then the
benefits could be calculated for present actions that reduce future time
spent sick (or severity), leading to a better understanding of
trade-offs that are not easy to include in a single period model. The
separability of morbidity and mortality could be addressed in such a
model.

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