Final Report

[VALUATION]{.underline} [OF]{.underline} [REDUCTIONS]{.underline}
[IN]{.underline} [HUMAN]{.underline} [HEALTH]{.underline}

[SYMPTOMS]{.underline} [AND]{.underline} [RISKS]{.underline}

Volume 1

EXECUTIVE SUMMARY

George Tolley

Lyndon Babcock

and

Mark Berger

Anthony Bilotti

Glenn Blomquist

Michael Brien

Robert Fabian

Gideon Fishelson

Charles Kahn

Austin Kelly

Don Kenkel

Ronald Krumm

Tracy Miller

Robert Ohsfeldt

Sherwin Rosen

William Webb

Wallace Wilson

Martin Zelder

The University of Chicago

Cooperative agreement between the University of Chicago and the U.S.
Environmental Protection Agency with participation by University of
Illinois at Chicago, University of Kentucky and University of Wyoming.

USEPA Grant #CR-811053-01-0

PROJECT OFFICER: Dr. Alan Carlin

Office of Policy Analysis

Office of Policy, Planning and Evaluation

U.S. Environmental Protection Agency

Washington, D.C. 20460

January 1986

# DISCLAIMER

Although funded by the United States Environmental Protection Agency
under Cooperative Agreement No. CR811053-01, the views expressed in this
report do not necessarily represent those of the Environmental
Protection Agency. Mention of trade names or commercial products does
not constitute endorsement or recommendation for use.

[VALUATION]{.underline} [OF]{.underline} [REDUCTIONS]{.underline}
[IN]{.underline} [HUMAN]{.underline} [HEALTH]{.underline}
[SYMPTOMS]{.underline} [AND]{.underline} [RISKS]{.underline}

[Abstract]{.underline} [of]{.underline} [Executive Summary]{.underline}

1\. INTRODUCTION

The project undertakes an assessment and reconciliation of attempts to
value reductions in human health risks, and it develops new methods and
estimates for these values. The report on the project consists of four
volumes. Volume 1 (this volume) contains the Executive Summary of
project findings. The Executive Summary is abstracted here.

2\. COMPARATIVE ANALYSIS OF APPROACHES TO VALUING HEALTH RISKS

Volume 2 contains a comparative assessment of work on valuing health
risks. Based on the assessment, a set of interim morbidity and mortality
values applicable to effects of criteria air pollutants is developed.

Following the introduction to Volume 2, section 2.2 presents a model for
valuing health risk reductions which can be used to compare alternative
approaches to valuing health risks. Plausible assumptions imply that
cost of illness and preventive expenditures measures are lower bounds to
willingness to pay for health risk reductions. Contingent valuation,
hedonic measures and other valuation approaches are compared
conceptually.

Section 2.3 gives a critique of econometric evidence on the effects of
environmental quality on human health. One of several concerns with
comparability and reliability is how estimates are affected by avoidance
measures taken by individuals in response to adverse environmental
conditions. The assessment considers in detail five major empirical
studies of the effects of air pollutants on mortality.

Section 2.4 is concerned with the cost of illness approach to measuring
health benefits. A contribution of the present project is to put
estimates of the aggregate cost of illness (medical expenditures and
foregone earnings) due to morbidity on an individual per case and per
day spent ill basis. Section 2.4 includes an evaluation of previous cost
of illness studies.

Section 2.5 is concerned with contingent valuation studies in which
interview estimates are obtained of willingness to pay for health. The
three major existing contingent valuation studies of morbidity are
evaluated.

In section 2.6, a comparison is conducted of cost of illness

and contingent valuation benefit measures obtained for a group of
individuals for a common set of symptoms. The results indicate that
willingness to pay as revealed through contingent valuation greatly
exceeds cost of illness. The two measures do not move together in any
systematic fashion.

Section 2.7 considers the household production approach, in which the
individual produces health by combining his own time and effort with
purchased goods. Two studies are reviewed that use this framework to
produce illustrative empirical estimates of willingness to pay for
health improvements.

Section 2.8 reviews the housing market hedonic literature throwing light
on housing price premiums for air quality. Estimates from this
literature are used to obtain suggestive upper bound estimates of the
value of mortality risks.

Section 2.9 brings together the foregoing results to arrive at a set of
health risk values for use in environmental assessments. Interim values
applicable to air pollution are developed. High, low and medium
estimates are developed for morbidity conditions and mortality. Medium
estimates of the value of reducing various types of acute or short term
morbidity range from \$25 to \$125 per day. Medium estimates of the
value of reduced aggravation of previously existing chronic morbidity
conditions range from \$60 to \$150 per day. Medium estimates of the
value of reduced new incidence of chronic morbidity conditions range
from \$800 per year for uncomplicated angina to \$60,000 per year for
non-fatal cancer. The medium estimates for mortality range from \$2
million for an unforseen instant death to \$4 million for a death due to
lung cancer.

3\. CONTINGENT VALUATION STUDY OF LIGHT SYMPTOMS AND ANGINA

Volume 3 reports on a contingent valuation study conducted as part of
this project to estimate the benefits of light symptom reductions and
angina relief. The approach is based on focus group experimentation
followed by systematic household sampling.

Section 3.2 addresses the problem of quantifying reductions in symptoms.
To cover the range of conditions encountered in environmental
assessments, respondents needed to be asked about a variety of
situations, but the variety had to be manageable. Four survey
instruments were used. Two of the instruments were for relief from seven
light symptoms, with one instrument pertaining to one day of relief and
the other to thirty days of re1ief. Two of the instruments were for
relief of angina, with one of these pertaining to ten days of relief and
the other to twenty days.

Sections 3.3 and 3.4 explain the structure of the contingent valuation
instrument. Section 3.5 explains the household sampling procedure, which
was carried out in Chicago and Denver.

In Section 3.6 the empirical results are presented. A relationship was
found between the number of days a symptom is experienced and the bid
per day, indicating the existence of increasing marginal disutility of
symptoms. Independent variables in regressions explaining bids included
age, education and income, and these generally had postive coefficients.

Section 3.7 reports the results of an experimental mail survey where a
response rate of 48 percent was achieved. Results were corroborative of
the household surveys.

4\. CONCEPTS AND APPROACHES TO THE VALUATION OF SERIOUS ILLNESES

Volume 4 extends the analysis of health valuation to serious or life
threatening illness.

Section 4.2 considers alternative definitions of health and, for the
study of serious illnesses resulting from environmental causes,
concludes that a definition in terms of absence of symptoms should be
used. The potential contributions of various pollutants to the risks of
serious illnesses are reviewed, in order to choose which diseases should
be studied and what ranges of risks are relevant. Specific measures of
health status are evaluated including symptom description,
self-assessment, health risk appraisal, health indexes and
multi-attribute utility functions. The first three of these are
recommended for contingent valuation studies.

Section 4.3 develops a life cycle explanatory framework for valuing
reductions in life-threatening illness that guides the remainder of the
study. Within this framework, longevity (i.e. mortality) and quality of
life (as affected by morbidity) are considered together in a unified
context. Young people, presented with improved prospects for greater
health and longevity only after a long period of time, will heavily
discount the benefits and will pay little, even though aware that their
preferences many years hence will be different. Policies that promise a
near-term benefit will be valued much more highly by people of any age.
If people can easily substitute near term consumption for deferred
consumption, they will place less value on additions to life expectancy.
The capacity for consumption changes over the life cycle. An added year
of life accompanied by high income or accumulated wealth, together with
a high quality of leisure time, will be valued relatively highly.
Latency is modelled within the life cycle framework.

Section 4.4 develops a model of choice under uncertain preferences,
bringing utility theory to bear on the problem of valuing small changes
in events that are thought of only infrequently and may involve low
probabilities of occurrence. The model is applicable to contingent
valuation approaches to serious illness. The model assumes environmental
health risks are unfamiliar to most people, and that because people
seldom have occasion to think carefully about them they are uncertain
about

their preferences concerning them. The model leads to twelve theorems
for stimulating people to obtain improved knowledge about their
preferences and to state valid, consistent risk reduction values.

Section 4.5 applies the preceding sections to contingent valuation of
life threatening illness. A structure for an intensive interviewing
process is developed, based on techniques of in-depth interviewing.

The proposed interview structure contains four modules. The first module
concerns the repsondent\'s health experiences. The defensive measures
module is the second module. The third module pertains to risk
perception and risk behavior. This module teaches respondents basic
notions of probability and conveys information about probabilities
involved in health. Information is obtained about repsondent perceptions
and attitudes towards risks.

Contingent valuation questions form the fourth module. The module begins
with simple questions involving certainty scenarios and mortality only,
after which serious illnesses are introduced. Then life path scenarios
are introduced that combine morbidity and mortality in a life cycle
setting. Respondents are asked to choose among and value the scenarios,
first in a certainty and then an uncertainty setting.

(End of Abstract of Executive Summary)

PREFACE TO STUDY

One of the chief reasons for concern with the environment is to protect
and improve human health. Yet health effects remain among the most
difficult of all effects of environmental measures with which to deal.
Evaluating health effects calls for answers on two questions: 1) What is
the contribution of environmental improvements to better health? and 2)
How much is improved health valued? The latter question\--how much is
health valued, or how much is it worth in terms of other goods and
services to obtain a better state of health\--is the focus of the
present study. National environmental legislation requires estimation of
benefits of proposed environmental measures. This mandate cannot be
fulfilled without consideration of the second question.

Values attached to improved health in turn break down into two
components\--mortality and morbidity. The estimation of both mortality
and morbidity benefits has remained fragmentary. From an early misplaced
emphasis on foregone earnings as a measure of the value of reducing
mortality, progress has been made on approaches recognizing
satisfactions people enjoy over and above those from earnings in the
market place. Meanwhile, values attached to reduced morbidity have been
based for the most part on medical expenses and foregone earnings.
Methods of valuing morbidity have lagged behind mortality.

For both mortality and morbidity, benefits are affected by risk
considerations including risk perceptions and behavior toward risk, and
by actions taken by people to avoid exposure to pollutants. Empirical
work has been hindered by lack of an adequate conceptual framework, data
shortcomings and econometric estimation problems.

A broad assessment and reconcilation of approaches to valuing mortality
and morbidity is needed. The close but often unrecognized relation
between the two phenomena makes it important to carry out the assessment
for mortality and morbidity within a common framework.

Building on the assessment, contributions are needed to provide a more
adequate framework for valuing health benefits. A common framework for
mortality and morbidity will recognize the inter-temporal nature of
benefits, leading to a life cycle approach that gives attention to the
quantity and quality of life over time. The effects of risk behavior,
imperfect knowledge of risks and averting behavior need to be brought
in.

New empirical methods need to be tried. The contingent valuation method,
which has been applied to aesthetic benefits, is a contender for
throwing light on mortality and morbidity benefits which other methods
either measure imperfectly or do not measure at all.

The present report gives the results of the first phase of a study
concerned with contributing to the estimation of mortality and morbidity
benefits. The purposes of this phase have been to carry out a
comparative assessment of previous work, to help meet the needs for a
more adequate framework revealed by the assessment, and to apply the
contingent valuation method to health benefits. A field study of light
symptoms has been carried out, and an approach of 1ife threatening
i11ne*sse*s has been developed.

Direction of this study was shared by George Tolley of the University of
Chicago and Lyndon Babcock of the University of Illinois at Chicago.
William Schulze, formerly at the University of Wyoming and now at the
University of Colorado, shared in the early formulations and directed a
related wage hedonic study not presently included in this report. The
affiliations of the authors are as follows:

  --------------------------------------------------------------------------------------------------------------------------------------------------- -------------------- -------------------------
                                                                                                                                                      Department           

  Name                                                                                                                                                or                   

                                                                                                                                                      School               Institution

  \-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--                        

                                                                                                                                                                           

  George Tolley                                                                                                                                       Economics            University of Chicago

                                                                                                                                                                           

  Lyndon Babcock                                                                                                                                      Public Health        University of Illinois

                                                                                                                                                                           at Chicago

                                                                                                                                                                           

  Mark Berger                                                                                                                                         Economics            University of Kentucky

                                                                                                                                                                           

  Anthony Bilotti                                                                                                                                     Public Health        University of Illinois

                                                                                                                                                                           at Chicago

                                                                                                                                                                           

  Glenn Blomquist                                                                                                                                     Economics            University of Kentucky

                                                                                                                                                                           

  Michael Brien                                                                                                                                       Economics            University of Chicago

                                                                                                                                                                           

  Robert Fabian                                                                                                                                       Economics            University of Chicago

                                                                                                                                                                           

  Gideon Fishelson                                                                                                                                    Economics            Tel Aviv University

                                                                                                                                                                           

  Charles Kahn                                                                                                                                        Economics            University of Chicago

                                                                                                                                                                           

  Austin Kelly                                                                                                                                        Economics            University of Chicago

                                                                                                                                                                           

  Don Kenkel                                                                                                                                          Economics            University of Chicago

                                                                                                                                                                           

  Ronald Krumm                                                                                                                                        Public Policy        University of Chicago

                                                                                                                                                                           

  Tracy Miller                                                                                                                                        Economics            University of Chicago

                                                                                                                                                                           

  Robert Ohsfldt                                                                                                                                      Economics            Ball State University

                                                                                                                                                                           

  Sherwin Rosen                                                                                                                                       Economics            University of Chicago
  --------------------------------------------------------------------------------------------------------------------------------------------------- -------------------- -------------------------

  ------------------------- -------------------- -------------------------
  William Webb              Economics            University of Chicago

                                                 

  Wallace Wilson            Public Health        University of Illinois

                                                 at Chicago

                                                 

  Martin Zelder             Economics            University of Chicago
  ------------------------- -------------------- -------------------------

CONTENTS OF EXECUTIVE SUMMARY

Introduction 1-1

Volume 2 Summary: Comparative Analysis of Approaches to

Valuing Health Risks 1-1

Volume 3 Summary: Contingent Valuation Study of Light Symptoms

and Angina 1-14

Volume 4 Summary: Concepts and Approaches to the Valuation of

Serious Illness 1-21

[List]{.underline} [of]{.underline} [Tables]{.underline}

Table 1-1: Framework for Health Values 1-9

Table 1-2: Interim Values for Morbidity and Mortality Effects

of Air Pollution 1-12

Table 1-3: Seven Light Symptom One Day Regression Results 1-18

[EXECUTIVE SUMMARY]{.underline}

INTRODUCTION

Health effects are among the most difficult effects of environmental
measures with which to deal. National legislation requires that
estimates of the benefits of environmental measures be made. This
mandate cannot be carried out without addressing the question of how
much improved health is valued.

The estimation of mortality and morbidity benefits has remained
fragmentary. Benefits are affected by risk and by actions taken by
people to avoid exposure. Empirical work has been hindered by lack of an
adequate framework, data shortcomings and econometric estimation
problems. A broad assessment and reconciliation of approaches to valuing
morbidity and mortality is needed, followed by new efforts to estimate
benefits.

This report gives results on the first phase of a larger study. The
purposes of this phase are to contribute to a comparative assessment of
previous work on mortality and morbidity, to help meet the conceptual
needs revealed by the assessment \-- taking into account averting
behavior, life cycle, risk and health measurement considerations \-- and
to undertake new measurements by applying the contingent valuation
method to health benefits. Contingent valuation work has included a
field study of light symptoms and development of approaches for life
threatening illnesses.

COMPARATIVE ANALYSIS OF APPROACHES TO VALUING HEALTH RISKS

(Volume 2)

A wide variety of approaches to valuing health risk reductions have been
proposed. While valuing mortality risks has received a good deal of
attention, the problems of valuing morbidity risks and \-- of even
greater importance \-- valuing combinations of morbidity and mortality
risks have received less attention. The goal of Volume 2 is to provide a
comparative review of approaches to valuing changes in health and a
synthesis of the empirical results of the various approaches. A set of
interim morbidity and mortality values is developed for use in
environmental assessment.

[Framework]{.underline} [For]{.underline} [Valuing]{.underline}
[Health]{.underline} [Risks]{.underline} (Section 2.2)

A comparative model for valuing health risk reductions incorporates cost
of illness, partly endogenous health reflecting preventive expenditures,
uncertainty, mortality and morbidity. The willingness to pay measure
from this model can be used to compare alterntive approaches to valuing
health risks.

In the general case, an adequate willingness to pay measure for
reductions in health risks consists of two terms: a utility term, which
reflects the cost of illness as well as other factors; and a term
reflecting preventive expenditures. It does not follow, however, that
benefit measures involving the cost of illness alone or preventive
expenditures alone are special cases of the general willingness to pay
measure. Even the weaker result that the alternative benefit measures
are lower bounds to the willingness to pay measure does not necessarily
hold. Without additional assumptions, we cannot establish any general
comparisons between the measures. We do find a set of plausible
assumptions under which some comparisons of the alternative benefit
measures can be made. If these assumptions are made, for the special
cases of pure mortality and pure morbidity, both the cost of illness and
the preventive expenditures measures will be lower bounds to willingness
to pay. The theoretical model thus implies that meaningful comparisons
may plausibly be made between these measures and an exact measure of
willingness to pay for a reduction in health risks as revealed either in
implicit markets, or discovered through contingent valuation
experiments.

[Health]{.underline} [Econometrics:]{.underline} [An]{.underline}
[Assessment]{.underline} (Section 2.3)

As part of the present study, a critique was undertaken of econometric
evidence on the effects of environmental quality on human health. The
focus is on mortality effects. A primary concern is whether or not the
studies can shed light on the structure of demand for health, not just
net responses to changes in environmental characteristics on health. A
fundamental concern is with the role of avoidance measures taken by
individuals in response to adverse health conditions. A reason for this
concern is that impacts on health of differences in environmental
quality can be inferred only as net effects after avoidance has taken
place. The question is the extent to which specification and estimation
in econometric models of past studies allow valid inferences of the net
effects.

If avoidance procedures are perfect substitutes for the outside
influences, very little if any net impact results from differences in
outside conditions. Even in this case, the benefits of environmental
improvements are not zero but equal to the costs of the avoidance
procedures. More generally, differences in environmental conditions will
be reflected in differences in health status even after avoidance
procdures. The resulting calculation of benefits due to improvement in
environmental conditions needs to consider not only cost savings from a
reduction in avoidance expenditures but also the value of the increased
health that results.

The assessment considers five empirical studies of the effects of
environmental pollutants on mortality: Lave and Seskin (1977), Crocker
et al (1979), Chappie and Lave (1982). Mendelsohn and Orcutt (1979), and
Schwing and McDonald (1976).

Comparison between studies of single pollutant effects are made
difficult by differences in the pollutants considered in any particular
study. Correlation between included and excluded pollutants hampers
comparisons. Except for the estimates from Crocker, et.al. effects of
sulfur oxides (SO2 and S04 are positive and often substantial. The sign
of effects of particulates (TSP) are not consistent across studies.
Except for the results in Mendelsohm and Orcutt, effects of nitrogen
oxides appear positive.

Besides differences in the pollutants considered, the studies contain a
variety of study designs differences. The Lave and Seskin and Mendelsohm
and Orcutt studies do not control for smoking or dietary behavior.
Correlation between these measures and the pollutant variables may bias
the estimated pollutant effects making serious inference from these two
studies suspect. The Schwing and McDonald study suffers similarly from
lack of inclusion of many of these potentially important variables.

The Chappie and Lave and Crocker, et.al studies are similar in that they
include smoking and dietary variables, and they consider the effect of
physicians per capita on mortality rates. Yet, the estimates differ
substantially. Substantially larger effects of protein consumption on
mortality rates are found by Crocker, et.al than by Chappie and Lave.
These effects are more precisely estimated by Crocker, et.al. This
finding suggests a potentially important influences of correlation
between dietary characteristics and the various pollutants considered in
each study. The differences may also be due to the difference between
the effects of sulfates and the effect of S02-

Both Crocker, et.al and Chappie and Lave address the endogeneity of
physicians per capita within a cross-sectional setting. Endogeneity is
expected if use of physician services is one form of avoidance or
averting behavior. However, avoidance behavior may also be reflected in
dietary, smoking, and alchohol consumption which needs to be seriously
treated in further empirical work.

Avoidance or averting behavior in place, such as described above, does
not exhaust avoidance possibilities. People may also change their
residence location. Individuals may locationally sort themselves
according to environmental quality, with those least affected living in
relatively low quality areas. Estimates of mortality rates differences
between areas as a function of pollution could then understate the
effect of changes in overall pollution levels (especially those occuring
in high pollution areas to begin with). Furthermore, individuals may
change location in response to what would otherwise be continued
ill-health effects of pollution in one area. Persons adversely affected
by pollution may then end up dying (and increasing the mortality rate)
in low pollution areas. This effect would also lead to an understatement
of the true effect of pollutants on mortality rates such as those based
on the existing crosssectional analysis.

[Cost]{.underline} [of]{.underline} [Illness]{.underline}
[Approach]{.underline} (Section 2.4)

Turning to studies that have been explicitly concerned with placing
monetary values on illness, the cost of illness approach is the most
widely used approach. A recent survey by Hu and Sandifer (1981)
identifies over 200 studies using the approach. The cost of illness is
measured as the sum of three components: 1) medical expenditures; 2) the
earnings lost due to morbidity; and 3) the earnings lost due to
"premature\" death due to illness. Since the valuation of small changes
in the risk of death and the possible relation of foregone earnings to
this measure has received much attention, section 2.4 emphasizes the
problem of valuing changes in morbidity, and the role of medical
expenditures.

A contribution of the present project has been to put aggregate costs of
illness on an individual per case and per day spent ill basis. Results
indicate that a typical case of acute respiratory disease involves \$87
of medical expenditures, and \$56 of foregone earnings. A case of
emphysema involves \$441 of medical expenditures, and \$2,753 of
foregone earnings. A day spent ill due to a typical case of acute
respiratory illness costs \$35, while a day spent ill due to emphysema
implies costs of \$89. Estimates of this kind on an individual basis
needed to evaluate environmental policy changes have not been available
heretofore.

The cost of illness approach is an important source of estimates for the
value of health, because it is commonly accepted by many researchers in
the health care fields, and it provides estimates for the value of a
wide range of health effects. Therefore, section 2.4 includes a careful
evaluation of the approach to assess its usefulness and accuracy.

The cost of illness approach ignores the costs of pain and suffering due
to illness, the value of leisure time, and the role of preventive
expenditures. While the quantities the cost of illness approach measures
are clearly related to the value of a health improvement, they are not
identical to the willingness to to pay for an improvement. Though it
seems reasonable to assume that the cost of illness approach understates
individual willingness to pay, the extent of the underestimate is
uncertain.

The problem is further complicated when the distinction is made between
individual and societal willingness to pay. The treatment of
consumption, non-labor earnings and taxes by the cost of illness
approach might be described as an uneasy compromise between adopting an
individual or a societal viewpoint. Characteristics of the market for
health care that may cause further divergences between individual and
societal willingness to pay include the extent of third party payments,
the importance of non-profit organizations in providing hospital
services, the role of the physician in influencing demand for his own
services, and the possible lack of competition in the supply of
physician

services. Paid sick leave, and altruism complete the list of possible
reasons the cost of illness approach may not produce a measure of
societal willingness to pay for health improvements. While these
problems have yet to be rigourously addressed, it is apparent that the
distinction between individual and societal willingness to pay is both
an important and a complex issue. No simple rule for adjusting the cost
of illness approach to better reflect the viewpoint of society is found.

In typical cost of illness studies such as Rice (1966) and Cooper and
Rice(1976), the calculation of medical expenditures and foregone
earnings due to illness is quite involved, since the expenditures and
earnings must be allocated to particular illnesses or disease
categories. In allocating medical expenditures to specific illnesses,
the problems lie in the numerous inaccuracies in the estimation of the
expenditures by service category and in the estimation of the weights
needed to allocate expenditures to disease categories. The net result is
that the estimates of medical expenditures due to particular diseases
are inaccurate, but by how much or even in which direction the estimates
are biased is difficult to determine. The estimation of foregone
earnings due to different diseases is also subject to error, mainly
because of limitations of the data available. In this case, most of the
errors tend to understate the foregone earnings due to morbidity.

[Review]{.underline} [of]{.underline} [Contingent]{.underline}
[Valuation]{.underline} [Studies]{.underline} [of]{.underline}
[Health]{.underline} (Section 2.5)

One approach to valuing a non-market good is to conduct a survey and ask
people what they would pay for the good, hypothetically assuming
(contingent upon) the existence of a market for the good. This approach,
the contingent valuation method (CVM), has been applied to a variety of
environmental goods including air quality and health.

This section reviewed three major studies that applied the CVM to the
problem of valuing health effects related to air pollution: Loehman et
al. (1979), Rowe and Chestnut (1984), and Tolley et al. (1985). Each of
these studies seems to be carefully designed, though certain problems
are noted. As a result, the value estimates are probably as accurate as
any estimates based on contingent valuation; similar to Cummings et al.
(forthcoming), the reference accuracy may be set at plus or minus 50
percent.

While the health effects valued are not exactly the same, certain
comparisons can be made between the results of the three studies. For
instance, each of the studies implies a value for one day of respiratory
symptoms, though not always of the same symptoms. From the Loehman et
al. study, one day of of coughing/sneezing has a mean value of \$138
(mild day) or \$236 (severe day). The Rowe and Chestnut study implies
that relief from one day of asthma symptoms is worth on average about
\$20.

The Tolley et al. study finds that relief from one day of coughing,
throat, and sinus problems has a mean value of \$113.

These different values can be reconciled, to some extent. First, the
Rowe and Chestnut value is not a value for a marginal day of relief, but
an average value for one day, given an average of 19 days of symptoms
relieved. Thus, it is not really comparable to the other estimates. The
Loehman et al. and Tolley et al. studies are more directly comparable.
In general, though, different values result. But comparing median bids
across the two studies, or comparing mean bids across the two studies,
the values do not seem to be necessarily inconsistent.

[Comparing]{.underline} [Costs]{.underline} [of]{.underline}
[Illness]{.underline} [and]{.underline} [Continigent]{.underline}
[Valuation]{.underline} (Section 2.6)

The cost of illness (COI) approach and contingent valuation (CV) are two
important methods that allow a dollar value to be placed on a change in
morbidity or sickness. A direct comparison of values based on these
methods is undertaken in this section. This comparison is especially
interesting because the methods are in some sense complementary. The
cost of illness approach, focusing on medical expenditures and foregone
earnings, uses widely available data and comparatively straightforward
empirical techniques, so it is generally accepted on a practical level.
However, there is no strong theoretical basis for using COI values in
benefit cost analysis. As noted, COI may be below and not very close to
what an individual would actually be willing to pay. In contrast,
contingent valuation experiments can be designed to directly estimate
what an individual, would be willing to pay, but proper design of CV
experiments is So on a practical level COI values are often judged
superior to CV values, while on a theoretical or conceptual level, CV
values are preferred.

Our empirical work provides direct comparisons of WTP and COI from the
same study of seven symptoms: coughing spells, stuffed up sinuses,
throat congestion, itching eyes, heavy drowsiness, headache, and nausea.
The WTP values that are obtained are equivalent to consumer surpluses.
The results suggest that WTP exceeds COI, but there is no strong
indication that WTP and COI move together in any systematic fashion.
Assuming that exogenous changes affecting health risks reduce preventive
expenditures, our results also imply that the WTP for reduction in
health risks which arises from our uncertainty based model exceeds
expected COI. We then provide an illustrative lower bound estimate of
willingness to pay for a reduction in health risks from our contingent
valuation survey. The results of the contingent valuation survey only
directly apply to the case of changes that occur with certainty,
however.

The results of the new empirical work tend to confirm Rowe and
Chestnut\'s (1984) preliminary results that WTP exceeds COI. It should
be noted that this relationship is also found in the

experimental mail survey completed (see section 3.7); but the results
are for a very small sample. So there is a growing body of evidence that
suggests contingent valuation responses on WTP exceed COI, as predicted
by several theoretical models.

[Household]{.underline} [Production]{.underline} [of]{.underline}
[Health]{.underline} [and]{.underline} [Averting]{.underline}
[Behavior]{.underline} (Section 2.7)

In studies following the household production approach, as in Grossman
(1972), the individual is visualized to produce the commodity health by
combining his own time and effort with purchased goods such as medical
care, diet, and so on. Health is partially under the control of the
individual or partly endogeneous, though it is also affected by
exogeneous factors such as environmental quality. Some recent
theoretical and empirical work has used this framework to derive
expressions for what an individual would be willing to pay for an
exogeneous improvement in environmental quality. The theoretical
studies, such as the model developed in section 2.2 and the studies
referenced therein, investigate how the conceptually correct willingness
to pay measure will be related to observable quantities such as the
costs of illness and preventive expenditures.

Two empirical studies have taken the analysis further and attempt to
estimate willingness to pay directly. Gerking and Stanley (1984)
estimate willingness to pay for health risks related to ozone exposure,
and Cropper (1981) estimates willingness to pay for health risks related
to an index of air pollutants. The implied values for health are about
\$40 for a day of restricted activity from the Gerking and Stanley
study, and \$176 for a work loss day in the Cropper study. Since a work
loss day is a more severe effect than a day of restricted activity (as
defined in these studies), it is not unexpected that the Cropper
estimate is larger than.the Gerking and Stanley estimate. The magnitude
of the difference does seem large. However, due to the limitations of
these studies noted by the authors, these value estimates are probably
best described, as illustrative of the order of magnitude of the value
of health. In this context, the two studies do not produce inconsistent
results.

[Housing]{.underline} [Values]{.underline} [and]{.underline}
[the]{.underline} [Value]{.underline} [of]{.underline}
[Health]{.underline} (Section 2.8)

One way that individuals reveal their willingness to pay for
environmental quality is through their location choices and the
corresponding housing price premiums for various locational attributes,
including air quality. The benefit estimates thus obtained represent the
total benefits of an improvement in air quality, not just the health
benefits. So these estimates could be upper bound estimates of the
benefits of improved health. On the other hand individuals may not have
full knowledge of environmental effects in purchasing property, leading
to underes-

timation. Finally, in applying hedonic analysis to the demand for air
quality, a number of econometric problems are encountered that could
cause bias or inaccuracy.

Bender et al. suggest that a permanent 10 percent reduction in suspended
particulates would result in a \$700 to \$1800 benefit (present value)
per household. Similarly, Harrison and Rubinfeld estimate that a 2 ppm
reduction in nitrogen oxides would create a benefit of \$800 per
middle-income household. Estimates of this kind from from the housing
market hedonic literature can be combined with estimates from the health
econometrics literature of the effects of air pollution on mortality, to
arrive at an idea of how much people are willing to pay through property
values for a reduction in mortality risk. Using typical values from the
housing market hedonic literature and the health econometrics literature
gives a value for marginal risk reduction, or a value of life in the
statistical sense, of \$740,000. This figure must be viewed with caution
in view of the problems noted above.

However, the value of \$740,000 is not inconsistent with the values of
risk reduction resulting from hedonic analysis of labor markets, or
consumption activity. It lies somewhere in the middle of the very wide
range of empirical results existing in this literature. The value also
can be reconciled to estimates of the value of health risks from the
cost of illness approach, especially when considering the argument that
neglecting averting behavior causes the cost of illness approach
estimates to be lower bounds to the willingness to pay for health risk
reduction.

[Conclusions:]{.underline} [Interim]{.underline} [Values]{.underline}
[for]{.underline} [the]{.underline} [Health]{.underline}
[Effects]{.underline} [of]{.underline} [Air]{.underline}

[Pollution]{.underline} (Section 2.9)

The purpose of section 2.9 is to bring together the foregoing results to
arrive at a set of health risk values useable in environmental
assessments. The application in this study is to health effects of air
pollution.

In section 2.9.2 a framework for value estimates is discussed. The
framework addresses two major questions: First, for what types of health
effects are values needed ? Second, what constitutes complete and
conceptually correct value estimates for these health effects? The
answers to these questions are summarized in Table 1. The first column
indicates that the health effects due to air pollution include various
types of acute or short-term morbidity, aggravation of previously
existing chronic morbidity, increased incidence of non-fatal chronic
morbidity. and mortality whose value may vary according to cause of
death. The second column indicates the forms taken by the value
components for each of these effects and indicates the need to value
morbidity preceding death.

  -------------------------------------------- --------------------------
  Table 1-1                                    

                                               

  Framework for Health Values                  

                                               

  [Health]{.underline} [Effects]{.underline}   [Value]{.underline}
  [Valued]{.underline}                         [reflects]{.underline}

                                               

  [Acute or Short-term Morbidity]{.underline}  

                                               

  \--light symptoms                            \--physical and mental

                                               discomfort

                                               

  \--marginal change in                        \--work time lost

  time spent ill                               

                                               \--other time lost

                                               

                                               \--medical expenditures

                                               

                                               \--costs of averting

                                               behavior or preventive

                                               measures

                                               

  [Aggravation]{.underline} [of]{.underline}   
  [Previously]{.underline}                     

  [Existing]{.underline} [Chronic]{.underline} 
  [Morbidity]{.underline}                      

                                               

  \--chronic lung conditions                   \--a larger degree of

                                               all of the above

  \--chronic heart conditions                  

                                               \--individuals\' health

  marginal and non-marginal                    status is already low

  changes in time spent ill                    

                                               

  [Increased]{.underline}                      
  [Incidence]{.underline} [of]{.underline}     

  [Non-fatal]{.underline}                      
  [Chronic]{.underline}                        
  [Morbidity]{.underline}                      

                                               

  \--chronic lung conditions                   \--all of the above

                                               

  \--chronic heart conditions                  \--lifestyle and work

                                               changes due to the

  \--cancer                                    existence of chronic

                                               illness

                                               

                                               

  [Mortality]{.underline}                      

                                               

  \--unforseen instant death                   \--mortality risks

                                               

  \--chronic lung conditions                   \--morbidity preceding

                                               mortality valued as

  \--chronic heart conditions                  above

                                               

  \--cancer                                    \--psychic costs of

                                               imminent death
  -------------------------------------------- --------------------------

In section 2.9.3 the framework is used to arrive at a set of interim
values applicable to air pollution. For each of the health effects,
value estimates are brought together and expressed on a comparable basis
noting the components of value included and excluded for each estimate
and the ranges that have been obtained for particular components.
Previously published estimates are used, as well as the cost of illness
and contingent value estimates developed as part of the present project.
The available evidence is compared to the framework, in terms of which
health effects are valued, and how complete these values will be. In
light of this discussion, reasonable ranges and interim values are
developed. These values are presented in Table 2.

In placing a value on a day of acute or short-term morbidity, five
separate sources of estimates are used.. The most complete estimates
come from the contingent valuation study described in Volume 3 of this
report, and from the contingent valuation study of Loehman et al (1979).
A lower bound value from cost of illness estimates expressed on a per
day basis is also used. Additional information is available from the
health production studies of Cropper (1981) and Gerking and Stanley
(1984). These sources are combined to yield values for specific symptoms
and a likely combination of symptoms, for an average day of restricted
activity, a severe day of work loss, and a mild day of discomfort alone.
As a rough rule of thumb, a severe day is valued at twice the value of
an average day, and an averate day is worth twice a mild day. For
instance, the medium estimate for an average day of a likely combination
of symptoms is \$60, while a severe day is valued at \$125 and a mild
day at \$25.

To move on from acute or short-term health effects, the second major
class of health effects to be valued is the aggravation of previously
existing chronic morbidity. Values are placed on one additional day of
symptoms for people who even without air pollution suffer from
emphysema, asthma/bronchitis, or a heart condition. To value an
additional day of emphysema or asthma/bronchitis, the evidence on the
value of acute or short-term respiratory illness is clearly relevant,
but the per day values for chronic lung conditions will generally be
higher. Additional evidence from the contingent valuation study of
Section 3 of this Report, cost of illness per day estimates, and the
Rowe and Chestnut (1984) contingent valuation study is used to develop
the interim values. Due to more uncertainty of the estimates, wider
ranges of interim values are developed: for example, an additional day
of angina may be worth as little as \$75 or as much as \$400, but the
best medium estimate is \$150.

In addition to the aggravation of previously existing chronic
conditions, it is possible that air pollution will cause new cases of
chronic conditions. Interim values are developed for one year of
non-fatal cases of emphysema, asthma/bronchitis. lung cancer, and heart
conditions. Most of the evidence for the value of these serious health
effects comes from the cost of

illness approach, such as the study by Hartunian, et al (1981). In
developing the interim values an attempt is made to take into account
the fact that cost of illness estimates are incomplete measures,
ignoring the value of discomfort (pain and suffering), and the costs of
preventive actions. Evidence from the contingent valuation study in
Volume 3 of the present report of the value of relief from 30 days of
light symptoms, and the value of 10 to 20 days of relief from angina is
also important, as is the Rowe and Chestnut estimate of the value of a
50 percent reduction in asthma symptoms. There is a wide range of
severity of chronic symptoms, so a case of asthma/bronchitis is valued
at only \$900, while preventing a year of emphysema is judged to be
worth \$7000. The final effect to be valued is an increase in mortality
risks. Most empirical estimates of the value of mortality risks have
been obtained from job-related or traffic accident data. These estimates
suggest that a risk of an unforseen instant death is worth somehwhere
between \$0.5 million and \$5 million, with a medium estimate being
about \$2 million.

However, air pollution at the levels found in the U.S. could not cause
instant death, but instead must influence mortality risks by increasing
the mortality rates due to chronic illnesses. The value of preventing a
death from these causes is clearly higher than the value of preventing
an instant death, in view of the difference in physical suffering before
the death, and the psychic costs of imminent death. Developing methods
to estimate the value of mortality risks depending upon the cause of
death is an important achievement of this section.

One approach to valuing mortality risks depending upon the cause of
death is to use cost of illness and other estimates to value the
morbidity preceding the mortality. Morbidity values are added to the
value of an instant death, using the fact that every current death due
to a condition is associated with a much larger prevalence of cases that
eventually will be fatal. For instance, if the average life expectancy
with a condition is 10 years, the value of 10 person-years of morbidity
is added to the the value for an unforseen instant death. Calculations
along these lines are combined with information from a survey by
Jones-Lee et al (1985) that included questions about how people valued
different causes of death. These sources allowed the interim values to
reflect important differences in the value of mortality risks depending
upon cause of death. So the medium value of a death from lung cancer
(\$4 million) is much higher than the medium value of an instant death
(\$2 million) that is commonly reported. Estimates of the value of
health risks developed in this study combined with previous empirical
estimates allowed the development of these interim values of morbidity
and mortality effects. These values should be useful for assessing
environmental policy scenarios. However, considerable additional work is
required to refine these interim values, to narrow the ranges of values
and allow more confidence to be placed in them.

+---------------------------------+--------+--------------+----------+---+
| Table 1-2                       |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
|                                 |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
| Interim Values for Morbidity    |        |              |          |   |
| and Mortality Effects of Air    |        |              |          |   |
| Pollution                       |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
|                                 |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
|                                 |        | Value        |          |   |
|                                 |        | Estimate     |          |   |
+---------------------------------+--------+--------------+----------+---+
| [Category]{.underline}          | [Low]  | [Medium]     | [H       |   |
|                                 | {.unde | {.underline} | igh]{.un |   |
|                                 | rline} |              | derline} |   |
+---------------------------------+--------+--------------+----------+---+
|                                 |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
| [Acute or short-term            |        |              |          |   |
| morbidity]{.underline}          |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
|                                 |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
| average day (restricted         |        |              |          |   |
| activity day):                  |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
|                                 |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
| \--sinus                        | \$20   | \$35         | \$60     |   |
+---------------------------------+--------+--------------+----------+---+
|                                 |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
| \--throat                       | 10     | 25           | 40       |   |
+---------------------------------+--------+--------------+----------+---+
|                                 |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
| \--respiratory symptoms         | 15     | 30           | 50       |   |
+---------------------------------+--------+--------------+----------+---+
|                                 |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
| \--eye irritation               | 20     | 40           | 100      |   |
+---------------------------------+--------+--------------+----------+---+
|                                 |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
| \--headache                     | 30     | 50           | 110      |   |
+---------------------------------+--------+--------------+----------+---+
|                                 |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
|                                 |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
| \--likely combination           | 35     | 60           | 100      |   |
+---------------------------------+--------+--------------+----------+---+
|                                 |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
| severe day (work loss day):     |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
|                                 |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
| \--likely combination           | 80     | 125          | 175      |   |
+---------------------------------+--------+--------------+----------+---+
|                                 |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
| mild day (discomfort):          |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
|                                 |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
| \--likely combination           | 10     | 25           | 50       |   |
+---------------------------------+--------+--------------+----------+---+
|                                 |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
| Aggravation of previously       |        |              |          |   |
| existing [chronic morbidity     |        |              |          |   |
| (per day)]{.underline}          |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
|                                 |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
| lung conditions:                |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
|                                 |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
| \--emphysema                    | 50     | 100          | 300      |   |
+---------------------------------+--------+--------------+----------+---+
|                                 |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
| \--asthma/bronchitis            | 35     | 60           | 100      |   |
+---------------------------------+--------+--------------+----------+---+
|                                 |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
| heart conditions:               |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
|                                 |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
| \--angina, possibly with        | 75     | 150          | 400      |   |
|                                 |        |              |          |   |
| other heart disease             |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
|                                 |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+
| \--likely combination of lung   | 45     | 80           | 190      |   |
| and heart                       |        |              |          |   |
+---------------------------------+--------+--------------+----------+---+

  ---------------------------------- ------------------- ---------------------- -------------------- --
  Table 1-2                                                                                          

  Interim Values for Morbidity and                                                                   
  Mortality Effects of Air Pollution                                                                 

                                                                                                     

                                                         Value Estimate                              

  [Category]{.underline}             [Low]{.underline}   [Medium]{.underline}   [High]{.underline}   

                                                                                                     

                                                                                                     

  Increased Incidence of                                                                             

  [Non-fatal Chronic                                                                                 
  Morbidity]{.underline}                                                                             

  [(per case per year)]{.underline}                                                                  

                                                                                                     

  lung conditions:                                                                                   

                                                                                                     

  \--emphysema                       \$3,200             \$7,000                \$10,000             

                                                                                                     

  \--asthma/bronchitis               200                 900                    1,200                

                                                                                                     

  \--lung cancer                     30,000              60,000                 100,000              

                                                                                                     

  heart conditions:                                                                                  

                                                                                                     

  \--angina uncomplicated            500                 800                    2,000                

                                                                                                     

  \--other heart disease             2,500               4,000                  10,000               

                                                                                                     

                                                                                                     

                                                                                                     

  \--likely combination of                                                                           

  lung and heart                     1,700               3,800                  5,900                

                                                                                                     

                                                                                                     

  Mortality                                                                                          

  [(per]{.underline}                                                                                 
  [statistical]{.underline}                                                                          
  [life)]{.underline}                                                                                

                                                                                                     

  \--unforseen instant death         .5 mill.            2 mill.                5 mill.              

                                                                                                     

  \--emphysema                       .64 m               3.5 m                  9 m                  

                                                                                                     

  \--asthma/bronchitis               .53 m               2.5 m                  5.5 m                

                                                                                                     

  \--lung cancer                     .58 m               4 m                    10 m                 

                                                                                                     

  \--heart disease                   .54 m               3 m                    7 m                  

                                                                                                     

                                                                                                     

  \--weighted average of                                                                             

  all causes                         .58 m               3.8 m                  9.4 m                
  ---------------------------------- ------------------- ---------------------- -------------------- --

CONTINGENT VALUATION STUDY OF LIGHT SYMPTOMS AND ANGINA (Volume 3)

[Introduction]{.underline} (Section 3.1)

The purpose of this part of the study is to devise and apply a
theoretically sound approach to estimating the benefits of light symptom
reduction and angina relief resulting from improvements in ambient air
quality. Contingent valuation is the research method used to accomplish
this objective. Contingent valuation offers a technique capable of
getting at values that are difficult to measure by other means, such as
property value or revealed behavior methods. While some previous
contingent valuation studies of health effects have been undertaken, the
present study apparently represents the most intensive effort of this
kind to date.

The approach of the study has been based on extensive focus group
experimentation prior to systematic household sampling. The study has
given particular attention to three methodological areas. These are,
first, the information and prefernce context of contingent valuation.
This area frames the problem for the respondent and helps him research
his preferences in order to provide a high quality response.

The second area, the structure of the contingent market, defines the
good to be valued in a clear, concise and quantitative manner. - The
area also considers the importance of both the payment vehicle and the
delivery vehicle of the good. In this study, pure willingness to pay
questions without specific payment vehicle (outright payment rather than
through, say, utility bill or increased taxes) and without specific
delivery vehicle (outright relief rather than relief through, say, a
pill) were selected because they were acceptable to respondents and
avoided distractions, bias and information overload.

The third methodological area is the bidding game process. Based on
focus group experience, an iterative bidding process was chosen as the
method of eliciting willingness-to-pay responses. Care was taken to
avoid the problems of the respondent choosing a convenient unvarying bid
for all programs (anchoring) and the respondent being influenced by the
initial bid (starting point bias). These types of problems tend to occur
when the respondents\' understanding of the good and the market and of
their own preferences is so limited that extraneous information
predominates in determining bids.

[The Dose-Response Problem and the Definition of Symptom
Relief]{.underline}

(Section 3.2

The values that respondents place on improvements in ambient air quality
levels depend on the degree of pollution reduction and the time pattern
of reduction, e.g. whether pollution is reduced on many days or only a
few days. The value of an extra day of relief may depend on the level of
symptoms prevailing before the relief. People might value an extra day
of relief from symptoms differently if they have been experiencing
several weeks of symptoms than if they have been experiencing only one
or two days.

The general problem is to develop a way of valuing reductions in
symptoms from pollution depending on the amount of relief from symptoms,
where the relief may vary among areas and of people (sensitive vs.
nonsensitive) in amounts that are not known beforehand. In short, the
problem is to estimate, not a single value, but a function that
specifies value depending on both the amount of relief given and the
symptom level prevailing in the absence of the policy being evaluated.
This function provides a tool that can be used to value the variety of
symptom reductions among areas and types of people.

Respondents had to be asked about a sufficient variety of situations,
but the variety had to be in the realm of reality. The requirement of
reality is to be partiuclary stressed. if values are obtained for far
greater or far less relief than will actually be brought about by
environmental controls, then their applicability will be suspect. For
example, the willingness to pay to be completely rid of a large number
of days of a symptom may throw little light on how much would be paid to
be rid of one day. If values are not obtained for realistic degrees of
relief, it will be necessary to tenuously extend estimates into unkown
regions.

The problem of choosing realistic values is made difficult by the
imperfect state of knowledge about pollutant reduction. The critique of
evidence undertaken as part of this study makes clear that a great range
of uncertainty still attaches to the health effects of the criteria air
pollutants, particularly with respect to light symptom effects. However,
two conclusions stand out. First, realistic pollution control po1icies
wi11 give fractional day or at most a few days of relief to the majority
of people. Second, the evidence is more tenuous regarding sensitive
populations. The possibility needs to be allowed for that sensitive or
susceptible persons would obtain greater relief.

For the light symptoms, one version of the questionnaire asked about one
day of relief to establish values per day attaching to fractional-day
relief or at most a few days of relief applicable to large numbers of
people under many policies. A second version of the questionnaire asked
about relief of thirty days to encompass sensitive groups whose allergic
balance could be affected by ambient air quality changes.

A similar strategy was followed in the questionnaires on angina. To find
out how the value of varying degrees of relief are related to a
prevailing level of symptoms, in one version of the angina survey people
were asked to suppose alternatively that they started from levels of
one, five and ten days of mild and severe angina. In the second version
of the survey respondents were asked to suppose alternatively that they
started from levels of one, ten and twenty symptom days of mild and
severe angina.

[Structure]{.underline} [of]{.underline} [CV]{.underline}
[Instrument]{.underline} (Sections 3.3 and 3.4)

The structure of the health survey is reflected partly in the
organization of the questionnaires, and partly in the relationship of
the questionnaires to each other. Four questionnaires were used, each
with essentially the same organization: 1) one day of relief from each
of seven light symptoms and some combinations of the symptoms, 2) thirty
days of relief from the same symptoms, 3) relief from up to ten days of
angina and 4) relief from up to twenty days of angina.

All survey instruments feature questions on health endowment in the
beginning followed by contingent valuation questions and ending with
questions on socioeconomic characteristics. The questionnaires feature a
high degree of interaction between interviewer and respondent. Responses
were pooled during analyis into single data sets for the seven symptom
and for angina.

[Household]{.underline} [Sampling]{.underline} (Section 3.5)

An objective of the sample design was to obtain a representative cross
section of households on which to base inferences about health values.
Two metropolitan areas were sampled\--Chicago and Denver.

One hundred ninety nine interviews were conducted, divided about equally
between the two cities. Twenty three interviews had to be deleted, due
to various inconsistencies in the bidding. Median income for
respondent\'s census tract was used as a default for those respondent\'s
not revealing their income.

[Empirical]{.underline} [Results]{.underline} [for]{.underline}
[Household]{.underline} [Survey]{.underline} (Section 3.6)

The seven light symptoms considered were coughing, sinus problems,
throat congestion, itchy eyes, drowsiness, headache and nausea. The mean
bids to relieve a one day endowment of each of the seven light symptoms
range from \$50.28 to relieve one day of nausea to \$25.20 to relieve
one day of coughing. The range of the bids to relieve thirty days of
each symptom was \$488.20 to relieve thirty days of headaches to
\$166.50 to relieve thirty days of coughing. Large bids were obtained
for the relief of

various combinations of hypothetical and actual endowments.

The angina ten day survey yielded a range of \$261.84 to relieve ten
days of severe angina when the respondent is endowed with ten days, to
\$66.08 to relieve one day of mild angina when only afflicted with one
day of the condition. The angina twenty day results ranged from \$844.38
to relieve twenty days of severe angina when confronted with twenty days
of the condition, to \$90.24 for eliminating one day of mild angina a
month when the respondent experiences only one day of mild angina. The
bids, in general, varied with the level of relief provided and the
severity of the endowment.

The respondent\'s experience with each symptom or class of symtoms was
obtained. For example, in the one day seven-symptom survey, experience
with the symptom days range from 19.75 days of itchy eyes to 1.3 days
with nausea.

Regressions performed to explain the willingness to pay bids used
household income, age, sex, education, and race of the respondent, a
measure of general health status and experience with the symptoms were
used as independent variables.

The regression results are consistent with the hypothesis of increasing
marginal disutility of symptoms. The actual experience with a symptom or
class of symptoms is often a positive and significant determinant of the
willingness to pay bids. Adding further credence to this proposition is
the performance of the health status variables. It indicates that the
respondents who are in poor hea1th are wi11ing to bid more to re1ieve
the additional endowments.

Other independent variables, such as age, education, and income, tend to
have coefficients that vary in significance and sign. The regression
results are thus consistent with other findings in the survey that
indicated the main reason for the willingness to pay bids was personal
comfort, i.e. the taste for health. It is not surprising that the
socioeconomic variables were not systematically related to the
respondents\' degree of discomfort, and so also not systematically
related to the willingness to pay bids.

Table 1-3 gives a sample of the regression results from the seven
symptom health one day data. As can be seen by the large t‑statistic,
the respondent\'s experience with the particular symptom is a
significant influence on the bid.

  ------------------------ ------------------------ ----------------------- ---------------------- ---------------------
  Table 1-3                                                                                        

  Seven Light Symptom One                                                                          
  Day                                                                                              

  Regression Results                                                                               

                                                                                                   

                                                                                                   

  Bids to Relieve One                                                                              
  Additional Day of:                                                                               

                                                                                                   

  [Variable]{.underline}   [Coughing]{.underline}   [Sinus                  [Throat]{.underline}   [Itchy]{.underline}
                                                    Problems]{.underline}                          [Eyes]{.underline}

                                                                                                   

  Intercept                -103.79                  -56.73                  -46.75                 -95.05

                           (-2.84)                  (-1.48)                 -(1.00)                (-2.69)

                                                                                                   

  Income                   -0.000026                0.000036                -0.00051               -0.000023

                           (-0.10)                  (0.14)                  (-1.57)                (-0.11)

                                                                                                   

  Educationl               2.85                     2.72                    2.51                   4.22

                           (1.91)                   (1.71)                  (1.33)                 (2.79)

                                                                                                   

  White,                   22.41                    -3.47                   21.21                  19.02

                           (1.47)                   (-0.21)                 (1.13)                 (1.42)

                                                                                                   

  Agel                     1.56                     0.74                    0.46                   0.64

                           (3.23)                   (1.46)                  (0.83)                 (1.65)

                                                                                                   

  Sex                      -20.77                   10.57                   -10.98                 4.91

                           (-1.62)                  (0.77)                  (-0.69)                (0.42)

                                                                                                   

  Noexhlth                 4.58                     8.95                    31.53                  20.36

                           (0.30)                   (0.59)                  (1.86)                 (1.65)

                                                                                                   

  Days of Depen-           1.43                     0.71                    1.12                   0.15

  dent Variable            (3.43)                   (3.23)                  (2.14)                 (1.79)

                                                                                                   

  F Value                  3.23                     2.83                    2.00                   2.07

  R-Square                 0.48                     0.45                    0.37                   0.38

                                                                                                   

                                                                                                   

  Note: t values in                                                                                
  parentheses                                                                                      

                                                                                                   
  ------------------------ ------------------------ ----------------------- ---------------------- ---------------------

  ----------------- ---------------- ---------------- --------------------
  Table 1-3                                           
  (continued)                                         

                                                      

                    Drowsiness       Headaches        Nausea

                                                      

  Intercept         45.40            47.84            -101.20

                    (0.93)           (0.74)           (-1.62)

                                                      

  Income            -0.00018         -0.00081         -0.00019

                    (-0.54)          (-1.82)          (-0.45)

                                                      

  Education1        -2.24            1.21             3.53

                    (-1.10)          (0.45)           (1.38)

                                                      

  White             3.62             39.18            43.93

                    (0.18)           (1.46)           (1.77)

                                                      

  Agel              0.74             -1.88            0.77

                    (1.16)           (-2.15)          (1.06)

                                                      

  Sex               -28.63           29.87            -4.24

                    (-1.61)          (1.27)           (-0.20)

                                                      

  NoExhlth          -2.22            73.32            47.05

                    (-0.11)          (2.83)           (2.08)

                                                      

  Days of Depen-    3.25             -0.006           16.91

  dent Variable     (2.93)           (-0.03)          (8.23)

                                                      

  F Value           2.11             2.84             18.22

                                                      

  R-Square          0.38             0.45             0.84

                                                      

                                                      

  Note: t values in                                   
  parentheses                                         
  ----------------- ---------------- ---------------- --------------------

[Mail]{.underline} [Questionnaire]{.underline} (Section 3.7)

An experimental mail survey was conducted to determine whether it would
be feasible to greatly expand the number of cases on which the
contingent valuation estimates could be based. As in the personal
interview questionnaires, the indirect symptom based approach to
willingness to pay was adopted, using six common air pollution caused
symptoms, including those caused by general air pollution, ozone, and
carbon monoxide. Two questionnaires were developed, identical except
that one questionnaire, Type B, added a set of comparative questions
which measure earnings lost and medical care expense occasioned by the
symptoms. The Dillman mail survey method was employed for this survey.

An equal probability sample of 103 names and addresses representing the
Chicago metropolitan area adult resident population was drawn from
reverse telephone directories. Discounting 15 addresses which had
changed, a response rate of 48 percent of the 88 possible interviews was
achieved, forming a data-base of 42 cases.

The willingness to pay question was based on an endowment of 3 symptom
days per month for each symptom. The bids were for an effective, safe,
side-effect-free medication which would have to be taken only once a
month. The mean bids to eliminate the personal discomfort symptoms of
headache, coughing, stuffed up sinuses, irritated throat, and itching
eyes ranged between \$8.42 and \$9.68 per month, or \$101 and \$116 per
year. The mean willingness to pay to eliminate heavy drowsiness when
driving was \$5.41 per month, or \$65 per year.

By far the most common reason underlying the amount of the bids was
personal comfort. Next most frequently mentioned was to avoid loss of
work or other usual activity.

Stuffed up sinuses were the most commonly experienced symptom, followed
by headaches, irritated throat, and coughing, which also were common. In
terms of days of work or other usual activity lost, headaches produced
the largest mean number of days lost, 1.1 per year averaged over all
respondents. Earnings lost because of headache was by far the
largest\--averaging \$108 per year across all respondents. Medical care
expenses were also by far the largest for headaches\--averaging \$60 per
year over all respondents. Coughing caused the next highest mean level
of earnings loss and stuffed up sinuses the next highest mean medical
expenses. In terms of comparative analysis, mean willingness to pay
greatly exceeded both mean earnings loss and medical expense and the
total of these two means for all symptoms except headache, for which
mean willingness to pay, mean earnings lost and mean medical expense all
were of the same approximate magnitude.

A comparison of the mail questionnaire results with results from the
personal interviews reveals that the mail survey mean

bids, which involve the elimination three symptom days, are intermediate
in value between the one day and thirty day relief bids from the
personal interviews. Also comparable to the personal interviews, the
mail survey sample indicates a positive relationship between the mean
bid for a symptom and the number of days the symptom was actually
observed, corroborating the hypothesis of increasing marginal disutility
for experiencing a particular symptom.

CONCEPTS AND APPROACHES TO THE VALUATION OF SERIOUS ILLNESES (Volume 4)

[Introduction]{.underline} (Section 4.1)

Volume 4 extends the analysis of health valuation to the domain of life
threatening illness. It develops an original framework that can be used
to obtain values of increased longevity and reduced risks of death from
serious illness.

[Health]{.underline} [Definition]{.underline} [and]{.underline}
[Measurement]{.underline} (Section 4.2)

Section 4.2 provides an evaluation of approaches to the definition and
measurement of health status. This evaluation is a prerequisite to
determining how to measure health attributes and design a study aimed at
determining health values. This section provided a number of guides to
later sections, including guides as to estalishment of health endowment
as a determinant of value of health improvement, clear definition of the
health good, and the development of warm-up health experience questions
needed if a a contingent valuation approach is to be used .

Section 4.2 first considers alternative definitions of health, making a
distinction between definitions cast in terms of positive attributes of
well-being and definitions cast in terms of the absence of undesirable
symptoms or diseases. The multifaceted nature of health is stressed. For
the study of serious illnesses resulting from environmental causes, it
is concluded that a definition in terms of absence of symptoms should be
used. Section 4.2 next considers the role of the causes of ill health in
defining and measuring health. The indication that lifestyle is a far
more pervasive determinant of health and longevity than the environment
is brought out. An implication is that environmental values need to be
considered in a context where they are additions to larger risks from
other causes. The potential contributions of various pollutants to the
risks of serious illnesses are reviewed, in order to choose which
diseases should be studied and what ranges of risks are relevant in a
study seeking to obtain health values for environmental assessment.

Finally section 4.2 considers the measurement of health status. Self
assessed health status is observed to be the most widely used health
status measurement technique. While this approach has limitations, it is
seen to have an important role to play in health risk reduction benefits
research. Its importance stems partly from the role that self-perception
plays in the benefits that people perceive they receive from
improvements in their health prospects. Because health is a
multi-dimensional condition, it is necessary to supplement
self-assessment with other measures of health status.

[The]{.underline} [Quantity]{.underline} [and]{.underline}
[Quality]{.underline} [of]{.underline} [Life]{.underline}
[and]{.underline} [the]{.underline} [Relation]{.underline}
[Between]{.underline} [Morbidity]{.underline} [and]{.underline}
[Mortality]{.underline} [Benefits]{.underline} (Section 4.3)

Section 4.3 develops an explanatory framework for studying the values
that result from reductions in life-threatening illness. This framework
makes it clear that people\'s decisions regarding health and longevity
depend on their life situations and the streams of experiences that have
developed over long periods of time. This framework puts the
intertemporal decision process in the forefront. An implication is that
the quality of life and longevity are part of a single decision making
process, and that they must be considered together in a unified context.

Some important specific implications were derived from the framework.
One implication is that young people, presented with a public health
policy that improves their prospects for greater health and longevilty
only after a long period of time, will heavily discount the benefits.
Hence they are willing to pay relatively very little for the prospect,
even though they may be fully aware that their preferences many years
hence will be very different. On the other hand, policies that promise a
near-term benefit will be valued much more highly by people of any age.

Another implication is that intertemporal substitution of lifetime
consumption may occur. If people feel that they can not substitute near
term consumption for long deferred consumption, they will place greater
values on additions to life expectancy. The theory also identifies
changing capacity for consumption over the life cycle. An added year of
life accompanied by high income or accumulated wealth, together with a
high quality of leisure time, will be valued relatively highly. This
result underscores the inseparability of quantity and quality of life
considerations.

One of the greatest challenges revealed by the life cycle framework is
measuring the value people place on the reduction of threats to health
that have their effects only after a latency period that may be many
years in duration. Analysis of this problem is one of the contributions
of section 4.3.

The life cycle framework leads to the recognition that contingent
valuation questions must be framed in a way that takes account of the
respondent\'s life cycle situation. That recognition is reflected in the
CV module of the contingent value approach considered later in Volume 4.
It is also reflected in the health experience module, which obtains
information on the life cycle experience most pertinent to health
valuation. It is reflected in various ways in the defensive measures and
risk modules.

[A]{.underline} [Model]{.underline} [of]{.underline}
[Uncertain]{.underline} [Preferences]{.underline} [for]{.underline}
[Explaining]{.underline} [Inidividual]{.underline}
[Behavior]{.underline} [Toward]{.underline} [Risk]{.underline} (Section
4.4)

Section 4.4 is another source of theoretical guidance to the study of
life threatening illness. This section brings utility theory to bear on
the problem of valuing small changes in events that are thought of only
infrequently and may involve low probabilities of occurrence. This
problem encompasses a large class of events, important to environmental
policy, about which people\'s preferences are unclear\--even to
themselves. Researchers have found under these circumstances that
people\'s expressions of value may appear internally inconsistent.
Various explanations have been advanced to explain the phenomena. The
present theoretical framework provides an approach, based on information
costs rather than assuming irrational behavior, that is suited to
estimating values of health risk reductions.

Section 4.4 brings economic theory to bear on the problem of how people
think about and value small changes in small probabilities of damage to
health or risk to life. The theoretical perspective is that
environmental health risks are unfamiliar to most people, and that
health risks are unfamiliar to most people, and that because people
seldom have occasion to think carefully about them they are uncertain
about their preferences concerning them.

The model developed in section 4.4 leads to a series of theorems that
have implications about efficient ways of stimulating people to obtain
improved knowledge about their own risk preferences and to state valid,
consistent risk reduction values in a contingent valuation context.
Apparent inconsistencies are interpreted as reflecting uncertain
preferences among respondents. The framework is developed in a way that
provides operational approaches to resolving these difficulties by
assisting respondents in clarifying their own preferences.

The model unfolds in terms of a series of theorems that deal with the
process of preference revelation. Several theorems address the problem
of how respondents think about their preferences. One theorem is
concerned with the question: Which would you rather have\--a benefit
(such as better health) or a sum of money. The theorem states that the
closer the sum of money is to

the (unknown) value of the program benefit, the harder the respondent
will think about the choice. Iterative bidding begins with a rather
arbitrary starting point. In subsequent bidding, however, the theorem is
applied by taking account of previous completed bids on related
programs. The starting point is made identical or close to the final bid
on the similar previous program to encourage careful thinking from the
beginning.

An important objective is to realistically relate contingent goods to
the respondent\'s own circumstances. This means tailoring the good to
the respondents\'s own endowment. An implication of the theorems is that
introspection. about preferences is much more effective when this is
accomplished. Much of the work of this project was accordingly devoted
to tailoring contingent market goods to individual endowments.

[Design]{.underline} [of]{.underline} [Contingent]{.underline}
[Valuation]{.underline} [Approaches]{.underline} [to]{.underline}
[Serious]{.underline} [Illness]{.underline} (Section 4.5)

Section 4.5 brings together and applies all of section 4 research on
life threatening illness. A structure for an intensive interviewing
process is developed, based on tyechniques of in-depth interviewing. It
embodies refinements growing out of focus group experiments conducted as
part of the present project.

The proposed interview structure contains four modules. The interview is
designed to be conducted with from six to ten people and last about four
hours including breaks. The extended encounter is necessary because of
the great difficulty of achieving its central task\--obtaining values of
events that entail small changes in small probabilities.

The first module concerns the repsondents\' health experiences. It
establishes the health endowmment and prepares respondents to give
detailed thought to their health preferences and values. One possible
approach, the health risk appraisal, gives a computer-based statement of
respondents\' risk of death by comparing their health characteristics
with the average experience of a large population. It holds considerable
promise for future application by permitting detailed tailoring of
questions to respondents\' own endowments, and construction of realistic
life path scenarios for comparitive valuation.

The defensive measures module is the second module of the intensive
interview framework. Defensive measures, or averting behavior, are a
part of many people\'s efforts to increase the probability of good
health over the life cycle. They are evidence of a willingness to pay
for improved life prospects even when returns are not immediate.
Smoking, diet, drinking and exercise are examples. This is a challenging
area of research because it can not be measured by expenditurees; in
some cases averting behavior entails increased expenditures (for example
air

conditioning), while in other cases reduced expenditures occur (for
example smoking). The defensive measures module develops some contingent
market structures directed at obtaining expressions of willingness to
pay for improved health prospects in terms of averting behavior.

The third module pertains to risk perception and risk behavior. This
module begins by teaching respondents the basic notion of probability
and relates it to their everyday experience. It then obtains information
about their perceptions of and attitudes towards risk in a variety of
situations. Next it conveys an idea of the kinds of probabilities that
are involved in matters that concern their health. This module brings
home to respondents the pervasive importance of risk in their lives and
the fact that they have already made many conscious or subconcious
judgements and valuations about risk. Thinking about these problems
prepares them to think about the risks presented to them in the
contingent markets that follow, and helps them to be more receptive to
the contingent valuation exercise.

Contingent valuation questions form the fourth module. The contingent
valuation module establishes contingent markets in health. There are
hypothetical life experiences involving both quality and length of life
that people are asked to evaluate in comparison with their own
prospects, established in the health status module. The questions
increase in complexity, beginning with simple questions involving
certainty scenarios and mortality only. Next, serious illnesses are
introduced, and respondents are asked their willingness to pay to
eliminate the risks of getting diseases. These questions are followed by
life path scenarios that combine morbidity and mortality in a life cycle
setting. Alternative life path possibilities are presented and
respondents are asked to choose among and value them, first in a
certainty and then an uncertainty setting.

It is believed that the survey approach developed in Volume 4, and the
extensive preparation for obtaining expressions of willingness to pay
described in the modules, constitute an advance in survey research on
the values of health improvements, and that intensive empirical
applications are needed.