HANDBOOK FOR NON-CANCER 

HEALTH EFFECTS VALUATION 

Non-Cancer Health Effects Valuation Subcommittee

of the

EPA Social Science Discussion Group

Sponsored by:

EPA Science Policy Council

U.S. Environmental Protection Agency

401 M Street S.W.

Washington, DC 20460

December 2000
ACKNOWLEDGMENTS 

Members of Non-Cancer Health Effects Valuation Subcommittee of the Social Science 

Discussion Group are: 

Gary Cole, Chairperson OPPT 

Jan Auerbach OW 

Dan Axelrad OPEI 

Gary Ballard OSWER 

Allan Basala OAR 

Ed Bender ORD 

John Bennett OW 

Matt Clark OW 

Chris Dockins OPEI 

Charles Job OW 

Robert Fegley ORD 

Reid Harvey OAR 

Yvette Hopkins OSWER 

Michele McKeever OAR 

Greg Ondich ORD 

Joe Reinert OPEI 

Brett Snyder OPEI 

Sherry Wise OPP 

Sandy Evalenko OPP 

Analytical and preparatory support was provided by Industrial Economics Incorporated, 2067 

Massachusetts Avenue, Cambridge, Massachusetts. 
EXECUTIVE SUMMARY 

This handbook provides an introductory survey of the theory, techniques, and existing 

literature pertaining to economic valuation of non-cancer health effects. This handbook is designed 

to improve the understanding of non-cancer valuation methods and their application among EPA staff 

involved in preparing and presenting policy analyses; provide a means to facilitate consistency in the 

use of the existing literature on non-cancer valuation across the Agency; and present a set of “off-theshelf” approaches and suggestions on the use of these approaches for analyses of environmental 

health risk reduction. In addition, this handbook presents some of the main challenges, issues, and 

uncertainties associated with the economic methods commonly used for health effect valuation. 

THEORETICAL BASIS OF HEALTH EFFECTS VALUATION 

Most often, the reason for estimating economic values of environmental health effects is to 

compare the economic benefits of a policy to the costs of that policy. In the pollution control 

context, these cost-benefit analyses, which include regulatory impact analyses required for major rules 

under Executive Order 12866, may be used to rank regulatory options, to inform decisions that rely 

on an economic justification, or even to evaluate entire programs. 

Proper evaluation of economic efficiency requires accurate measures of benefits and costs. 

Economists define benefits and costs as dollar equivalents of changes in well-being. In economic 

theory, an individual's well-being depends on his or her consumption of marketed goods and services, 

his or her health status, and other characteristics of his or her environment. Typically, dollar 

equivalents of changes in well-being are measured by willingness-to-pay compensation (WTP) or 

willingness-to-accept compensation (WTA). WTP for health is the largest amount of money an 

individual would voluntarily pay to obtain an improvement (or to avoid a decrement) in health. WTA 

is the smallest amount of money the individual would voluntarily accept as compensation to forego 

an improvement (or to endure a decrement) in health. This handbook focuses on WTP, mainly 

because WTP is often less problematic to measure and quantify and, as a result, is the term used most 

commonly in the economic valuation literature. 

Measuring WTP for health presents several problems to the analyst. First, when 

environmental quality improves, there are several health-related impacts on well-being (e.g., medical 

costs, indirect costs such as lost wages, pain and suffering). It is easy to overlook one or more of 

these, resulting in an underestimate of the value of health. A second issue is that the health of one 

person may affect the well-being of another (e.g., the case of parents ill health affecting their 

children), suggesting that the focus on each individual's WTP for his own health may be too narrow 

in some cases. Third, health effects of exposure to environmental contamination may be immediate 

or delayed, making it important to consider how the timing of health effects influences WTP. Finally, 

environmental contamination may not cause specific health effects with certainty, but rather may 

increase the risk of poor health. 

ES-1
PRIMARY METHODS OF MORBIDITY VALUATION 

Researchers have used a wide range of approaches to value environmental health effects. 

Several available methods measure the theoretically preferred value of individual willingness to pay 

to avoid a health effect, while other methods that provide useful measures of the value of avoided 

morbidity are less well-grounded in economic theory. Methods also differ in the perspective from 

which valuation is measured (e.g., before or after the incidence of morbidity), and the degree to which 

they account for the major elements of willingness to pay. 

To develop an understanding of the methods available for estimating environmental morbidity 

values, it is first important to understand the various components of these values. The loss of social 

welfare associated with the incidence of one case of a health effect is comprised of four elements: the 

cost of treatment, the loss of output associated with the reduction in work activity in the labor 

market, the loss of value of non-market activities, and individual’s pain and suffering. When the 

individual who suffers the disease bears the whole cost burden, the value of environmental morbidity 

is the individual’s maximum WTP to avoid the disease, equal to the monetized value of the four 

components. In the absence of sick pay, medical insurance, and/or charity, the value of environmental 

morbidity is the sum of the WTP to avoid the costs borne by the individual and costs borne by third 

parties (e.g., insurance companies). 

Three methods are used most often to value environmental morbidity. The first is the cost-ofillness (COI) method, which measures the costs incurred as a result of illness, including direct costs 

such as medical expenses and indirect costs such as foregone earnings. This method directly 

measures values using observed behavior and is most prevalent in the medical economics literature. 

The cost-of-illness method does not measure WTP for reduced morbidity. Two other methods are 

more prevalent in the environmental economics literature. The contingent valuation method (the most 

commonly used stated preference method) measures respondents' WTP for hypothetical health 

improvements. The averting behavior method (a revealed preference method) estimates WTP from 

observed behavioral responses to real situations. This method infers WTP from the cost and 

effectiveness of actions taken to defend against illness. See Exhibit ES-1 for a summary of the three 

most common environmental morbidity valuation methods. Several other methods have been used 

less frequently to value environmental morbidity, including hedonic methods, and several other 

methods that, similar to the cost-of-illness method, do not measure WTP: risk-risk tradeoffs and 

health-state indexes. In addition, studies of jury awards are a potentially useful source of data, 

although they have not been fully evaluated by economists for their usefulness for valuation of health 

effects. 

ES-2
Exhibit ES-1 

EVALUATION OF THREE MOST COMMON METHODS FOR MORBIDITY VALUATION 

Method Approach Advantages Disadvantages 

Cost-of-illness Measures direct costs 

such as medical expenses 

and indirect costs such as 

foregone earnings. 

Relative ease of 

application and 

explanation. 

Does not require 

household surveys. 

May be lower bound on 

WTP. 

Does not measure WTP. 

Ignores important 

components of WTP such 

as pain and suffering. 

Contingent Valuation Surveys elicit WTP for 

hypothetical changes in 

health effects. 

Flexibility allows 

application to variety of 

health effects. 

If designed properly, 

allows measurement of 

complete WTP, 

including altruism. 

Hypothetical nature 

introduces many sources 

of potential inaccuracy 

and imprecision. 

Method is controversial 

and often expensive. 

Averting Behavior Infer WTP from costs 

and effectiveness of 

actions taken to defend 

against illness. 

WTP estimates based on 

actual behavior. 

Difficult to isolate value 

of health from other 

benefits of averting 

action. 

Difficult to measure 

individual perceptions of 

cost and effectiveness of 

averting action. 

The economic value of health is a sometimes elusive concept that is difficult to quantify 

precisely. For that reason, it is useful to use more than one technique to estimate the value where 

possible. In addition, while any of the methods discussed in this handbook may provide a valuation 

estimate, it is important to evaluate critically the plausibility of an estimate for its reasonableness in 

a particular application. For example, if the estimated value of avoiding an acute, reversible effect 

exceeds other reasonable estimates for avoiding long-term, chronic effects, then the acute effect value 

is probably too large and will be difficult to defend. On the other hand, willingness-to-pay values that 

are less than cost-of-illness values for the same effect are probably too low, particularly if the effect 

clearly results in some pain or other impairment of activity. 

ES-3
VALUING NON-CANCER HEALTH 

EFFECTS USING BENEFITS TRANSFER 

Benefits transfer is an alternative to primary research that can be used to develop benefits 

estimates. In benefits transfer, valuation information on individual WTP from one or more existing 

studies is used to assess aggregate benefits of a proposed or new policy. The techniques of benefits 

transfer have been used for many years to evaluate public policy options and to assess natural 

resource damages. Benefits transfer often is used when insufficient time or money is available to 

gather the primary data required for a new valuation study. 

The benefits transfer technique involves a four step process. The first step is to describe the 

policy case. In this step, the analyst describes in detail the health effects of the policy, the resulting 

impacts on economic well-being, and the characteristics of the affected population. The second step 

is to identify existing, relevant studies. This step generally involves literature searches and discussions 

with researchers in the field. The third step is to evaluate the suitability of existing studies for benefits 

transfer. This step concerns assessing the quality and applicability of identified studies. The fourth 

step is to transfer the benefit estimates. 

There are advantages and disadvantages to using the benefits transfer technique compared to 

primary research. On the one hand, primary research is costly and time-consuming, and in advance 

of conducting the research there is no guarantee of success. Benefits transfers usually can be 

conducted much more quickly and at lower cost using studies whose quality can be assessed in 

advance. Also, when several relevant studies are available, combining them may to some extent 

mitigate problems or errors specific to any one study. On the other hand, the resulting benefits 

transfer estimates are unlikely to be as accurate or precise as estimates from primary research tailored 

specifically to the new policy issue.1 Previous analyses suggest benefits transfers should be conducted 

and interpreted with careful consideration of potential sources of inaccuracy or imprecision. An 

additional problem specific to morbidity valuation is that the number of health effects for which WTP 

estimates exist is quite limited: there is not much available to transfer. 

Not surprisingly, the two major issues involved in benefits transfer concern (1) the quality of 

existing studies, and (2) their applicability to the new policy situation. Applicability refers to the 

match between the study case, or the situation examined in the original study, and the policy case, 

or the situation relevant to the new policy. Key elements of this match include the correspondence 

between the "commodity," or health effect, valued in the study case and the health effect of the policy; 

and the similarity between the population examined in the study case and the population affected by 

the policy. As discussed in this handbook, the value of avoiding a health effect depends on 

characteristics of the effect, such as severity and duration, as well as on characteristics of the 

1

See Chapter 4, Deciding Whether to Conduct a Benefits Transfer, for further discussion of 

this topic. 

ES-4 
population affected, such as income or baseline health status. Ideally, the analyst would prefer that 

the health effects and populations considered in the study and policy cases be quite similar. 

Secondarily, the analyst would prefer a defensible method to adjust for important differences. 

ISSUES IN APPLYING THE VALUATION LITERATURE 

Valuation of health effects is generally of interest when an estimate of the reduction in risk 

of that effect can be established. Understanding the health science basis for the effect and properly 

applying the relevant economic literature is not always straightforward. For example, values for 

individual health effects are not always available, or existing dose-response relationships may address 

slightly different health effects than the economics literature. 

There are many reasons to exercise caution in the application of economic values for health 

effects. Three situations are commonly encountered in application of economic values. In the first 

situation, WTP values are not available. Often, a cost-of-illness measure can be developed relatively 

easily, but the pain and suffering component is not captured, and the pain and suffering component 

can be a major factor in valuation of some chronic effects. Although everyone would no doubt agree 

that some illnesses hurt more than others, there is no accepted scale to measure the quantity of pain 

or suffering. This immeasurability complicates valuation, but monetization of pain and suffering 

would remain difficult and controversial even if the amount pain could be quantified. This handbook 

evaluates alternative strategies for monetizing pain and suffering, including benefits-transfers based 

on existing information on the economic value of avoided pain and suffering and primary research to 

monetize pain and suffering directly. 

In the second situation, existing WTP values are poorly matched to the effect of concern --

this can lead to issues of double-counting and increased uncertainty in benefits transfers. There are 

several important factors associated with the transfer of existing economic values for use in policy 

analyses that could cause the aggregate benefits estimate to differ from the "true" value. In most 

cases, simplistic assumptions about the additivity of the values for component parts of health effects 

can lead to an upward bias in the aggregate value. For example, WTP to avoid two days of a 

symptom may not equal two times the WTP to avoid one day of a symptom. In addition, WTP to 

avoid a cough and headache may not equal WTP to avoid these two symptoms separately. On the 

other hand, WTP estimates may understate the true value. In general, the details of a specific benefits 

transfer govern the direction of bias. In a few cases, available literature supports an adjustment to 

economic values to correct for these errors. In all cases, however, benefits analysts need to be aware 

of the potential influence of these factors on the overall benefits estimates, collect information from 

the relevant health effects and economics literature that are being considered as the basis for benefits 

estimation, and carefully consider the uncertainties in valuation for individual health effects of 

concern. 

In the third situation, the health effect itself is poorly characterized in the relevant health 

science literature. In this situation, there are steps that an analyst can take to frame the potential 

value of non-cancer risks associated with a specific contaminant exposure. First, one can identify the 

ES-5
critical and prevalent non-cancer effects for a contaminant using health effects data published in EPA's 

Integrated Risk Information System (IRIS). In some cases, IRIS will contain enough information to 

develop a general description of the nature of the specific effects. If needed, additional information 

can be obtained by reviewing the health effects studies cited in IRIS. It may be possible to develop 

a unit valuation for the effects depending on how clearly they are defined. Such a valuation may be 

based on cost of illness data, primary research, or the transfer of willingness-to-pay data. Finally, by 

looking at the population that is subject to doses at or above the RfD, as estimated by risk analysts, 

one can estimate the number of people at risk of contracting the effects. Thus, even without an 

estimate of the probability that people exposed at this level will contract the effect, arraying the 

available information in this manner provides helpful insight into the potential value of avoiding the 

effects. Furthermore, this type of analysis can suggest whether additional investigation of the health 

effects data (e.g., dose-response data) is warranted. Typically, risk analysts conduct each of these 

steps, but it can be useful for economic analysts to have a basic understanding of the underlying risk 

analysis to best present available information to decision- makers. 

COLLECTING INFORMATION TO SUPPORT 

NON-CANCER HEALTH EFFECTS ANALYSES 

In addition to providing the reader with a basic understanding of the theory and methods of 

non-cancer health effects valuation, as well as some insight into the major issues that could be 

encountered in health effects analyses, this handbook provides information that will help the reader 

get started on a non-cancer health effects benefits analysis. Several information sources are available 

for use by risk assessors to characterize the types of health effects that are associated with prevention 

of contaminant exposures. A basic knowledge of the methods of risk assessment and the underlying 

studies that characterize health effects is helpful to the economist or benefits analyst in conducting 

non-cancer health effects analyses. In addition, several useful sources of information on existing 

economic studies of non-cancer health effects, including references to several documents EPA has 

developed, can facilitate a literature review. Finally, health benefits approaches used in other Federal 

agencies and departments may provide helpful information to design strategies for valuation. 

APPENDICES 

Information supplemental the main text is provided in three appendices. Appendix A provides 

a comprehensive annotated bibliography of articles relevant to non-cancer health valuation. The 

abstracts provide a concise description of each article and are organized into the following categories: 

! Valuation Theory and Methods

! General Applications

! Commonly Applied Methods of Averting Behavior, Contingent Valuation, and/or

Cost-of-Illness Methods 

! Benefits Transfer 

! Valuation of Mortality Risk 

ES-6
! Regulatory Support Documents 

Appendix B includes a detailed literature review of studies addressing the "pain and suffering" 

component of non-cancer health effect valuation. Appendix C includes six case studies of non-cancer 

valuation for specific health effects. The case studies address effects that are likely to be of 

continuing interest to EPA analysts in future policy development. The six effects are: lung function; 

reproductive effects associated with endocrine disruption; developmental effects associated with 

endocrine disruption; childhood asthma; childhood lead poisoning; and kidney function. For most 

of these effects, valuation is not straightforward — the case studies are designed to be illustrative of 

the types of strategies that can be used to characterize the benefits of avoiding these types of effects. 

ES-7
TABLE OF CONTENTS

EXECUTIVE SUMMARY .................................................. ES-1

INTRODUCTION ................................................. CHAPTER 1

THEORETICAL BASIS OF HEALTH EFFECTS VALUATION ......... CHAPTER 2

Economic Valuation and Policy Analysis ................................... 2-2

Theory of Economic Valuation ........................................... 2-5

Valuation of Human Health ............................................. 2-9

Summary and Guide to Further Reading .................................. 2-13

PRIMARY METHODS OF MORBIDITY VALUATION ................ CHAPTER 3

Overview of Available Methods .......................................... 3-1

Health Effects Measurement and Valuation ................................ 3-5

Cost-of-Illness ........................................................ 3-8

Contingent Valuation ................................................. 3-13

Averting Behavior Method ............................................ 3-18

Other Methods of Health Valuation ...................................... 3-21

VALUING NON-CANCER HEALTH EFFECTS 

USING BENEFITS TRANSFER ..................................... CHAPTER 4

Deciding Whether to Conduct a Benefits Transfer ............................ 4-3

Policy Effects on Health and Well-Being ................................... 4-5

Identify Existing, Relevant Studies ........................................ 4-8

Assess the Suitability of Existing Studies for Transfer ......................... 4-8

Use Information in the Study to Estimate Benefits ........................... 4-10

ISSUES IN APPLYING THE VALUATION LITERATURE ............. CHAPTER 5

Establishing an Economic Value for Pain and Suffering ........................ 5-1

Improving the Match of the Health Effect

Description to an Existing Value ......................................... 5-12

Characterization of Non-Cancer Health Effects ............................. 5-17

i 
TABLE OF CONTENTS 

(Continued) 

COLLECTING INFORMATION TO SUPPORT 

NON-CANCER HEALTH EFFECTS ANALYSES ...................... CHAPTER 6

Understanding the Underlying Health Effect Literature ........................ 6-2

Identifying Existing Economic Valuation Literature ........................... 6-4

Non-EPA Analyses of Non-Cancer Health Effects ............................ 6-6

REFERENCES ............................................................. R-1

APPENDIX A ........................................... Annotated Bibliography

APPENDIX B ......... Literature Review for Economic Valuation of Pain and Suffering

APPENDIX C ........................ Case Studies of Non-Cancer Health Valuation

INDEX .................................................................... I-1

ii 
INTRODUCTION CHAPTER 1

This document provides an introductory survey of the theory, techniques, and existing 

literature pertaining to economic valuation of non-cancer health effects. The goals of this handbook 

are as follows: 

! Improve the understanding of non-cancer valuation methods and their 

application among EPA staff involved in preparing and presenting policy 

analyses; 

! Provide a means to facilitate consistency in the use of the existing literature 

on non-cancer valuation across the Agency; and 

! Present a set of “off-the-shelf” approaches from the existing literature and 

suggestions on the use of these approaches for application in analyses of 

environmental health risk reduction. 

Several steps were taken to ensure that the information contained in this handbook is helpful 

to a diverse audience and applicable for a wide variety of uses. First, the exposition is geared toward 

a non-technical audience and is deliberately kept brief. Readers with little or no familiarity with 

environmental and health economics should be able to comprehend and interpret the information 

presented. Second, major uncertainties and limitations associated with the commonly used methods 

and the existing literature are carefully explained. Consideration and appropriate presentation of 

uncertainties is critical in conducting valuation analyses. Third, the handbook includes an extensive 

annotated bibliography as well as several suggestions for further reading focusing on those areas 

where valuation could prove particularly difficult or controversial. 

The remainder of the document consists of five chapters and three appendices. Chapter 2 

covers the economic theory of valuation for reductions in human health risk. Chapter 3 summarizes 

the major primary research techniques that are commonly used for health risk valuation. Chapter 4 

covers methods for applying existing primary research through a process known as “benefits 

transfer.” Chapter 5 explores several issues in the application of these values in benefits analyses and 

suggests strategies for addressing these issues. 

1-1
These four chapters are designed to provide an introduction to the methods commonly used 

for economic valuation of non-cancer health effects, as well as some of the main challenges, issues, 

and uncertainties associated with these methods. The focus of these chapters and this handbook is 

on valuation techniques to estimate health-related benefits. However, it is important to acknowledge 

that within the Agency, non-quantifiable effects also provide important information in the benefits 

analysis. While this handbook does not specifically discuss methods for reflecting these types of 

effects in benefits analysis, a thorough economic assessment of non-cancer health effects should 

include a description of these qualitative benefits. 

Chapter 6 provides information to help the benefits analyst get started. The chapter provides 

references to a wide range of existing health and economic literature. This chapter should provide 

the reader with an understanding of the types of health effects that have been addressed in previous 

health and economic research, the results of that research (including specific references to previous 

applications of the results in EPA-sponsored work), and the gaps in coverage of relevant health 

effects that remain. An annotated bibliography is included as Appendix A. Appendix B includes a 

detailed literature review of studies addressing the "pain and suffering" component of non-cancer 

health effect valuation. 

Appendix C includes six case studies of non-cancer valuation for specific health effects. The 

case studies address effects that are likely to be of continuing interest to EPA analysts in future policy 

development. The six effects are: lung function; reproductive effects associated with endocrine 

disruption; developmental effects associated with endocrine disruption; childhood asthma; childhood 

lead poisoning; and kidney function. For most of these effects, valuation is not straightforward — 

the case studies are designed to be illustrative of the types of strategies that can be used to 

characterize the benefits of avoiding these types of effects. 

This handbook should provide a useful starting point for developing economic benefit 

assessments of policies that mitigate non-cancer human health effects, and will hopefully facilitate 

efforts among EPA program offices to improve the consistency, quality, and comprehensiveness of 

policy analyses. Many of the techniques and approaches discussed in this handbook apply to any 

adverse health effect, however, the focus of this handbook is on non-cancer health effects. Two 

important categories of effects excluded from this handbook are fatal and cancer risks. While most 

EPA program offices have developed strategies for valuation of these types of effects (see the 

recently updated Agency Guidelines, USEPA, 1999), this handbook is meant to fill a perceived gap 

in developing strategies for benefits analysis involving non-cancer health effects. 

1-2
THEORETICAL BASIS OF HEALTH EFFECTS VALUATION CHAPTER 2 

This chapter surveys the economic theory which supports non-cancer and other human health 

effects valuation. The chapter has four main sections: (1) An overview of the context in which 

economic valuation enters policy analysis; (2) An explanation of valuation theory outlining the 

assumptions and reasoning behind the measurement of economic value, and discussing valuation of 

market goods; (3) An introduction to health effects valuation highlighting special issues arising when 

applying the theory to human health; and (4) A summary reviewing key points and providing a guide 

to further reading. 

Exhibit 2-1 

Health 

Risk 

Valuation 

Economic 

Theory 

Environmental 

Policy 

Analysis 

and 

Evaluation 

2-1
As illustrated in Exhibit 2-1 above, this handbook reviews topics that arise in the intersection 

of environmental policy analysis and economic theory that are relevant to health risk valuation. The 

document does not fully explore either environmental policy analysis or economic theory. For more 

information on environmental policy and the use of applied economics at EPA, see EPA's Guidelines 

for Preparing Economic Analysis (US EPA, 2000a). 

ECONOMIC VALUATION AND POLICY ANALYSIS 

To survey the theory of health effects valuation, it is useful first to consider how economic 

value estimates can inform policy decisions. Most often, the reason for estimating economic values 

of environmental health effects is to compare the economic benefits of a policy to the costs of that 

policy. In the pollution control context, these cost-benefit analyses, which include regulatory impact 

analyses required for major rules under Executive Order 12866, may be used to rank regulatory 

options, to inform decisions that rely on an economic justification, or even to evaluate entire 

programs. 

Benefit-cost analysis examines public policy actions in terms of the impact on the well-being 

of society as a whole. In theory, a policy action should strive to maximize the economic well-being 

of all affected people at a minimum, while at the same time strive to maximize the net gains from 

public policy. A properly conducted benefit-cost analysis considers the wide range of impacts a 

regulation may have on society as a whole. These impacts include: requiring some actors to incur 

costs for compliance with the regulation; conferring benefits on other actors (for example, in the form 

of reduced health risk); changing individuals' wealth by redistributing resources (that is, changes in 

equity); causing society to incur costs for administering the regulation. While this approach may not 

always result in an optimal level of regulation (i.e., it achieves the best possible outcome at the lowest 

cost), a properly conducted benefit-cost analysis that considers all societal costs and benefits of the 

action implies that benefits could be redistributed so that no one is harmed. Those people bearing the 

costs can, in principle at least, be compensated fully with the net benefit remaining (surplus of benefits 

over costs). Further redistribution of the surplus would allow everyone to gain from the policy. If 

societal costs exceed societal benefits, on the other hand, there is no way to implement the policy 

without harming someone. 

For example, suppose a policy would require installation and operation of pollution control 

equipment costing firms $1 million, while reducing asthma attacks among nearby residents. In 

addition, suppose that the law requires that firms operate their plants in a manner that prevents such 

health effects from occurring. If each of three thousand asthmatics would be willing to accept no less 

than $1,000 in compensation for incurring the health decrement (or forego the improvement), then 

the total economic benefit of the policy equals $1,000 times 3,000 persons or $3 million. Because 

the benefits exceed the costs by a wide margin, provided the costs of administering the policy (the 

transactions costs) are less than $2 million, society is better off with the policy than it would be 

without. If the policy were not adopted, liability law might allow the asthmatics to demand a total 

of $3 million in compensation from the firms for harm done by the pollution, although the legal costs 

2-2
of such an action, with many polluters and many asthmatics involved, could be excessive. With the 

policy, however, the asthmatics can be made equally well off through the installation of pollution 

control equipment costing only $1 million, plus the administrative costs to be borne by society. 

On the other hand, if the asthmatics would be willing to accept only $100 each in 

compensation for incurring the health decrement (or forego the improvement), implying total benefits 

of the policy of $0.3 million, enacting a requirement for pollution control equipment would require 

society to spend at least $1 million to provide health benefits of $0.3 million to the beneficiaries; this 

clearly would not be an economically efficient use of resources. In this case, it might be better to 

require direct compensation of affected individuals by the polluting companies. Alternatively, if 

transactions costs for setting up a direct compensation mechanism are too high, it may be appropriate 

to simply tolerate the inefficiency by either under- or over-regulating the market. 

This simple example illustrates five key issues arising in the use of health valuation techniques 

and benefit-cost analysis to evaluate policies affecting health: 

! First, economists measure the value of better health as the amount of money 

an individual is willing to accept to incur a health decrement (or forego the 

improvement), summed over all affected individuals, when the polluter is 

responsible for compensation. If the public is judged responsible for paying 

the firm not to pollute, the value of better health is the amount of money an 

individual is willing to pay to obtain a health improvement (or avoid a 

decrement), summed over all affected individuals. 

! Second, each individual is assumed to be the best judge of the economic value 

of his own health. As a result, some attempt to determine what an asthmatic 

himself is willing to accept to endure worse health (or to pay for better health) 

is preferable to the assignment of a monetary value by an external observer. 

Both this and the first issue assume that this amount reflects the value he puts 

on his own health. While it is possible that this value may include benefits for 

others (i.e., altruistic benefits), in most cases economists associate values only 

with the individual himself. 

! Third, a cost-benefit framework evaluates economic efficiency without 

considering who should pay for a policy. Determining whether the asthmatics, 

the polluting firms, or some third party should pay for pollution control is a 

separate question that is usually determined by the legal rights of the affected 

parties. The example above follows the "polluter-pays" philosophy, but in 

many cases the governing statutes may not require polluters to completely 

eliminate all health risks attributable to their actions. 

! Fourth, benefits and costs are by definition gains and losses relative to some 

point of reference, and the reference point must be specified in advance. 

Policy analysts should realize that the choice of a reference point affects the 

2-3
measurement of benefits and costs. Using the above example, suppose 

researchers are analyzing a policy designed to reduce asthma attacks by 50 

percent from current levels in a given city. In addition, assume the geography 

of the city is such that residents of two areas of the city currently experience 

different levels of asthma. If residents of Area 1 currently incur more asthma 

attacks than those of Area 2, all else equal, the policy option may have a 

greater value at Area 1 than Area 2. In some cases, an analysis of the 

incremental, or marginal, effects such as this may indicate a great disparity in 

value due to different reference points. 

! Fifth, once the issue of who is to compensate whom is decided and the 

reference point chosen, benefit-cost analysis implicitly accepts the 

corresponding distribution of health, income and economic well-being as an 

adequate basis for judging public policy. A detailed analysis can show how 

costs and benefits are distributed by income, health status or other population 

characteristics, but these characteristics are generally not considered in 

computing total net benefits. Concerns about fairness and equality, while 

often an important consideration in the policy-making process, are most often 

considered outside of the cost-benefit framework. 

These issues are not always straightforward to address. This volume, designed to provide 

insights into non-cancer health risk valuation, cannot resolve many of these issues. For example, 

establishing a baseline from which to measure benefits is often very complicated. EPA's Regulatory 

Policy Council is currently developing guidance for analysts on this topic (see US EPA, 2000a). 

Nonetheless, later chapters of this report suggest strategies for addressing these issues in particular 

valuation contexts and provide examples, through case study analysis, of how analysts have addressed 

these issues in the past. 

In general, valuation of health benefits can be effectively used to illustrate the benefits of a 

policy using the same metric typically used to measure costs (that is, in dollars). Economic valuation 

can therefore be a useful input to policy decisions. At the same time, it is helpful to acknowledge the 

limitations of economic valuation and the cost-benefit framework, and recognize that considerations 

of the impacts of a policy choice beyond economic efficiency are also relevant to the decision-making 

process (e.g., equity and intergenerational concerns, and political, ethical and legal issues). 

2-4
THEORY OF ECONOMIC VALUATION 

Proper evaluation of economic efficiency requires accurate measures of benefits and costs. 

Economists define benefits and costs as dollar equivalents of changes in well-being. In economic 

theory, an individual's well-being (also called welfare or utility) depends on his or her consumption 

of marketed goods and services, his or her health status, and other characteristics of his or her 

environment. 

Typically, dollar equivalents of changes in well-being are measured by willingness-to-pay 

compensation or willingness-to-accept compensation. Willingness-to-pay compensation (WTP) for 

health is the largest amount of money an individual would voluntarily pay to obtain an improvement 

(or to avoid a decrement) in health. The person feels that paying this sum in exchange for better 

health gives the same degree of well-being as keeping the money and living without the health 

improvement. In this sense, WTP represents the individual's own assessment of the dollar value of 

better health. 

Willingness-to-accept compensation (WTA) is the smallest amount of money the individual 

would voluntarily accept as compensation to forego an improvement (or to endure a decrement) in 

health. The person feels that accepting this sum in exchange for living without the health 

improvement gives the same degree of well-being as not receiving the money but having better health. 

As in the case of WTP, WTA also represents the individual's own assessment of the dollar value of 

better health. 

Both WTP and WTA are measures of dollar equivalents of changes in well-being, but they 

are not identical. The two measures differ because they take different reference points to evaluate 

the change in well-being. WTP measures what the person would pay to obtain better health, while 

WTA measures what he would require to forego better health. A person's willingness to pay cannot 

exceed his income; WTA has no upper bound but is at least as large as WTP. The difference between 

the two measures is likely to be small, and the choice between them inconsequential, for small 

changes in health. But there may be large differences for large changes in health. In economic 

theory, the choice between the two measures amounts to an arbitrary choice of reference point to 

evaluate the change in well-being. In practice, most studies take an individual's current health status 

as the reference point, and estimate WTP to obtain improved health. In practice however, the choice 

of using WTP or WTA is a question of property rights. Carson and Mitchell (1993) discuss this issue 

in more detail. WTP is used when it is determined that the public should pay the firm not to pollute 

the public resource, and WTA is used when it is determined that the firm should pay the public to be 

allowed to pollute the public resource. WTP is often less problematic to measure and 

quantify and, as a result, is the term used most commonly in the economic valuation literature. For 

2-5
ease of exposition, we use the term “willingness-to-pay” (or WTP) throughout this handbook to refer 

to the underlying economic principles behind both WTA and WTP.2 

Determinants of Willingness to Pay 

Broadly speaking, WTP depends on two factors: preferences and opportunities. Preferences 

represent a person's desires, wants or needs, or his perception of how health, marketed goods and 

services, and other features of his environment affect his well-being. Opportunities describe the 

means available to satisfy preferences, such as income and time. 

The basic role of preferences in determining WTP is straightforward. If one individual has 

a strong desire for physical fitness while another does not, and the two have similar opportunities, the 

first person will be willing to pay more for a health club membership. Economists take preferences 

as given and make no judgment about whether one person has better preferences; each is assumed 

to be the best judge of his or her own well-being. In addition, it should be acknowledged that 

preferences may change over time. Older WTP studies may become outdated due to changes in 

preferences or opportunities for substitute goods. 

While taking a person's preferences as given, economists assume that individuals' preferences 

have several specific properties. In addition to assuming that an individual's preferences are welldefined (i.e., a person is aware of his preferences and acts appropriately to satisfy them), the three 

most important properties for estimating WTP are substitution, nonsatiation, and convexity. 

Substitution implies a willingness to make trade-offs: a larger amount of one good compensates for 

a smaller amount of another, even if one of the goods is health. The substitution principle is critical 

for measuring WTP, because it implies that health and income can be substituted for one another 

while maintaining a constant degree of well-being. Examples of income traded for health include the 

purchase and use of smoke detectors or bicycle helmets. In addition, substantial evidence indicates 

that people make trade-offs between health and money or other goods. For example, many 

reasonably well-informed people eat high-fat diets or have other poor health habits, apparently trading 

future health risk for present enjoyment of certain foods or lifestyles. Some people take jobs 

entailing a higher risk of death or injury in exchange for higher wages, while others do not use seat 

belts because of the required time or inconvenience. Economists believe choices like these reveal a 

willingness to substitute good health for money or other goods. 

A second and less controversial assumption about preferences is nonsatiation: more (of a 

good thing) is preferred to less. Nonsatiation implies that WTP for better health is positive 

(technically, nonnegative). Third, economists may assume preferences are "convex," which implies 

2 Because current law may confer property rights to the environment on those exposed to 

environmental contamination, research continues on better ways to measure WTA for improvements 

in environmental quality. EPA is currently among the sponsors of this research. 

2-6
that, all else equal, WTP for additional increments of health may decline as health improves. For 

example, in this case, individuals in poor health are expected to be willing to pay more for improved 

health than are similar but healthier people for the equivalent health increment. In some cases it might 

not be clear how WTP is associated with additional increments of health. For example an individual's 

WTP to avoid five days of a particular symptom (e.g., a headache) might be greater or less than the 

WTP to avoid this symptom in five separate instances.3 

Income and wealth are major determinants of opportunities that affect WTP. Health is a 

"normal good," that is, WTP for better health rises with income. Besides income, the price and 

availability of a related good may affect opportunities. For example, if an employer subsidizes an onsite health and recreation facility, employees would be willing to pay less for memberships in other 

health clubs. 

Differences in opportunities or preferences between individuals may also be related to age, 

gender, schooling, pre-existing health impairments, or other personal characteristics. Individual 

variation in preferences or opportunities causes WTP to differ between individuals, and policy 

analysis may require an accounting of these differences. In many policy contexts, however, 

distinguishing the WTP estimate of, for example, a low-income group and a high-income group is 

controversial. 

Measuring Willingness to Pay: Market Goods 

Economists assume that people behave as if to obtain the greatest possible well-being, subject 

to available opportunities. It follows that in many cases, if opportunities are held constant, actual 

behavior reveals preferences. This principle, known as "revealed preference," is most useful when 

measuring WTP for goods traded in markets, but it also has application to valuing health. 

If a person seeks the greatest possible well-being subject to available opportunities, that 

person will buy a unit of a good as long as his or her willingness to pay is at least as great as the cost 

of obtaining the good (i.e., the utility from consuming is at least as great as the reduction in 

opportunity from spending money on the good). Two cases in which this principle is applied may be 

distinguished. The first occurs if WTP declines smoothly as additional units of a good are purchased. 

A person then buys additional units until WTP equals the price. To illustrate, suppose a nonfat, 

pasteurized egg product sells for $2 per 16-ounce carton. If Person A and Person B each buy the 

product, each will buy it until her WTP for the last carton equals $2. If Person A has a higher 

income, or greater concern for cholesterol or food-borne illness, she may buy more of the product 

than Person B, but her WTP for the last unit will be $2, just equal to that of Person B. Anyone else 

buying the nonfat egg product at the same price also values the last carton purchased at $2, regardless 

of income, health status, or differences in preferences. Conversely, anyone who does not buy the 

product values it less than $2. 

3

In Chapter 5 we discuss issues which may arise in attempting to match economic values to 

health effects evaluated in the health science literature. 

2-7 
The WTP for 50 cartons, however, does not equal $100, or the expenditure required to buy 

50 cartons. Instead, the expenditure is a lower bound on WTP for anyone who purchases 50 cartons, 

because WTP exceeds price for all but the last unit purchased. The excess of WTP over price for 

the first 49 cartons is called "consumer's surplus." Also, not everyone buying the product would have 

the same WTP for 50 cartons; Person A's WTP would exceed Person B's owing to her higher income 

or greater health concerns. 

The second application of revealed preference applies when WTP declines discontinuously, 

or "jumps down," for an additional unit of a good. For example, Person C may be willing to pay 

$1000 for installation of an air purifying unit in his central air-conditioning system, but he is not 

willing to pay anything for a second unit. If a unit costs $400, Person C will purchase it, but his WTP 

exceeds the market price by $600, the amount of his consumer's surplus. Similarly, Person D would 

purchase a unit if his WTP is $500 (his consumer's surplus is $100), but Person C and Person D do 

not have the same WTP. In this case, the market price serves as a lower bound to WTP for buyers 

and an upper bound to WTP for non-buyers. 

These examples illustrate several points about WTP measurement. First, market behavior 

reveals information about WTP for goods traded in markets. Second, if WTP declines smoothly with 

additional consumption of a good, then everyone buying the good values an additional unit at the 

market price. If this price is the same to all, then all purchasers have the same WTP for the last unit 

purchased, regardless of their income, health status, or preferences. Third, total expenditure provides 

only a lower bound, not an exact value, for the WTP for large changes in the amount consumed, and 

all purchasers do not have the same WTP for a large change. As a result, it is usually more difficult 

to estimate WTP for a large, or nonmarginal, change in consumption than for a small, or marginal, 

change. A similar outcome occurs when WTP falls discontinuously: the market price provides only 

a lower bound on the value of one unit, and WTP need not be the same for all purchasers. 

Measuring Willingness to Pay: Nonmarket Goods 

Unlike membership in a health club, nonfat egg products, or air purifying units, health itself 

cannot be purchased in a market: it is a nonmarket good. Although the economic theory of 

preferences and value applies to nonmarket as well as to market goods, measuring WTP for a 

nonmarket good is more difficult. Economists have relied extensively on markets for information 

about economic value, because actual behavior in markets reveals preferences and also reflects 

constrained opportunities. Valuing a nonmarket good requires finding an alternate source of 

information. 

Economists have applied two general approaches to measure WTP for nonmarket goods such 

as health or environmental quality. One approach is called revealed preference, because it continues 

to adhere to the revealed preference principle of inferring WTP from observations of actual behavior. 

The revealed preference approach generally involves linking the nonmarket good of interest to a 

related good which is traded in a market. For example, if two acetaminophen tablets relieve one 

2-8
headache and provide no other benefit, anyone buying acetaminophen must value the last headache 

relieved at no less than the price of two tablets. 

The alternate approach is called stated preference because it relies on individuals' statements 

about how they would behave in a hypothetical situation, or how much a hypothetical change in a 

nonmarket good is worth to them. For example, survey respondents might be asked whether they 

would be willing to pay $25 to eliminate one day of an acute respiratory symptom. 

There are several revealed preference and stated preference methods; each method can be 

further classified as being direct or indirect (Mitchell and Carson 1989, pp. 74-87; Freeman 1993, 

pp. 23-25), but that distinction is not essential to the following discussion. In addition to revealed 

preference and stated preference approaches, some approaches to health valuation do not attempt to 

estimate WTP at all. The most widely used is the cost-of-illness method, which measures the direct 

and indirect costs of illness rather than WTP to avoid illness. The various methods of valuing noncancer health effects are reviewed in more detail in Chapter 3. 

VALUATION OF HUMAN HEALTH 

Measuring WTP for health presents several additional problems beyond the issue of valuing 

a nonmarket good. First, when environmental quality improves, there are several health-related 

impacts on well-being; it is easy to overlook one or more of these, resulting in an underestimate of 

the value of health. A second issue is that the health of one person may affect the well-being of 

another, suggesting that the focus on each individual's WTP for his own health may be too narrow 

in some cases. Third, health effects of exposure to environmental contamination may be immediate 

or delayed, making it important to consider how the timing of health effects influences WTP. Finally, 

environmental contamination may not cause specific health effects with certainty, but rather may 

increase the risk of poor health. The theory of benefit-cost analysis and WTP measurement must be 

extended to handle situations involving risk. 

Components of Individual Willingness to Pay for Health 

A change in environmental quality may have many health-related impacts on well-being. The 

economic measure of these impacts is WTP, which reflects the total dollar value for a change in wellbeing that results from a change in health. Economists assume this measure reflects all the ways that 

changes in health affect a person's well being. Because analysts often rely on existing applied 

methods that do not capture the total WTP (i.e., they may reflect only a part of an individual's WTP 

or be only a monetary measure of benefits, such as COI), it is important to understand the 

components of WTP. In addition, understanding the components of WTP is vital for conducting 

benefits transfers. 

2-9
Illness imposes direct costs such as expenses for medical care and medication, and indirect 

costs such as lost time from paid work, nonmarket work such as maintaining a home, and leisure. 

Illness also imposes less easily measured but equally real costs of discomfort, anxiety, pain, and 

suffering. A complete measure of the value of avoiding illness must include the economic value of 

reduced suffering. 

Besides costs arising from the occurrence of illness, costs may be incurred to avoid illness or 

environmental hazards: some people purchase bottled water to avoid contaminated drinking supplies, 

install air purifiers at home, or adjust their schedules to remain indoors on days when air quality is 

poor. Defensive actions such as these may reduce both the severity and probability of suffering the 

health effect caused by a given level of environmental contamination. As a result, better 

environmental quality may raise well-being by improving health and by reducing the need for 

defensive action. 

To illustrate the impact of defensive action on valuation, suppose an individual can completely 

avoid any adverse health effects of contaminated water supplies by purchasing bottled water. 

Cleaning the drinking water supply does not improve his health, because prior to the clean-up he had 

not been drinking from the public water supplies, but cleaning the drinking water does improve his 

well-being because he no longer has to spend the money and time required to buy bottled water. 

Analysts should calculate the risk reductions associated with a clean drinking water supply by 

accounting for the different behavioral responses individuals may have (i.e., based on the assumption 

that some people have avoided the risk by purchasing bottled water while others continue to use the 

public water supply). From this, it follows that the economic benefits of cleaning the drinking water 

supply would be underestimated by a procedure that multiplied the actual health effects avoided by 

a monetary value, because the improvement in well-being from no longer having to buy bottled water 

would not be counted. 

Individual and Social Benefits of Improved Health 

The conventional measure of the social benefit of a policy is the sum of individual benefits. 

Consequently, the theoretical basis of health effects valuation focuses on an individual's WTP for his 

own health. This approach ignores the possibility that the health of one person may affect the wellbeing of another. The journey from one person's health to another's well-being generally follows two 

paths: cost-shifting and altruism. Medical insurance and paid sick leave shift part of the monetary 

cost of illness from a sick individual to others. Costs borne by others will not affect the WTP of a 

self-interested person, and thus his WTP will not capture the full economic value of his health. As 

discussed in Chapter 3, valuation methods differ in how they account for shifted costs. 

Apart from monetary costs of illness, a sense of altruism may lead one person to value the 

health of others. It is not easy to determine whether and how to account for "altruistic benefits," or 

WTP for the health of others, in a manner consistent with the individualistic ideas prominent in 

valuation theory. A relatively simple case occurs when members of a single household are concerned 

for one another. Since economists often treat the household, rather than the individual, as the basic 

2-10
economic unit, measuring household WTP for the health of each of its members is quite consistent 

with common practice. For example, an economist might measure parents' WTP for their children's 

health. An additional third party value that may be included in a measure of household WTP is a 

child's value for parental health. In this case, the child's value may be motivated by both altruism and 

self-interest. 

In addition, individuals within a household may also experience indirect welfare effects of an 

illness that are not centered on the sick individual. Shogren (1999) discusses the welfare effects that 

might accrue to healthy household members from having a sick family member. For example, if a sick 

caregiver must re-allocate time and household income to self-care and/or medical attention, a child 

might not benefit from the same level of care or opportunities provided by a healthy caregiver. 

Alternatively, if a caregiver has to care for a sick child, he or she might make decisions for the 

household that affect the quality of the family life. The medical expenses to care for a sick child might 

require that the caregiver hold a second job, thus making the caregiver less available to the family. 

The situation is more complex if a person is concerned for others outside his own household. 

Recent theoretical research by Jones-Lee (1991, 1992) distinguishes between altruism focused 

exclusively on health, and more general concern for the overall well-being of others. If altruism 

extends only to health, then Jones-Lee's analysis supports adding altruistic benefits to the 

conventional measure of health benefits. Concern for the general welfare of others, however, implies 

concern for both the benefits and the costs they experience. Because benefit-cost analysis weighs 

costs against benefits for all members of society, if altruism is manifested as a more general concern 

for the overall well-being of others, there may be no reason to add separate measures of altruistic 

benefits. 

Willingness to Pay and the Timing of Health Effects 

Environmental contamination may cause immediate or delayed health effects, and the value 

of avoiding a given health effect likely depends on whether it occurs now or in the future. Clearly, 

the timing of financial commitments affects their value. If a person can borrow or save at an annual 

interest rate of ten percent, then a dollar borrowed or saved today is equivalent to $1.10 in a year. 

Put differently, $1.10 to be paid or received in a year has a present value of $1.00; the future value 

of $1.10 is discounted by the market interest rate to obtain the present value. Theoretical research 

predicts that people discount future risks of death similarly: the WTP today to reduce future risk of 

death equals the present discounted value of future WTP to reduce a contemporaneous risk of death 

(Cropper and Sussman 1990). The interest rate a person would use to discount a future risk of death 

need not equal the rate of interest on financial investments, however. Recent empirical research 

confirms that workers discount future risks of fatal injuries on the job; that is, they are willing to pay 

less to reduce a future risk than a present risk of equal magnitude (Viscusi and Moore 1989). The 

rates of interest at which workers discount future risks do not appear to diverge too greatly from 

market rates. In addition, a separate study that involved a survey of 3,000 members of the general 

public concludes that individuals value policies that yield health benefits in the present more highly 

than policies that yield the same benefits in the future (Cropper et al. 1992). 

2-11
Health Effects Valuation under Risk 

Environmental contamination may not cause an adverse health effect with certainty, but rather 

may increase the probability the effect occurs, its severity given that it occurs, or both. In thinking 

about this discussion it is important to distinguish risk from uncertainty. Risk is sometimes defined 

as exposure to a chance of injury or loss; the chance or probability inherent in risk is the source of 

uncertainty (Morgan and Henrion, 1990). The individuals who face health risks may be unsure about 

the level of environmental contamination, their opportunities for avoiding it, or many other factors 

affecting their welfare. Situations involving uncertainty present three additional complications for 

valuing health: 

! First, the mathematical expectation of utility (i.e., probability of an outcome 

effect multiplied by its economic effect) may not adequately reflect individual 

motivations and behavior. 

! Second, there may be wide divergence between scientific assessments of 

environmental health risks and the level of risk perceived by ordinary people. 

For example, in general people tend to overestimate the probability of small 

risks. The divergence between subjective risk perceptions and scientific 

estimates of risks complicates measurement of WTP using both direct and 

indirect methods to measure value from hypothetical and actual behavior.4 

! Third, economic valuation under risk requires distinguishing between ex ante 

and ex post WTP. Individuals may take measures to reduce risk (i.e., an ex 

ante behavior); for example, undertaking measures to reduce the likelihood 

of contracting asthma. Alternatively, individuals may take measures to lessen 

the effect of the health condition (i.e., an ex post behavior); for example, using 

an inhaler to reduce asthma symptoms. 

4 This complex issue requires a much lengthier discussion than is possible to cover given the 

scope of this document. Useful general sources include Slovic (1987) and Fischhoff et al. (1978). 

In addition, Portney (1992) presents the issue relative to contamination perceptions in a town. The 

author gives an example of a town of residents who would be willing to pay to reduce the presence 

of a contaminant they feel is carcinogenic but risk assessors say is benign. 

2-12 
SUMMARY AND GUIDE TO FURTHER READING 

This chapter has surveyed the economic theory which supports valuation of non-cancer and 

other human health effects. Key points include the following. 

! Economic valuation can be a helpful tool to illustrate the benefits of public 

policies. For example, the estimates may be used in benefit-cost analysis, 

which evaluates the economic efficiency of a policy. A detailed analysis may 

show the distribution of costs and benefits by income, health status or other 

characteristic, but typically the focus is on total net benefit: the difference 

between benefits and costs summed over all affected individuals. 

! Economists define benefits and costs as dollar equivalents of changes in wellbeing, and assume that each individual is the best judge of his or her own wellbeing. In economic theory, individual well-being depends on consumption of 

marketed goods and services, health, and other factors. Economists assume 

that people are willing to make tradeoffs among the factors which contribute 

to well-being; these tradeoffs imply that the value of health can be expressed 

in dollars. 

! One measure of the economic value of improved health is the amount of 

money an individual would be willing to pay to obtain the health 

improvement. A second measure is the amount of money the individual 

would be willing to accept in compensation to forego a health improvement. 

Both WTP and WTA measure dollar equivalents of changes in economic wellbeing, but they are not identical. The difference between the two measures 

is likely to be small unless the change in health is large. In practice, most 

studies estimate WTP, because it often is less problematic to measure and 

quantify. 

! WTP may vary over individuals according to differences in their desire for 

health, their income, or other personal characteristics. While policy analysis 

may require accounting for these differences, it is difficult to say, a priori, 

how these personal characteristics may affect WTP. 

! The principle of revealed preference implies that market behavior reveals 

WTP for goods traded in markets. 

! The revealed preference principle sometimes can be extended to measure 

WTP for nonmarket goods such as health. Stated preference methods, which 

rely on individuals' statements of value rather than actual behavior, also are 

used to value health. Other approaches often used by health economists, such 

as the cost-of-illness method, do not measure individual WTP for changes in 

well-being but instead measure the direct and indirect costs of poor health. 

2-13
! When environmental quality improves, there are several health-related impacts 

on well-being. A complete valuation of health must account for all these, 

including changes in pain and suffering and defensive expenditures, which 

WTP/WTA is expected to reflect. 

! If people incur costs to avoid health effects of environmental contamination, 

the value of reduced contamination will not be measured accurately by simply 

multiplying the number of actual health effects avoided by some monetary 

value -- the estimate must also include a measure of the avoided defensive 

expenditures. 

! Some cases of health valuation may warrant consideration of altruistic 

benefits, or WTP for improvements in the health of others. 

! It may be necessary to account for differences between costs borne by sick 

individuals and costs shifted to other people. 

! Individuals may discount future health effects; that is, they may be willing to 

pay less today to avoid future, rather than present, health problems. 

! Health effects valuation in the face of risk and uncertainty presents additional 

complications, including the difficulty of accounting for any divergences 

between actual risks and subjectively-perceived risks, and risk characteristics 

that may influence values such as immediacy of risk, amount of control over 

risk, or voluntariness.5 In addition, it is important to distinguish between 

methods measuring ex ante or ex post values since nearly all health effects 

estimation involves individuals making decisions about risk under uncertainty. 

Guide to Further Reading 

There are many books on benefit-cost analysis, including Mishan (1988) and Hanley and 

Spash (1993). A widely cited text on valuation in environmental economics is Freeman (1993); his 

chapters on valuation under risk and on valuation of morbidity and mortality are particularly relevant. 

Johansson's books on environmental valuation (1987) and health valuation (1995) are also useful; 

see also Tolley et al. (1994). Viscusi (1993) provides a survey of valuation of morbidity and mortality 

risks, including empirical results; see also Cropper and Freeman (1989). A thorough explanation of 

the expected utility approach in the context of health valuation can be found in Desvousges, Johnson, 

Banzhaf (1994). 

5 See Slovic, Fischhoff, and Lichtenstein (1979) for a more detailed discussion of the risk 

characteristics that may be influential to individual's values. 

2-14
PRIMARY METHODS OF MORBIDITY VALUATION CHAPTER 3 

Researchers have used a wide range of approaches to value environmental health effects. 

Several available methods measure the theoretically preferred value of individual willingness to pay 

to avoid a health effect, while other methods that provide useful measures of the value of avoided 

morbidity are less well-grounded in economic theory. Methods also differ in the perspective from 

which valuation is measured (e.g., before or after the incidence of morbidity), and the degree to which 

they account for the major elements of willingness to pay outlined in Chapter 2.6 This chapter 

reviews and evaluates each of the available primary methods for morbidity valuation. 

The chapter consists of six major sections. The first section provides a brief overview of the 

key elements of available valuation methods. The second section presents some general issues that 

arise in the practice of measuring health effects and linking those measurements to valuation 

estimates. The next three sections present the theoretical basis, methodological concerns, and overall 

evaluation of each of the three methods most widely used for morbidity valuation: the cost-of-illness, 

contingent valuation, and averting behavior methods. The last section reviews five additional, less 

commonly employed methods for morbidity valuation. Note that this chapter focuses on primary 

methods of valuation. Chapter 4 discusses the practice of benefits transfer, a technique for 

transferring estimates from primary research to circumstances that may differ from that evaluated in 

the original research (e.g., to a new health effect or combination of effects). 

OVERVIEW OF AVAILABLE METHODS 

To develop an understanding of the methods available for estimating environmental morbidity 

values, it is first important to understand the various components of these values. The loss of social 

welfare associated with the incidence of one case of a health effect is comprised of four elements: the 

cost of treatment, the loss of output associated with the reduction in work activity in the labor 

market, the loss of value of non-market activities, and individual’s pain and suffering. When the 

individual who suffers the disease bears the whole cost burden, the value of environmental morbidity 

6 Several methods also measure the theoretically preferred value of individual willingness to 

accept (WTA). As noted in Chapter 2, we focus our discussion on WTP, which is less problematic 

to measure and quantify, and most commonly found in the economics literature. 

3-1 
is the individual’s maximum WTP to avoid the disease, equal to the monetized value of the four 

components. In the absence of sick pay, medical insurance, and/or charity, the value of environmental 

morbidity is the sum of the WTP to avoid the costs borne by the individual and costs borne third 

parties (e.g., insurance companies). 

Three methods are used most often to value environmental morbidity. The first is the cost-ofillness method that directly measures values using observed behavior. This method is most prevalent 

in the medical economics literature. The cost-of-illness method does not measure willingness-to-pay 

compensation (WTP) for reduced morbidity, but the costs incurred as a result of illness, including 

direct costs such as medical expenses and indirect costs such as foregone earnings. Two other 

methods are more prevalent in the environmental economics literature. The contingent valuation 

method takes the stated preference approach described in Chapter 2 and measures respondents WTP 

for hypothetical health improvements. The averting behavior method takes the revealed preference 

approach and estimates WTP from observed behavioral responses to real situations. This method 

infers WTP from the cost and effectiveness of actions taken to defend against illness. Several other 

methods have been used less frequently to value environmental morbidity, including hedonic methods 

(a revealed preference approach), and several other methods that, similar to the cost-of-illness 

method, do not measure WTP: risk-risk tradeoffs and health-state indexes.7 In addition, studies of 

jury awards are a potentially useful source of data. 

An important feature of each method is whether it measures WTP for reduced incidence of 

illness or reduced risk of illness. Theoretically, approaches can be categorized as revealed preference 

and stated preference methods measuring values using actual or hypothetical behavior.8 In situations 

involving risk of illness, rather than the certainty of illness, the various methods differ according to 

whether value measures are obtained from an ex ante or an ex post perspective. Finally, valuation 

methods can be distinguished in terms of how they account for the various economic effects of illness, 

such as medical expenses and pain and suffering. Exhibit 3-1 summarizes a number of distinctions 

among the methods based on these major distinguishing characteristics. 

7 Benefits transfer is an alternative to using one of the primary research methods to value 

health effects. This technique is described in detail in Chapter 4. 

8 As mentioned in Chapter 2, each method can be further classified as being direct or indirect 

(Mitchell and Carson 1989; Freeman 1993); however, this additional classification is not essential to 

the current discussion. 

3-2 
Exhibit 3-1 

SUMMARY OF METHODS FOR MORBIDITY VALUATION 

Cost-ofillness Contingent 

Valuation 

Averting 

Behavior 

Hedonic 

Property 

Hedonic 

Wage 

Risk-Risk 

Tradeoff 

State 

Index 

Health 

Jury 

Award7 

Does the 

method 

estimate 

individual 

WTP? 

No Yes, 

Stated 

Preference 

Yes, 

Revealed 

Preference 

Yes, 

Revealed 

Preference 

Yes, 

Revealed 

Preference 

No No No 

Is the 

perspective 

ex ante or ex 

post? 

Ex Post Ex Ante or 

Ex Post 

Ex Ante Ex Ante Ex Ante Ex Ante Ex Ante Ex Post 

Does the method account for the following components of the value of avoided morbidity? 

Private 

Direct Cost 

T T T T T T Rarely T 

Lost 

Earnings 

T T T T T T T T 

Lost 

Nonmarket 

Work 

Usually T T T T T T T 

Lost Leisure T T T T T T T 

Third-Party 

Costs 

T 

Averting 

Costs 

T T T T T 

Pain and 

Suffering 

T T T T T T T 

Altruism to 

Household 

Members 

Sometimes Sometimes T Sometimes Sometimes Sometimes T 

Altruism 

Toward 

Others 

Sometimes 

While a potentially useful source of data, jury awards have not been fully evaluated by economists as to their usefulness for 7 

valuation of health effects. 

3-3
Among the three most commonly applied methods, each approach has its strengths and 

weaknesses, summarized in Exhibit 3-2 below. The cost-of-illness method is the most 

straightforward to implement and to explain to policy-makers. But it does not measure WTP and 

neglects the value of avoided pain and suffering. The contingent valuation method is the most 

flexible: in principle, surveys could be designed to value any illness. The method also appears to be 

the only way to measure dollar values for altruism toward people outside the immediate household. 

The hypothetical nature of contingent valuation, however, makes it quite controversial and introduces 

numerous sources of potential inaccuracy and imprecision. The averting behavior method is the only 

one of the three providing WTP estimates based on actual behavior, but it is difficult to measure the 

costs and health benefits of averting action. 

Exhibit 3-2 

EVALUATION OF THREE MOST COMMON METHODS FOR MORBIDITY VALUATION 

Method Approach Advantages Disadvantages 

Cost-of-illness Measures direct costs 

such as medical expenses 

and indirect costs such as 

foregone earnings. 

Relative ease of 

application and 

explanation. 

Does not require 

household surveys. 

May be lower bound on 

WTP. 

Does not measure WTP. 

Ignores important 

components of WTP such 

as pain and suffering. 

Contingent Valuation Surveys elicit WTP for 

hypothetical changes in 

health effects. 

Flexibility allows 

application to variety of 

health effects. 

If designed properly, 

allows measurement of 

complete WTP, 

including altruism. 

Hypothetical nature 

introduces many sources 

of potential inaccuracy 

Method is controversial 

and often expensive. 

and imprecision. 

Averting Behavior Infer WTP from costs 

and effectiveness of 

actions taken to defend 

against illness. 

WTP estimates based on 

actual behavior. 

Difficult to isolate value 

of health from other 

benefits of averting 

action. 

Difficult to measure 

individual perceptions of 

cost and effectiveness of 

averting action. 

3-4
In summary, the economic value of health is a sometimes elusive concept that is difficult to 

quantify precisely. For that reason, it is useful to use more than one technique to estimate the value 

where possible. In addition, while any of the methods discussed in this chapter may provide a 

valuation estimate, it is important to critically evaluate the plausibility of an estimate for its 

reasonableness in a particular application. For example, if the estimated value of avoiding an acute, 

reversible effect exceeds other reasonable estimated values for avoiding long-term, chronic effects, 

then the acute effect value is probably too large and will be difficult to defend. On the other hand, 

willingness-to-pay values that are less than cost-of-illness values for the same effect are probably too 

low, particularly if the effect clearly results in some pain or other impairment of activity. 

Although the scope of this document is limited to the valuation of morbidity outcomes, 

environmental contamination can increase both the risk of illness and the risk of premature death. 

Most analysts familiar with environmental health effects valuation would have more confidence in 

existing estimates of the "value of a statistical life" (i.e., the value of reducing mortality risk) than in 

existing values of reduced morbidity.9 One reason for this discrepancy is simply that less research 

effort has been devoted to estimating WTP for morbidity avoidance. Another is that economists have 

exploited a close link between mortality risk and market behavior in examining tradeoffs between 

wages and job risk. There does not appear to be as close of a link between WTP for morbidity 

avoidance and market behavior. 

HEALTH EFFECTS MEASUREMENT AND VALUATION 

EPA has developed Agency-wide Guidelines for conducting economic analyses to reflect 

current understanding of environmental policy making and economic analysis. These Guidelines 

provide both a general framework for conducting an economic analysis (see Chapter 5, USEPA 

2000), and a process for conducting the benefits analysis portion of the analysis (see Chapter 7, 

USEPA 2000). While the Guidelines provide discussion of many general issues that may arise in the 

course of conducting such an analysis, several practical issues specific to non-cancer health effects 

valuation are discussed in greater detail in this section. 

9 The value of a statistical life (VSL) measures the value of a given reduction in risk and an 

individual's willingness to pay to reduce that risk. The result of applying this method is not the value 

of an identifiable life, but instead the value of reducing fatal risks in a population. The VSL is 

calculated by measuring the willingness to pay for a small change in the risk of death among a 

population. For example, if an individual is willing to pay $100 to reduce his or her own annual risk 

of death by 1 in 10,000, then the value per statistical life is the willingness to pay for the risk 

reduction divided by that risk, or $1 million ($100 divided by 1/10,000). This method does not 

account for differences in value estimates that may be associated with varying population 

characteristics (e.g., age, income) and health states (e.g., mortality risk levels). 

3-5 
Differences in the kind and degree of morbidity can influence both the value of reduced illness 

and the choice of a valuation method. Analysts distinguish between short-term (acute) effects and 

longer-lasting or recurring chronic effects. Acute illness such as diarrhea or respiratory infections 

may vary in frequency and duration, while length of chronic impairment may vary because of 

differences in life expectancy or age at onset. Common sense and economic theory predict that a 

person will be willing to pay less to avoid a mild, short-term symptom that is easily relieved than a 

more severe, long-lasting impairment with no cure. Besides differences in duration and frequency, 

health effects may also differ in the following ways: 

! severity; 

! whether they are immediate or delayed (i.e,. the latency period); 

! how easily they are relieved or cured; 

! the characteristics of people typically affected (such as their age, income, and 

health status); and 

! the context of the health effect (e.g., whether the health effects have 

catastrophic versus more commonly encountered consequences; whether the 

risks are imposed versus borne voluntarily).10 

Accounting for these differences in kind and degree of morbidity promotes accuracy in the estimation 

of benefits.11 

While it may seem obvious that the value of avoiding a health effect depends on how adverse 

a person perceives the effect to be, morbidity often is measured in ways that bear little relation to 

individual perceptions of adversity. Freeman (1993) stresses that biomedical research often focuses 

on effects that individuals might not perceive as adverse, or even notice at all, such as reductions in 

forced expiratory volume in response to high ozone concentrations. This type of effect may have no 

economic value, because a person may be willing to pay to avoid an effect only if he perceives that 

it may reduce his well-being now or in the future. An example of this case may be found in the 

Appendix C discussion of the economic valuation of lung function. In this case study, because lung 

function decrements are not noticeable, it is difficult to describe their effect on well-being. 

10 Zeckhauser (1996) provides a more detailed discussion of the psychological aspects of 

health effects that may influence individuals WTP. 

11 Chapter 5 includes discussion of the strategies for adjusting values to better match the 

definition of effects used in economic and health science studies. 

3-6 
Health effects measured by population surveys are by necessity closely linked to individual 

perceptions but often introduce a separate problem by confounding illness and behavioral responses 

to illness. Examples include "restricted activity days," when a person misses some of his normal 

activities; "work loss days," when a person does not work for pay due to illness or impairment; and 

"bed disability days," which indicate confinement to bed for most of the day. These measures reflect 

the presence of illness as well as a person's decision about how to react to illness. Research indicates 

that these decisions are related to economic factors such as employment, sick pay and nonlabor 

income, casting doubt on their validity as measures of illness alone (Freeman, 1993). 

Besides the issue of matching morbidity measures to health effects perceived and valued by 

people, there is the problem of aggregating morbidity measures consistently with the likely effects of 

an environmental policy. Aggregate morbidity generally is measured either by prevalence, the total 

number of people having a disease, or by incidence, the number of people newly contracting the 

disease. Both prevalence and incidence also can be measured as rates (proportions of a relevant 

population). Hartunian et al. (1981) point out that prevalence-based measures are more appropriate 

for analyzing policies to relieve existing illness, while incidence-based measures are relevant for 

prevention. Chestnut and Violette (1984) argue that both types of measures are potentially useful 

because environmental policy may affect either prevalence or incidence, depending on the health 

effect being valued. For example, CO exposures may aggravate angina symptoms for people who 

already have heart disease. In this case, it is important to know how may people in the exposed 

population have the disease. In some cases there may be incidence-type outcomes that are linked to 

chronic disease. For example, pollution might be linked to emergency room visits for asthma, an 

incidence measure in the already-asthmatic population. Policy analysis needs to appropriately match 

the value to the health effect of the policy. 

From a valuation standpoint, morbidity is an intermediate link between environmental change 

and economic value. There is a clear distinction in disciplines between estimating dose-response 

relationships for environmental exposures and the resulting health effects, and estimating the 

willingness to pay of affected individuals for avoiding those health effects. This distinction suggests 

two general approaches to health effects measurement for valuation (Dickie et al. 1987). The more 

common approach is to value health effects, while leaving assessment of the pollution-morbidity link 

to health scientists. 

An alternate approach is to incorporate the environment-health relationship in a more 

comprehensive model of economic behavior. For example, researchers have attempted to discern 

correlations between pollution levels and the sum of medical and defensive costs incurred for 

potentially pollution-induced health effects. The result is a "reduced form" relationship between 

environmental and economic welfare indicators. This approach avoids the problem of poor linkage 

between measured health effects and those that individuals perceive and value, and has the added 

advantage of allowing better control for the costs and health effects of defensive behavior. The 

obvious disadvantages of this approach are that economists lack the specialized expertise which health 

scientists bring to morbidity assessment, and that the estimates are often based on correlations and 

may provide little insight into the causal links between pollution and health effects. 

3-7
COST-OF-ILLNESS 

The cost-of-illness method of morbidity valuation is closely related to the human capital 

approach to mortality valuation, which focuses on the present discounted value of earnings lost from 

premature death. The human capital approach predates Adam Smith (Landefeld and Seskin 1982), 

is used in damage assessments for wrongful death cases in Federal jurisdictions, the District of 

Columbia, and 39 states (Link 1992), and has been used frequently in benefit-cost analysis. However, 

under most conditions, the cost-of-illness method underestimates WTP because it excludes many 

components of value, including pain and suffering, defensive expenditures, lost leisure time, and 

altruistic benefits. 

The cost-of-illness method also has been widely used for damage assessment and benefit-cost 

analysis. The method measures direct and indirect costs of morbidity. Direct costs include the value 

of goods and services used to diagnose, treat, rehabilitate and accommodate ill or impaired 

individuals. Indirect costs reflect the value of foregone productivity, most often measured as 

foregone earnings. The total cost of illness is the sum of direct and indirect costs. Standard 

references on cost-of-illness methodology include Rice (1966); Cooper and Rice (1976); Rice, 

Hodgson, and Kopstein (1985); Hartunian et al. (1981); and Hu and Sandifer (1981). The relative 

size of direct and indirect costs may vary by impairment as well as by estimation approach. Indirect 

costs account for about 60 percent of the total cost of illness in the United States, according to 

Cooper and Rice (1976), counting losses from both morbidity and premature mortality. The share 

of total costs attributable to morbidity-induced indirect costs alone is about 22 percent. For the major 

impairments studied by Hartunian et al. (1981) -- cancer, coronary heart disease, stroke and motor 

vehicle injuries -- indirect costs account for about 70 percent of the total, again counting both 

morbidity and mortality losses. 

Link to Health Valuation Theory 

The theoretical basis of the cost-of-illness method is quite limited. The major assumptions 

are that (1) direct costs of morbidity reflect the economic value of goods and services used to treat 

illness, and (2) a person's earnings reflect the economic value of his production. Some economists 

doubt whether these assumptions hold, owing to distortions in medical and labor markets, but the 

assumptions are broadly consistent with the economic view of the world. 

The main theoretical issue concerning the cost-of-illness approach is that the method measures 

ex post costs rather than WTP. A number of researchers have examined the theoretical relationship 

between WTP and cost-of-illness or human capital measures of value. Studies of mortality valuation 

have concluded that foregone earnings from premature death are a lower bound on WTP-based 

values of statistical lives (Conley 1976; Arthur 1981). The comparison of the cost-of-illness and 

WTP-based morbidity values is not quite as straightforward, but most authors agree that under 

plausible conditions an individual's cost of illness is a lower bound on WTP (Harrington and Portney 

1987; Berger et al. 1987). 

3-8
The main reason the cost of illness is less than WTP is the failure to account for all the welfare 

effects of illness that are reflected in WTP. As shown in Exhibit 3-1, the cost-of-illness method 

ignores pain and suffering, defensive expenditures, lost leisure time, and any potential altruistic 

benefits. Unless the omitted items make up a constant proportion of WTP for all illnesses, the 

amount of divergence between individual costs of illness and WTP will vary by disease. There 

presently is little empirical evidence on the size of this divergence, but using and estimated adjustment 

factor to account for this divergence has been applied in at least one EPA analysis of the valuation 

of health effects (Chestnut 1995). 

The fact that an individual's cost of illness falls short of his WTP, however, does not imply 

that the cost of illness, as usually computed, will be less than WTP. As discussed in Chapter 2, large 

portions of the costs of illness are shifted from the impaired individual to others, through insurance 

and sick pay. These costs will not be reflected in individual WTP, but cost-of-illness measures 

typically count third party costs as well as individual costs. 

A related theoretical problem affecting the cost-of-illness method is that, especially for minor 

impairments, individuals exercise considerable choice over the amount of medical care and work loss 

they experience. The cost-of-illness method in effect measures the costs of these choices, rather than 

the dollar equivalent of the loss in well-being caused by the illness itself. 

Methodological Problems 

The most serious methodological problems affecting the cost-of-illness approach concern the 

measurement of the value of lost production. Key difficulties include: (1) accounting for the full 

impact of chronic illness on earnings; (2) choosing an appropriate wage rate to apply to work loss 

time, and (3) valuing time spent in unpaid work. 

Morbidity can affect earnings in three distinct ways. A chronic or acute illness can cause a 

person to miss regularly-scheduled work time. A chronic illness also may limit a person's job options, 

causing him to work in a job with fewer regularly scheduled hours. The extreme case of this second 

effect is the complete withdrawal from the workforce of a totally disabled person. Finally, any 

restrictions on job opportunities caused by chronic impairment may result in a lower rate of pay per 

hour worked. 

These distinctions are important because some measures of work loss count only hours missed 

from a person's usual work schedule, evaluated at the hourly wage. While this would be appropriate 

for most cases of acute illness, it would not capture longer-term effects of chronic illness on usual 

hours or wages. 

The choice of a wage rate to apply to time lost from work raises difficult issues. Wages are 

closely linked to education and age or experience, as well as to gender and other demographic 

characteristics. The incidence rates of many health impairments also vary markedly by some of the 

same characteristics. If the wage rates applied to lost work time do not match the demographic 

3-9
distribution of illness, indirect cost estimates will be inaccurate indicators of actual earnings loss. For 

example, more educated persons earn higher wages and are healthier, suffering fewer days of work 

loss than less-educated, lower-paid workers. Most cost-of-illness studies do not control for the 

effect of schooling on wages and work loss, leading to an overestimate of foregone earnings. Many 

studies do, however, account for age and gender differences when estimating indirect costs. 

While a careful matching of wage rates to demographic characteristics promotes accuracy in 

estimating lost earnings, it has the implication that the cost of illness varies with personal 

characteristics, in a pattern that mirrors the distribution of wages. Some analysts prefer to avoid this 

outcome by making few if any adjustments for wage differences among demographic groups. 

More practical problems arise for measuring foregone productivity of persons not employed 

in paid work, such as students, retired persons and homemakers, because no wage rate is observed 

for these individuals. Some studies do not value the time of these individuals. A more common 

approach is to apply the same wage rate used for comparable, employed persons. Two additional 

approaches have been proposed for valuing household work. The market cost approach measures 

the cost of hiring out all of the services typically performed by a homemaker, while the opportunity 

cost approach values a homemaker's time at the wage rate that could be earned in paid work by an 

individual with similar schooling and experience. The opportunity cost approach is conceptually more 

appealing to economists but is more difficult to implement. Most cost-of-illness studies in medical 

economics apply the market cost approach. 

It is also important to recognize that, because treatments for illnesses change over time, the 

cost of illness is a dynamic concept. Older cost of illness studies may not account for changes in 

medical technology that might alter the cost or effectiveness of treatment. If older studies must be 

used, this factor needs to be explicitly considered. 

Data Collection and Analysis 

Costs of illness are measured on either a prevalence or an incidence basis. Prevalence-based 

measures assign costs of all existing cases of an illness to the year in which the costs are incurred. 

Incidence-based measures assign the present value of all costs of illness -- from onset to recovery 

or death -- to the year of onset. 

There is little difference between prevalence-based and incidence-based costs for short-term 

illnesses, but the difference increases with duration. Usually, prevalence costs exceed incidence costs 

unless incidence is rising rapidly, and the difference is larger for indirect than for direct costs 

(Hartunian et al. 1981). 

Besides differences in the magnitude of cost measures, prevalence and incidence-based 

approaches have different data requirements and different degrees of aggregation. Prevalence costs 

are often computed from aggregate data, while incidence costs are built up from costs of individual 

3-10
cases. Prevalence costs often are estimated for broad disease categories such as "diseases of the 

respiratory system," while incidence costs focus on more narrowly defined impairments such as 

asthma. Prevalence-based morbidity costs are based on prices and wages observed in a given year, 

while incidence costs require forecasts of future medical costs and wages. Forecasting can be 

difficult; few analysts anticipated the rapid growth in medical costs and the slowing in wage growth 

that occurred during the past two decades. 

Prevalence Approach 

Prevalence-based applications of the cost-of-illness method typically follow some variation 

of the methodology set out by Rice (1966). Total US health care expenditures are divided into 

several categories such as hospital care, services of physicians and other health care professionals, 

nursing home care, drugs and medical supplies, and nonpersonal health care services. Expenditures 

in each category are allocated to specific diseases, and the direct cost of a disease is found by 

summing over expenditure categories. Expenditure data are available from the Health Care 

Financing Agency; one source of data used to allocate costs to diseases is the Hospital Discharge 

Survey. 

Tolley et al. (1994) review a number of potential sources of inaccuracy in the methods used 

to assign costs to expenditure categories and to specific diseases. Despite these problems, a key 

advantage of this approach is that the costs of diverse diseases are estimated by a single methodology, 

making cost comparisons simpler. Also, the total direct cost of illness in the US is allocated across 

diseases using a consistent methodology (Cooper and Rice 1976). 

Prevalence-based measures of indirect costs typically apply a fixed dollar value to the 

estimated duration of restricted activity. For example, Cooper and Rice apply mean earnings by age 

and gender to work loss days for employed individuals, and use a market-cost approach to value 

homemakers' bed disability days. This approach would not account for earnings losses caused by 

restrictions on employment opportunities of the chronically ill.12 Data on work loss and bed disability 

days are taken from the Health Interview Survey of the National Center for Health Statistics, while 

earningsinformation is available from a number of sources, including the Labor Department's Current 

Population Survey. 

12 It is also important to note that while morbidity can reduce life expectancy in some cases, 

estimating the costs associated with premature mortality should be handled separately. 

3-11 
Incidence Approach 

Incidence-based cost of illness measures often follow a methodology similar to that of 

Hartunian et al. (1981). This approach involves estimating the direct and indirect costs for each year 

of illness, weighted by the probability an individual would survive each year, and computing the 

present discounted value of this stream of costs. 

Estimates of direct costs sometimes use data on actual costs incurred by patients; the National 

Medical Expenditure Survey is the major source of these data. But surprisingly little data exists on 

the costs of treating specific illnesses over time, even for major impairments. As a result, analysts 

often must estimate costs based on literature reviews or input from medical experts. This approach, 

used by Hartunian et al. (1981) and USEPA (2000b), involves estimating the costs of each 

component of treatment, and multiplying by the probability a patient will receive the treatment. 

Hartunian et al. estimate indirect costs of long-term illnesses among the employed using 

estimates of the duration of impairment and the earnings differential attributable to disability. In 

principle, this approach will include all sources of lost earnings among impaired, employed 

individuals, including shorter work schedules and lower wages. However, data on earnings losses 

for chronic impairments are quite sparse. Hartunian et al. report studies of specific diseases, and 

some economists have estimated earnings losses among disabled men (Johnson and Lambrinos 1985; 

Haveman and Wolfe 1990). For short-term impairments, Hartunian et al. apply daily wages to 

estimates of restricted activity days. Lost housekeeping services are valued using a market cost 

approach. 

Other Cost of Illness Techniques 

The methodologies of Rice (1966) and Hartunian et al. (1981) represent comprehensive 

approaches to computing costs of illness. Smaller-scale applications of the basic methodology also 

have been employed. For example, the costs of specific treatment events, such as hospital admissions 

or doctors visits have been computed (Seskin 1979; Dickie and Gerking 1991). Also, household 

surveys of people with specific conditions (Chestnut et al. 1988), or of the general population, have 

been used to estimate costs of a few illnesses. 

Evaluation 

The cost-of-illness method has a number of advantages over WTP approaches. Cost-ofillness methods have been applied for many years and are well-developed, and measures of direct and 

indirect costs are easily explained without reference to complex economic theory. While the method 

does not attempt to value less tangible components of WTP such as pain and suffering, individual cost 

of illness is, under plausible conditions, a lower bound on WTP. The method often 

3-12
accounts for costs shifted from impaired persons to others, and incidence-based studies are typically 

more transparent in calculating a present value of future costs than WTP studies. Finally, necessary 

data often can be obtained without expensive household surveys. 

At the same time, the cost-of-illness method has several shortcomings which lead many 

economists to reject the approach as inadequate for benefit estimation. The most serious problem 

is that the method measures ex post costs of illness, rather than WTP. While individual costs of 

illness may be a lower bound on WTP, there is little empirical evidence on the size of the difference 

between illness costs and WTP, and no reason to expect the difference to be similar for different 

health effects. By not accounting for the value of avoiding pain and suffering, the method could be 

misleading about the relative damages of different diseases. Also, measures of the value of lost time 

are often incomplete or imprecise, even among the employed, but particularly for homemakers, 

children and retired persons. Finally, costs of illness are often shifted to third parties such as 

insurance companies. This “cost-shifting” can distort the costs of illness. 

CONTINGENT VALUATION 

Stated preference methods directly elicit individuals' valuations of a hypothetical commodity, 

usually using survey research methods. The method was first proposed a half century ago by CiriacyWantrup (1947) and was first applied years later by Davis (1963). Early work often focused on 

valuing recreation benefits and air quality changes, but assessments of a whole range of values 

relevant to public policy, including values for avoided morbidity, currently use the method. One type 

of stated preference method, contingent valuation, has been used to value avoidance of respiratory 

and other symptoms of air pollution exposure, avoidance of asthma-related illness, reductions in skin 

cancer risk, and reductions in risk of chronic bronchitis. 

Contingent valuation is quite controversial, especially when applied to estimate passive-use 

values (the value of simply knowing that a resource exists, as opposed to the value of actively using 

it). But the method has been accepted by the Federal government for use in estimating certain types 

of benefits, including values of recreation areas and oil spills. A standard reference on contingent 

valuation is Mitchell and Carson (1989). Cummings, Brookshire and Schulze (1986) and Bjornstad 

and Kahn (1996) also provide a comprehensive review of the method. Diamond and Hausman (1994) 

give a decidedly less sympathetic treatment of the method. The potential controversy in using values 

from survey methods (such as contingent valuation) makes it particularly important to seek 

plausibility checks for these estimates. 

Link to Valuation Theory 

The contingent valuation method measures WTP (or WTA) and so is consistent with the 

economic theory of health valuation. If respondents understand the commodity to be valued and 

answer valuation questions truthfully, the method yields estimates of individual WTP. Valuation 

3-13
questions can ask for household WTP or even for the WTP an individual may have for others outside 

of the household (i.e., altruism). Contingent valuation appears to be the only method capable of 

measuring these altruistic benefits. As shown in Exhibit 3-1, contingent valuation potentially 

captures the full set of effects of illness on individual well-being. In situations involving risks, the 

method can elicit ex ante WTP values, though many contingent valuation studies have estimated ex 

post WTP instead. 

Methodological Problems 

Although the contingent valuation method sets out to find the theoretically correct measure 

of economic benefit, many economists doubt that the measures obtained actually correspond to 

individuals' true WTP (see Diamond and Hausman 1994). The main objections to contingent 

valuation center on the hypothetical nature of the transaction: because a respondent does not have 

to pay the amount he states, he may have little incentive to provide accurate answers. He may not 

think carefully enough about the question to give answers reflecting his preferences or opportunities, 

or may respond strategically in an effort to influence the outcome of the survey. 

Most economists agree that strategic responses to contingent valuation questions are not a 

serious problem, but some economists argue that the responses do not reflect stable preferences with 

the generally held properties assumed by economists. For example, researchers have expressed 

concern that contingent valuation responses are "insensitive to scope" and are unduly sensitive to the 

sequencing of alternatives to be valued. Insensitivity to scope, for example, would occur if WTP to 

avoid five symptoms was no larger than the WTP to avoid one symptom. Sequencing problems 

would imply that the values of individual symptom avoidance were unduly sensitive to the order in 

which the symptoms were presented to respondents for valuation. In addition, researchers have noted 

that contingent valuation responses may include values for other related things, sometimes referred 

to as "embedded" values. For example, when individuals are asked their WTP to reduce the visual 

aesthetic effects of air pollution, there is some evidence that some respondents include value for 

reducing health effects of air pollution in their answers. One reason why this occurs is because 

respondents think both will be achieved by reducing air pollution. 

A second criticism of contingent valuation involves the unfamiliarity of the valuation task. 

Respondents may not understand the commodity or the valuation task the way researchers intend, 

and respondents almost certainly lack experience paying for a commodity not normally traded in 

markets. For example, respondents may not have directly purchased relief from the specific illness 

being evaluated or purchased reductions in that health risk. This criticism is particularly apt for 

efforts to value health risks, especially for low probability illnesses, because of the apparent difficulties 

people have in understanding risk information. 

3-14
Critics have proposed other reasons why contingent valuation responses may not reflect WTP. 

Respondents may express a general attitude about a commodity on a dollar scale only because that 

is the scale the survey offers; they may report a high WTP to obtain a "warm glow" from contributing 

to a worthy project such as environmental improvement; or they may state a WTP because they 

assume that by virtue of the survey, the commodity has some value. Furthermore, the amount an 

individual states he is WTP may be influenced by the survey's payment vehicle. For example, suppose 

two surveys are designed to measure a value for the same good, but one uses a hypothetical tax as 

the payment vehicle and the other a referendum bid. Respondents may provide different values 

depending on the payment vehicle (e.g., respondents may object to the tax increase but not the 

referendum bid). In addition, differences in respondents baseline health are not always accounted for. 

Some respondents may have undertaken averting behavior which affects their WTP to avoid health 

problems. 

Proponents of contingent valuation argue that poorly designed studies may suffer from any 

number of problems, but well designed and executed studies provide reliable information about 

individual WTP. These economists believe that contingent valuation responses reflect stable 

preferences, in accordance with economic theory, and often correspond closely to value measures 

inferred from actual behavior (Hanemann 1994). Practitioners generally try to eliminate, minimize, 

or test for known sources of bias or imprecision through careful survey design and data analysis. 

Data Collection and Analysis 

The contingent valuation method generally is implemented using a survey that collects 

relevant information about respondents' personal characteristics, attitudes concerning the commodity 

to be valued, and valuation information. The three key components of the method are: (1) a 

description of the commodity to be valued, such as the symptoms to be avoided or the health risk to 

be reduced; (2) a method of hypothetically paying for the commodity, such as higher utility bills, 

taxes, or prices; (3) a method of eliciting respondents' WTP for the commodity. 

The two major techniques used to elicit valuations are the "open-ended" and "referendum" 

approaches. Two other methods are used less frequently: "contingent ranking" and "contingent 

behavior" (see Freeman 1993). Early research typically used open-ended questions of the form 

"What is the most you would be willing to pay for...?" Respondents might circle a dollar figure from 

a set of values on a "payment card," or they might simply state a value. A variant of this approach 

is the "bidding game" in which the interviewer suggests an initial dollar amount. If the respondent 

indicates he is willing to pay that amount, successively higher values are suggested until reaching a 

value the respondent would be unwilling to pay. If the respondent was unwilling to pay the original 

amount, lower values are suggested until reaching one the respondent would be willing to pay. 

3-15
In principle, the open-ended approach directly elicits each respondent's maximum WTP. But 

respondents appear to find it quite difficult to answer this type of question, as evidenced by high rates 

of nonresponse, zero responses, or implausibly high values. Presumably, these problems arise because 

people rarely have to decide the most they would pay for something; most purchases involve a 

simpler decision of whether or not to buy an item at a posted price. 

Since the mid-1980s, many researchers have favored the referendum approach to contingent 

valuation, in which respondents are asked whether or not they would be willing to pay an amount 

specified by the researcher. Different amounts are randomly assigned to different respondents. This 

procedure places the respondent in a situation similar to normal purchase decisions, or to voting in 

a referendum on a public policy with a specified cost. The disadvantage of the method is that it 

reveals less information per response: a "yes" answer reveals a lower bound, and a "no", an upper 

bound, to WTP. More information can be obtained by asking a follow-up valuation question, or by 

econometric analysis of the responses.13 

One valuation method of the stated preference approach that has recently been applied to 

environmental economics is conjoint analysis. Conjoint analysis is related to contingent valuation in 

that it relies on the respondent making a choice regarding a hypothetical situation. However, with 

the conjoint method individuals are presented with several suites of options having various amenities 

and prices. As discussed in Smith (1997), the method elicits estimates of marginal WTP based on a 

respondent ranking, rating, or constructing equivalent sets of alternatives. For example, respondents 

may be asked to rank or rate their preference for living in one of two areas where at each location 

there is a risk of incurring an adverse health effect (e.g., kidney disease at one location versus lung 

disease at another). Alternatively, respondents may be asked to indicate what change in the level of 

risk associated one alternative would make them indifferent between two competing alternatives 

(e.g., how would the risks of incurring kidney disease from exposure in one location need to change 

to make the respondent indifferent between the two locations). 

One advantage of conjoint methods in health valuation is the ability to construct scenarios that 

provide information on the valuation of disease attributes, or symptoms. The application of conjoint 

analysis methods to health symptom research includes a recent effort funded by Environment Canada 

(Johnson et al. 1997), for example. By identifying individual preferences for different alternatives, 

the analyst can assess the marginal value for a particular “characteristic” or, in this case, symptom. 

This technique is not without its disadvantages, however, as noted in Smith (1997). There 

are only a few current empirical studies that use the technique for non-market valuation (the 

technique originated from marketing research); the lack of experiences with the technique makes it 

difficult to compare its results with those from the contingent valuation method. In addition, the 

13 A variety of literature exists that provides a more thorough discussion of the survey issues 

associated with the contingent valuation approach, including Mitchell and Carson (1989) and a 1992 

expert panel of economists review of the contingent valuation method (USDOC 1992). 

3-16 
limited amount of work in this area makes it difficult to resolve issues related to estimation techniques 

and theoretical consistency. Smith (1997) provides a more detailed discussion of these technical 

issues. 

Regardless of the value elicitation procedure, many researchers prefer in-person interviews 

to telephone or mail surveys. In-person interviews allow researchers to maintain greater control over 

the information presented to respondents and permit the use of more complex survey designs with 

follow-up questions that depend on answers given previously. Lower nonresponse rates usually 

occur, but in-person surveys are more costly may be susceptible to "interviewer effects" in which 

respondents answers are influenced by the person collecting the data. 

Issues of sampling and survey design are critical to implementation of the contingent valuation 

method. Most researchers naturally prefer some form of random sampling from the relevant 

population, with a sample size large enough to support precise estimation of values and detailed 

analysis of responses from subgroups of interest. Nonetheless, some contingent valuation studies 

have employed small, convenience samples. Nonresponse, both to the survey itself and to the 

valuation question, is a particularly important issue. For example, people who return a mail survey 

may be the people most concerned about a particular health or environmental problem, leading to 

biased inferences about the population at large. 

Contingent valuation researchers stress that respondents must understand the commodity to 

be valued, believe that the level of the commodity could be changed as described in the survey, and 

view the method of making payment as plausible. When contingent valuation is used to assess WTP 

for light symptoms, most respondents presumably have a clear understanding of the commodity. 

Respondents would be less familiar with rare diseases, and might require much information about the 

nature of the disease before expressing a meaningful value for avoiding it. Contingent valuation 

surveys aiming to value risk reductions often place great emphasis on explaining risks to respondents 

or eliciting respondents' own risk perceptions. Researchers, though must be careful to avoid using 

survey instruments that influence a respondent's thought process in ways that distort WTP. 

Practitioners recommend extensive use of focus groups and pre-tests of survey design. The goals of 

focus groups and pretesting often include insuring that respondents interpret contingent valuation 

questions as intended. 

Methods of data analysis vary with the form of the valuation question and other factors. 

Researchers generally report mean or median WTP, and often correlate responses with individual 

characteristics such as income. Frequently, additional analysis is used to test whether responses 

accord with predictions of economic theory, or whether they suffer from any known sources of bias. 

3-17
Evaluation 

The contingent valuation method estimates WTP, accounts for all effects of illness on 

individual well-being, and appears to be the only method capable of eliciting dollar values for altruism 

towards persons outside the household.14 Unlike the averting behavior or cost-of-illness methods, 

it can be applied to value risks of illness lacking any connection to market transactions. The method 

is quite controversial, however, and potentially susceptible to numerous sources of bias and 

inaccuracy. In contrast to the cost-of-illness method, it requires costly data collection methods. 

AVERTING BEHAVIOR METHOD 

The averting behavior method is a revealed preference approach used to infer WTP from 

actions taken to prevent or to mitigate adverse health outcomes of pollution. Averting behavior can 

take several forms, including (1) the purchase of a durable good, such as an air purifier or water 

purifier; (2) the purchase of a nondurable good such as bottled water or a service such as medical 

care; or (3) a change in daily activities, such as staying indoors. Thus, averting actions may be 

intended to avoid exposure to environmental contamination, or to mitigate the health effects of 

exposure. 

The theory linking averting behavior to WTP originated in the 1970s and early 1980s (Hori 

1975; Courant and Porter 1981), with continued development in recent years (Bresnahan and Dickie 

1995). The first empirical applications concerned cleaning activities to reduce soiling damages from 

air pollution, but the focus quickly turned to health damages. The most frequent empirical application 

has involved actions taken to avoid contaminated water supplies (Abdalla, Roach and Epp 1992; 

Harrington, Krupnick and Spofford 1989). Other applications have investigated individuals' efforts 

to avoid potential hazardous waste contamination (Smith and Desvousges 1985), to reduce radon 

concentrations in the home (Akerman, Johnson and Bergman, 1991; Doyle et al. 1991; Smith, 

Desvousges and Payne 1995), or to reduce asthma or angina symptoms (Chestnut et al. 1988). 

Researchers also have examined use of medical care to offset effects of air pollution exposure 

(Cropper 1981; Gerking and Stanley 1986; Dickie and Gerking 1991b). This offsetting behavior 

method incorporates the WTP aspect, because individuals are able to choose medical care to most 

effectively alleviate the illness. In addition, researchers have investigated the use of air conditioners 

to reduce exposure (Dickie and Gerking 1991a), and reductions in time spent outdoors on days of 

poor air quality (Bresnahan, Dickie, and Gerking 1997). 

14 Although we have focused our discussion on WTP, WTA measures are usually more 

consistent with policy concerns for reasons mentioned in the previous section. However, WTA 

measures are often more difficult to measure because the value an individual states is not bound by 

his income. These measures may, therefore, be biased upward. In addition, WTA questions often 

result in higher refusal rages than WTP questions (i.e., respondents are more likely to say that no 

dollar amount is acceptable). 

3-18 
Link to Health Valuation Theory 

The averting behavior method is based on generally accepted economic theory and the 

revealed preference approach to measuring WTP. Because it measures WTP, the approach accounts 

for all of the effects of health on individual well-being, including altruism toward other household 

members if averting actions are taken jointly (for example, if everyone in the household drinks bottled 

water). 

The theory of averting behavior predicts that a person would take protective action as long 

as the perceived benefit exceeded the cost. If there is a continuous relationship between defensive 

action and health improvement, then in theory the individual will continue to avert until the cost just 

equals his WTP for the health improvement. For example, if substituting a gallon of bottled water 

for a gallon of tap water yields a risk reduction of one in five million at a cost of $1, the individual 

will purchase bottled water until his WTP for a one in five million risk reduction just equals $1. Thus 

marginal WTP, or the WTP for a small change in health or health risk, is inferred from two pieces of 

information: (1) the cost of the averting good, and (2) its effectiveness, as perceived by the individual, 

in reducing risk or improving health. 

As discussed in Chapter 2, measuring nonmarginal WTP, or WTP for large changes, using 

revealed preference methods is generally more difficult than estimating marginal WTP. Bartik (1988) 

showed that under certain conditions, averting costs are a lower bound on nonmarginal WTP. For 

example, a person who avoids drinking contaminated tap water by spending $20 a month on bottled 

water is willing to pay at least $20, though perhaps not exactly $20, to avoid the contamination. 

Several studies have used averting expenditures to estimate a lower bound on WTP to avoid 

contaminated water. Empirical efforts to estimate the exact WTP for a nonmarginal change, rather 

than simply to bound it, require complex theoretical and econometric methods (Dickie and Gerking 

1991; Agee and Crocker 1996). 

Methodological Problems 

Although the basic theory is straightforward, several strict conditions must be imposed to 

estimate WTP using the averting behavior method (see Bartik 1988). The most serious problem 

involves isolating the WTP for a health improvement from the values of other services provided by 

a good. For example, a person using sunscreen reduces skin cancer risk but also reduces suntanning 

and sunburning of skin. An analyst interested in the skin cancer valuation only may find it difficult 

to isolate from the value of suntanning or sunburning. Similarly, use of air conditioning may reduce 

symptoms from exposure to ambient air pollution, but the main reason for running the air conditioner, 

presumably, is to cool the house. Disentangling the value of health from other values associated with 

taking averting action can be quite complicated. 

3-19
A related difficulty is that many averting actions to do not have an easily observed market 

price to use in computing their costs. A person may stay indoors to avoid air pollution, for example, 

but it is difficult to assign a cost to this action. There is no monetary price, and no compelling reason 

to use the wage rate since the time spent indoors is not entirely lost. 

Even when the cost of averting action is clear, the perceived benefit of the action may be 

difficult to infer. A person's choice of averting behavior, and thus the value revealed by his actions, 

is based on his perception of the resulting health effects. As discussed in Chapter 2, individuals 

perceptions about health risks may differ from the assessments made by experts. Implementation of 

the averting behavior method may require detailed surveys to elicit individuals' perceptions of the 

effects of behavior on health risks. 

Finally, averting behavior often involves a discrete choice of whether to take an action, rather 

than a decision about the level of a continuous variable. For example, a person decides whether or 

not to purchase an air purifying or water purifying system. As discussed in Chapter 2, discrete 

choices by themselves do not directly reveal WTP, but only bound it. It is possible to use discrete 

choice data to estimate the exact WTP by applying complex methods (Dickie and Gerking 1991; 

Agee and Crocker 1996), but most researchers either ignore the issue or simply use averting 

expenditures to bound WTP. 

Data Collection and Analysis 

Most applications of the averting behavior method use surveys to collect data on averting 

actions taken, their costs, and perhaps on the actual or perceived health effects. Information on 

respondents' health status, attitudes and socioeconomic characteristics generally is also obtained. A 

measure of the value of time such as the hourly wages is particularly important, since many averting 

actions require time. In many cases, surveys have been timed to occur during or immediately after 

incidents of temporary water contamination. 

Data on averting actions taken and their costs are sufficient to estimate averting expenditures 

and a lower bound on WTP. More precise estimation requires more complete information on the 

actual or perceived effects of defensive behavior, such as the reduction in symptoms or health risk, 

or the increase in a child's birthweight. 

A second way of implementing the averting behavior method avoids the difficulties of 

household surveys by simulating costs and health effects of protective actions. For example, 

Murdoch and Thayer (1990) estimated the defensive expenditure that would be necessary to avoid 

increased skin cancer incidence from ozone depletion. However, with this approach, it is important 

to first find evidence that individuals would undertake such behavior. Establishing this behavioral 

evidence provides the information necessary to link cost to WTP. Data necessary to implement this 

type of approach are obtained from literature reviews and experts on the health effects in question. 

3-20
Finally, a third approach employs aggregate data on defensive expenditures together with 

technical information on the health improvement or risk reduction that would be achieved by 

defensive behavior. Dardis (1980) applied this method to data on smoke detectors to estimate WTP 

for reduced risk of death, but there do not appear to have been any applications to valuation of 

environmental health effects. 

Methods of data analysis vary widely in averting behavior studies, ranging from simple 

tabulations of averting expenditures to the estimation of sophisticated econometric models. 

Generally, attempts to bound WTP with averting costs require the least complex data analysis, while 

more complex methods are required to quantify relationship between averting action and health 

effects based on household data, or to estimate nonmarginal WTP. 

Evaluation 

Unlike the cost-of-illness approach, the averting behavior method measures WTP. As a 

revealed preference method, it avoids many of the objections raised by critics of contingent valuation. 

It accounts for the impact of defensive expenditures on health to a greater extent than any method, 

and in some applications accounts for individuals' own perceptions of the health effects of their 

actions. 

There are a few major weaknesses of using the averted behavior approach that should be 

noted. First, it is difficult to isolate WTP for health from the other impacts of averting behavior on 

well-being. Second, averting actions often are discrete choices without readily observed costs, and 

implementation may require information on the perceived benefits of averting action. Finally, there 

are often multiple benefits of an averted expenditure, and at time negative effects. For example, bike 

helmets reduce the severity of head injuries as well as the risk of death, but they can also be 

uncomfortable to wear and aesthetically displeasing. These characteristics complicate the 

interpretation of the amount paid for the bike helmet, because there are multiple benefits of using a 

bike helmet and costs that go beyond the purchase price. 

OTHER METHODS OF HEALTH VALUATION 

The cost-of-illness, contingent valuation and averting behavior methods have been the most 

widely used approaches for valuing environmental morbidity. Several other methods have been used 

less frequently, namely hedonic methods, risk-risk tradeoffs, and health-state indexes. In addition, 

other potentially useful quantitative information might include studies of jury awards. 

3-21
Hedonic Price Method 

Hedonic methods are based on the idea that goods and services often can be viewed as 

"bundles of characteristics." For example, a house could be described by characteristics of the 

dwelling itself, such as square footage, number of bedrooms and age, and by characteristics of the 

neighborhood such as quality of nearby schools, ambient air quality, or distance to a hazardous waste 

site. In hedonic theory (Rosen 1974), the price of the house reflects the characteristics it offers, and 

individuals’ valuations of those characteristics. It follows that the characteristics have implicit prices 

which measure the increase in housing price attributable to an increase in the amount of a 

characteristic. 

For example, if two houses were identical except for distance from a hazardous waste site, 

the hedonic model predicts that the house closer to the site would sell for less. If one of the houses 

is a mile closer to the site and sells for $1000 less, then the implicit price of ?distance to the hazardous 

waste site" is $1000 per mile. The revealed preference principle then implies that the marginal WTP 

for distance from the site must be $1000 per mile. If the relationship between distance to the site and 

perceived health risk were known, it might be possible to convert the WTP for distance into a value 

for reduced health risk. 

The hedonic method is implemented using multiple regression methods to estimate the 

implicit prices of characteristics. Data from markets for houses, automobiles and jobs have been used 

to estimate marginal WTP for improvements environmental quality or reductions in risk of death or 

injury. As discussed previously, it is often much more difficult to estimate WTP for nonmarginal 

changes using revealed preference methods, and this is particularly true of hedonic methods (see 

Epple 1987; Bartik 1987). Although established estimation approaches exist (Biddle and Zarkin 

1988), they are complex. 

The major drawback of the hedonic property method for valuing morbidity is that the implicit 

price of ?distance to hazardous waste site," for example, may reflect more than the WTP for better 

health. A greater distance from the site may be associated with less odor, noise or traffic, or with a 

better view. The value of all these factors would be reflected in the implicit price of distance from 

the site. Similarly, the implicit price of better air quality at a site may reflect the value of less soiling, 

less odor, or better visibility as well as the value of better health. In practice, it is quite difficult to 

isolate the marginal WTP for health from the values of other characteristics. 

Hedonic Wage Method 

The hedonic method also has been applied to the labor market, where wages reflect the 

economic value of characteristics of workers and jobs. According to the theory, employers must pay 

higher wages to attract workers to jobs viewed as more dangerous or less pleasant than alternate 

occupations. Application of the theory requires that careful consideration be given to the many 

factors causing wages to differ. For example, while neurosurgery is less dangerous than logging, the 

differences in compensation for these occupations is probably better explained by differences in the 

3-22
amounts of specialized education, training and experience required to perform the job. In practice, 

studies that adopt this approach must carefully control for these factors that affect compensation for 

employment in order to isolate the "wage-risk premium" demanded by workers to compensate for 

choosing a more risky occupation. 

There have been two main applications of the hedonic wage method to environmental 

valuation. One of these matches workers' wages to characteristics of their location, such as crime 

rates, climate or average air pollution concentrations, to estimate implicit prices for these 

characteristics. The second application is more closely linked to health: it involves estimating the 

tradeoff between wages and risk of death or injury on the job. Estimated wage-risk tradeoffs underlie 

many calculations of the ?value of a statistical life." After controlling for differences in education and 

experience of workers, and other characteristics of their jobs, the wage decrease associated with a 

small reduction in job risk reflects the marginal WTP for reduced risk. Reviews of the theory and 

empirical results can be found in Fisher, Chestnut and Violette (1989), Miller (1990), and Viscusi 

(1992, 1993). 

Wage-risk tradeoffs have been applied to value reduced risk of death, with several extensions 

to value risks of nonfatal injuries. Many economists regard estimated wage-risk tradeoffs as the most 

successful application of the economic theory of health valuation. Unfortunately, wage-risk tradeoffs 

often are unsuitable for morbidity valuation. Apart from premature death, the health effects of 

environmental contamination are quite different from the types of injuries occurring on the job. It 

would be difficult, for example, to infer the value of an avoided asthma attack from the wage-death 

risk relationship. The risk-risk tradeoff method, however, offers one way of linking wage-risk 

tradeoffs to the valuation of serious illnesses. 

Risk-Risk Tradeoffs 

The risk-risk tradeoff method involves asking individuals about tradeoffs they would be 

willing to make between two different risks, for example risk of death and risk of contracting some 

chronic disease. In the first application of the method, Viscusi, Magat and Huber (1991) presented 

people with a hypothetical choice between residence in two cities, which differed in the risk of a fatal 

automobile accident and risk of chronic bronchitis. The authors used an interactive computer 

program to present alternate combinations of the risks until reaching the point where an individual's 

response implied indifference between a death risk of one magnitude and a chronic bronchitis risk 

of another magnitude. For example, the median rate of tradeoff was 0.32, indicating that the median 

respondent viewed chronic bronchitis as about one-third (0.32) as adverse as a fatal automobile 

accident. 

The risk-risk approach is based on respondents' statements rather than their actual behavior 

and so is potentially susceptible to many of the criticisms leveled at the contingent valuation method. 

A possible advantage of the risk-risk approach over CV, however, is that it may be easier for 

respondents to make tradeoffs between two risks than between risk and dollars, as they would have 

to if CV were applied to value chronic bronchitis. A major disadvantage of the method is that it does 

3-23
not yield WTP estimates; but it offers an obvious chance to link morbidity valuation to wage-risk 

tradeoffs. For example, Viscusi, Magat and Huber apply a $2 million value of a statistical life to the 

median bronchitis-death risk tradeoff to estimate a value per statistical case of chronic bronchitis of 

$640,000. The risk-risk method would appear to be a promising area for further valuation research, 

but there have been few applications to date. 

Health State Indexes 

Another set of methods has been used by health economists to evaluate individuals' 

preferences over different health outcomes. The idea behind these methods is to construct a scale or 

index which ranks health outcomes in terms of how adverse individuals believe them to be. Often, 

the extreme points on the scale are ?perfect health" and ?immediate death," but some applications 

allow for health outcomes that might be viewed as worse than death. These methods do not yield 

estimates of WTP, but are quite informative about individuals' views of different illnesses and may 

be useful in benefits transfer (see Desvousges, Johnson, and Banzhaf 1994). Health state index 

methods that are keyed to tradeoffs with immediate death are sometimes used to develop qualityadjusted life year (QALY) estimates, particularly in the health economics literature. 

There are three main approaches to constructing health-state indexes. The standard gamble 

approach is similar to the risk-risk method and relies heavily on expected utility theory. A respondent 

might be presented with two situations: (1) the certainty of having chronic bronchitis, or (2) a risky 

prospect involving, say, a 10 percent chance of death and a 90 percent chance of perfect health. The 

idea is to find the risk of death which the respondent thinks is just as adverse as having chronic 

bronchitis with certainty. Thus, respondents are not making tradeoffs between risk of death and risk 

of chronic bronchitis, as in the risk-risk approach, but between risk of death and certain chronic 

bronchitis. 

A second approach is the time-tradeoff method, which asks respondents to trade years of life 

in full health against years of life with a chronic ailment. For example, a respondent might be asked 

to compare a given remaining life span in full health to a longer life span with chronic bronchitis. 

Finding the number of years which makes the respondent indifferent gives an alternate measure of the 

adversity of chronic bronchitis relative to perfect health and to death. 

The third approach is the rating scale method, in which respondents are asked to score 

different health outcomes on a numerical scale, such as a one-to-ten scale. If immediate death is 

assigned the value one, and full health the value 10, then the ranking of a given impairment indicates 

how adverse it is relative to the two extremes. Analysts often compress the scale to lie in the zeroone interval. 

3-24
Each of these methods provides potentially useful information about individual preferences 

over different health outcomes. An obvious question is whether the three methods would yield 

similar results. It appears that, at a minimum, the three indexes rank health outcomes in the same 

order. But whether each method would yield the same measure of the adversity of a disease is not 

quite as clear. Desvousges, Johnson, and Banzhaf cites evidence that consistent results are obtained 

from all the three methods, but other authors have found differences (Dolan et al. 1996). 

More importantly, it is not clear that the ranking of health outcomes obtained by health state 

indexes would match the ranking obtained by knowing individuals' WTP for various health effects. 

As discussed by Johansson (1995), health-state indexes rely on much more restrictive assumptions 

about the nature of individual preferences that are normally made in WTP studies. For example, the 

time-tradeoff method assumes that chronically ill individuals are willing to trade a constant proportion 

of their remaining life years for better health, regardless of their current age and life expectancy. 

Restrictive assumptions about the substitution of income for health and the discounting of future 

health effects also are implicit in health-state indexes. 

Several analysts have attempted to develop schedules of nonfatal health effects valuations by 

application of the results of health-state indices (see, for example, Miller et al. 1989 and Miller 1997). 

Health-state index methods may be used to develop estimates of quality-adjusted life years, which in 

turn are sometimes combined with estimates of the value of a statistical life year (VSLY) to generate 

a value for avoidance of a particular health effect. Health effects valuation estimates of this sort 

suffer from two problems: (1) as noted above, the health-state index results do not estimate WTP, 

and reflect a set of restrictive economic assumptions; (2) VSLY estimates, typically derived from 

annualizing value of statistical life measures, reflect an additional set of restrictive assumptions about 

the valuation of avoided mortality over time and among various age groups (see EPA’s Guidelines 

for Economic Analysis for further discussion of this issue). An example of the second class of 

problems is that current estimates of VSLY assume all life-years have the same value, although no 

current empirical evidence supports this assumption. As a result, valuation estimates that rely on 

QALYs and VSLY, while a potential future source of data on economic valuation of a wide range 

of health effects, do not provide reliable estimates of WTP. 

Other Quantitative Evidence 

The compensation paid to victims of accidental injuries is another potentially useful source 

of information, although they have not been fully evaluated by economists as to their usefulness for 

valuation of health effects. Injuries affect individual well-being in much the same way as illnesses: 

injured persons may incur direct and indirect costs and may endure pain and suffering. Many injured 

persons receive substantial compensation for their injuries, but most sources of compensation (health 

and automobile insurance, paid sick leave, workers' compensation) cover only some portion of direct 

and/or indirect costs of injuries. Compensation for pain and suffering generally is available only 

through the liability system (i.e., by filing a liability insurance claim or a lawsuit, or by negotiating 

directly with the parties liable for the accident). Insurers and other parties potentially liable for injury 

3-25
agree to pay compensation for pain and suffering to settle claims in cases where a court might 

award damages for pain and suffering. Most states allow recovery for pain and suffering in personal 

injury cases, though most states restrict recovery to financial losses of survivors in wrongful death 

actions. 

Thus the nature of the injury and the source of compensation affect the relevance of 

information on injury compensation for health valuation. Only compensation for nonfatal injuries paid 

through the liability system will be indicative of comprehensive values for health, inclusive of pain and 

suffering. While most claims are settled out of court, the compensation paid to settle claims generally 

is not reported. Studies of injury compensation usually must rely on jury award data. There is no 

comprehensive system, however, for recording either all jury awards or a random sample of awards 

(Leebron 1989). Available databases often rely on voluntary and incomplete reporting by attorneys 

and court officials. In addition to these limitations, it is important to remember that damage awards 

represent a source of data that economists are only beginning to understand relative to economic 

theory -- in short, damage awards are not welfare measures, nor are they WTP or COI estimates. The 

monetary equivalent of the change in an individual's well being may have no bearing on what is agreed 

to in a legal settlement or judged by a jury to be fair compensation. However, with further research 

analysis of damage awards may provide insights into the pain and suffering component of some health 

effects. 

A brief overview of empirical research on compensation for personal injury and its potential 

relevance in understanding the pain and suffering component of WTP is provided in Appendix B. 

The result of empirical research highlight two obstacles to using damage awards to value non-cancer 

health effects. First, the injuries compensated through jury awards are not representative of all 

personal injuries. The vast majority of injuries do not lead to a liability claim, and only a small 

minority of claims reach a jury. Legal scholars agree that the cases which come to trial are not 

randomly selected (Priest and Klein 1984). Viscusi's (1988) results, in one of the few studies 

including data on settlements and trial verdicts, point to a similar conclusion. He found that 

settlement amounts differ significantly from the damages awarded by juries. Moreover, the 

nonrepresentative nature of the universe of jury awards is compounded by the nonrandom sampling 

of these awards in available data caused by the irregular reporting of awards. 

The second problem associated with the use of damage awards for valuation of environmental 

health effects is that most personal injuries are unlikely to resemble the non-cancer health effects 

influenced by environmental policy. The major causes of injury reported by Hensler et al. (1991) 

would appear much more likely to result in fractures, sprains, or lacerations than in respiratory 

disorders, diseases of internal organs, heart attacks or strokes, or fertility problems. This suspicion 

is supported by examining the list of injuries in Viscusi's (1988) product liability study, few of which 

would be affected by environmental policy. Injuries from medical malpractice, however, may match 

environmental health effects more closely. Any use of damage awards to value environmental health 

effects should pay careful attention to the match between the personal injuries being compensated and 

the health effects to be valued. 

3-26
Damage awards represent compensation for an injury that has already occurred. The more 

appropriate value for policy analysis is the WTP to reduce the risk of an injury which, from the 

perspective of any one person, may or may not occur. As discussed in Chapter 2, the ex post and ex 

ante values are not necessarily the same. Similarly, the injured individual is identified when damages 

are awarded, whereas in policy analysis the identities of the persons who may suffer adverse health 

effects usually are unknown in advance. This distinction may affect the nature of the values obtained 

(Chestnut and Violette 1990; Pratt and Zeckhauser 1996). In addition, some of the significant 

determinants of damage awards, such as the liability rule applied or whether a regulatory violation 

occurred, are largely irrelevant to determining individual WTP to avoid adverse health effects. The 

distinction between determinants of damage awards and WTP reflects fundamental differences in the 

two monetary valuations. Jurors (or liability claims adjusters) are not asked to estimate individual 

WTP; they provide instead a third-party, group evaluation of damages. In summary, damage awards 

are a rich source of data on the economic value of personal injury, but they do not provide estimates 

of WTP. Further research is warranted to examine the relationship between damage awards and 

WTP, and more generally to investigate the suitability of damage awards for valuation of 

environmental health effects. 

3-27
VALUING NON-CANCER HEALTH EFFECTS 

USING BENEFITS TRANSFER CHAPTER 4 

Benefits transfer is another technique, in addition to the primary methods discussed in Chapter 

3, for valuing health effects. In benefits transfer, valuation information from one or more existing 

studies is used to assess benefits in a new policy setting. The techniques of benefits transfer have 

been used for many years to evaluate public policy options and to assess natural resource damages. 

Benefits transfer often is used when insufficient time or money is available to gather the primary data 

required for a new valuation study. 

Existing applications of benefits transfer and assessments of the methodology often have 

focused on natural resource damage assessments. The typical application might involve using existing 

value estimates developed for one or more sites ("study sites") to estimate monetary damages at 

another site (the "policy site"). 

There also have been a number of attempts to transfer estimated values of health effects to 

new situations; for example see EPA's The Benefits and Costs of the Clean Air Act, 1970 to 1990. 

Applications of benefits transfer to value health effects often have aimed to provide only rough 

approximations of the monetary benefits of avoiding morbidity. For example, the Clean Air Act 

analysis calculates ranges of values for multiple symptom health effects by combining results of 

studies of each of the individual health effects, and adjusted available WTP valuation estimates for 

avoidance of severe chronic bronchitis to reflect the milder severity of chronic bronchitis cases 

anticipated to result from exposure to high level of ambient particulate matter and other air pollutants. 

Applications of benefits transfer to value children's health has been equally difficult. Because the 

number of existing child-specific value estimates is limited, transfers for estimating the value of 

children's health effects will likely involve values developed for adults. However, analysts are unclear 

on how well children's preferences reflect such things as their understanding of risk. In addition, 

children typically face different opportunity constraints than adults. As a result, transferring adult 

values to estimate children's benefits is not a straightforward process. EPA has recently given greater 

thought to how children should be treated in this type of analysis. In particular, the Agency has begun 

to explore the difficulties and issues of using adult values for estimating children's benefits in the 

Children's Health Valuation Handbook (USEPA, forthcoming). 

4-1
This chapter explains how benefits transfer can be used to value environmental health effects. 

It evaluates the merits of benefits transfer relative to primary valuation research, and discusses key 

issues involved in conducting a benefits transfer. The chapter also outlines a four-step procedure for 

applying benefits transfer to value morbidity, illustrated in Exhibit 4-1. The procedure draws heavily 

from previous work, including work conducted to support EPA's ongoing analyses of the Clean Air 

Act.15 

BENEFITS TRANSFER PROTOCOL 

Exhibit 4-1 

STEP 1 

DESCRIBE THE POLICY CASE 

STEP 2 

FIND RELEVANT STUDIES 

STEP 3 

ASSESS THE SUITABILITY OF EXISTING 

STUDIES FOR TRANSFER 

STEP 4 

TRANSFER VALUATION INFORMATION 

FROM STUDIES TO THE POLICY CASE 

15 See, for example, Snell, Unsworth, and Dickie, 1993. 

4-2 
DECIDING WHETHER TO CONDUCT A BENEFITS TRANSFER 

The advantages of benefits transfer over primary research are clear. Primary research is 

costly and time-consuming, and in advance of conducting the research there is no guarantee the 

results will prove defensible for use in a regulatory or policy analysis. Benefits transfers usually can 

be conducted much more quickly and at lower cost using studies whose appropriateness and 

defensibility can be assessed in advance. Also, when several relevant studies are available, combining 

them may to some extent mitigate problems or errors specific to any one study. 

The disadvantages of benefits transfer are equally clear: the resulting estimates are unlikely 

to be as accurate or precise as estimates from primary research tailored specifically to the new policy 

issue. Previous analyses suggest that results from benefits transfers must be interpreted with caution. 

For example, Smith (1992) compared results of two transfer-based studies that estimated benefits 

of reducing effluent discharges from the same paper mills to the same rivers. He found that the 

benefit estimates generated by the two studies led to different policy conclusions. Loomis (1992) 

tested and rejected the hypothesis that the valuation functions for sport fishing in two separate regions 

were identical, implying that the results from one region would not accurately reflect benefits in the 

other. While neither of these examples is specific to health valuation, they suggest that benefits 

transfers should be conducted and interpreted with careful consideration of potential sources of 

inaccuracy or imprecision. An additional problem specific to morbidity valuation is that the number 

of health effects for which WTP estimates exist is quite limited: there is not much available to 

transfer. Exhibit 4-2 presents an overview of the advantages and disadvantages of conducting 

benefits transfer. 

Exhibit 4-2 

BENEFITS TRANSFER COMPARED TO PRIMARY VALUATION RESEARCH 

Advantages of Benefits Transfer Disadvantages of Benefits Transfer 

C Less costly than primary research. 

C Less time-consuming than primary research. 

C Quality of existing studies can be assessed in 

advance of transferring benefits, while quality of 

primary research unknown in advance. 

C Combining several existing studies (i.e., through 

meta-analysis) may mitigate errors in any one 

study. 

C Benefit estimates generated are unlikely to be as 

accurate or precise as estimates from primary 

research. 

C There are few existing studies of WTP for 

reduced morbidity. 

In view of the likely tradeoff between the relatively low cost of benefits transfer and the 

reliability of the resulting benefit estimates, the question of whether to apply benefits transfer may be 

best considered within the context of the policy decision and the options available for assessing 

benefits. Factors worth considering include: the accuracy required of the resulting estimate; the 

4-3
availability of relevant existing studies; the degree to which additional primary research would 

improve the accuracy or reduce the uncertainty of the resulting benefit estimate; and the time and 

financial resources available to conduct the analysis (Atkinson, Crocker and Shogren 1992). 

Not surprisingly, the two major issues involved in benefits transfer concern (1) the quality of 

existing studies, and (2) their applicability to the new policy situation. Applicability refers to the 

match between the study case, or the situation examined in the original study, and the policy case, 

or the situation relevant to the new policy. Key elements of this match include the correspondence 

between the "commodity," or health effect, valued in the study case and the health effect of the policy; 

and the similarity between the population examined in the study case and the population affected by 

the policy. As discussed in Chapter 2, the value of avoiding a health effect depends on characteristics 

of the effect, such as severity and duration, as well as on characteristics of the population affected, 

such as income or baseline health status. Ideally, the analyst would prefer that the health effects and 

populations considered in the study and policy cases be quite similar. Secondarily, the analyst would 

prefer a defensible method to adjust for important differences. In addition to the quality and 

applicability of existing studies, a third important issue in benefits transfer is determining the extent 

of the market, or the number of persons affected by the policy.16 These issues are listed in Exhibit 

4-3 and are discussed more fully in the presentation of the proposed benefits transfer protocol. 

Exhibit 4-3 

SOME IMPORTANT ISSUES IN BENEFITS TRANSFER 

1. Quality of existing studies. 

2. Applicability of existing studies to the policy case: 

C similarity of health effects; 

C similarity of populations experiencing the effects; and 

C ability to adjust for differences. 

3. Extent of the market: number of persons affected by the policy. 

16

It is important to note that determining the extent of the market is a necessary concern 

anytime an aggregate benefit estimate is developed. The issue is not exclusively associated with the 

benefits transfer method. 

4-4 
Our proposed protocol has four steps: 

! Step 1 -- Describe the policy case. In the first step, the analyst describes in 

detail the health effects of the policy, the resulting impacts on economic wellbeing, and the characteristics of the affected population. 

! Step 2 -- Identify existing, relevant studies. The second step generally 

involves literature searches and discussions with researchers in the field. 

! Step 3 -- Evaluate the suitability of existing studies for benefits transfer. 

The third step concerns assessing the quality and applicability of identified 

studies. 

! Step 4 -- Transfer the benefit estimates. 

Often, benefits transfer requires that adjustments be made to account for differences between 

the circumstances of the original study and the policy application. The analyst should discuss the 

rationale for making any adjustments, the empirical basis for doing so, and the potential direction and 

magnitude of error in the final value estimates. These four steps are described in more detail in the 

next four sections of this chapter.17 

POLICY EFFECTS ON HEALTH AND WELL-BEING 

Step 1 of the protocol is a careful description of the policy case. The ability to identify relevant 

existing studies, assess their suitability for transfer, and conduct the transfer first depends on an 

accurate and thorough description of how the policy will affect health and economic well-being. As 

summarized in Exhibit 4-4, such a description involves: (1) initial consideration of the measurement 

of health effects; (2) a thorough description of the characteristics of the health effect likely to 

influence WTP; (3) a complete accounting of how a change in the health effect will affect well-being; 

and (4) a description of the population experiencing the change in the health effect. When planning 

an assessment of health benefits, it is important for economists and risk assessors to work together 

early in the process to establish the link between these four steps. This communication will help to 

ensure that the change in health effects is closely linked to a change in environmental quality. 

17 For a discussion of the broader use of the transfer technique in policy analysis, consult 

Desvousges et. al (1998). In this book the authors define transfer as the "use of existing information 

designed for one specific context to address policy questions in another context" (p. 4). 

4-5 
Exhibit 4-4 

STEP 1 OF BENEFITS TRANSFER PROTOCOL: DESCRIBE THE POLICY CASE 

1. Consider how health effects of the policy are measured. 

2. Determine characteristics of the health effects likely to influence WTP, such as severity and duration. 

3. Account for how the health effects influence individual well-being. 

4. Describe characteristics of the population experiencing the change in health. 

Measurement of Health Effects 

It may be useful first to consider some initial questions about the measurement of health effects 

of the policy. 

! Would people perceive the effect as adverse? As discussed in Chapter 3, health 

scientists often measure effects that ordinary people might not notice or perceive as 

affecting their well-being. It is difficult or impossible to place a meaningful economic 

value on these effects. 

! Does the measure reflect a health effect alone, such as an asthma attack, or an indirect 

outcome as well, such as a day of work lost? 

! What is the degree of uncertainty in the health effect measurement? Generally, 

greater efforts at precision in benefit estimation are warranted when health effects are 

measured with greater precision. 

Characteristics of Morbidity Affecting WTP 

A critical element of describing the health effects of the policy is to account for the 

characteristics of the health effect which influence WTP. Accounting for these characteristics is a 

necessary precondition for matching the policy case to existing studies. As discussed in Chapters 

2 and 3 of this report, key factors include: 

! What is the baseline level, and policy-induced change, in the frequency, 

duration, severity or probability of the health effects? The convexity of 

preferences, discussed in Chapter 2, makes it particularly important to account 

for these characteristics. For example, an individuals' total WTP to avoid an 

effect will increase as duration increases. Convexity also suggests that WTP 

for a given reduction in an adverse health effect may be higher, the greater is 

the baseline level of the effect. 

! How easily is the effect avoided or relieved? The easier it is avoided or 

relieved, the lower is WTP for prevention of the effect. 

4-6
! Does a health effect occur alone or as part of a group of symptoms? Does the 

occurrence of one effect increase the likelihood of another? The WTP to avoid 

a set of symptoms, for example, may be less than the sum of the values of 

avoiding each symptom individually. 

! Is the effect immediate or delayed (i.e.,experienced after a latency period)? 

As discussed in Chapter 2, avoidance of delayed effects may be valued less than 

avoidance of immediate effects. 

Categorize the Impacts on Well-Being 

The next aspect of describing the policy is to categorize the health-related impacts on wellbeing. As discussed in Chapter 2, several economic effects may arise from improved health, including 

reductions in: 

! medical expenses; 

! foregone earnings; 

! losses in nonmarket production; 

! lost leisure time; 

! averting costs; 

! pain and suffering. 

In addition, some cases of health valuation may warrant consideration of altruistic benefits. 

It will often not be possible to value all of these effects without primary research. For example, the 

only available information may come from a cost of illness study, which would account only for the 

first three items above. Thus, this part of the protocol is helpful in identifying studies which may 

provide information on some of the components of WTP, if not a comprehensive value. 

Describe the Affected Population 

Finally, a complete description of the policy will include a portrayal of the affected population. 

The focus would be on personal characteristics likely to affect WTP, such as income, age, education, 

and health status. It is important to review EPA policy and guidance on the appropriate method to 

address potential differences between the affected population and the population evaluated in 

available primary research. EPA's recent guidance on these topics is summarized in EPA (2000a). 

It is important as well to distinguish between health effects occurring in the general population, and 

those restricted to certain types of individuals, such as asthmatics, children or the elderly. This 

distinction influences the total size of the affected population, which is a key determinant of aggregate 

benefits. Other features to consider include the amount of information affected individuals have 

concerning the health effect, and the accuracy of their perceptions of it. 

4-7
IDENTIFY EXISTING, RELEVANT STUDIES 

The second step in the benefits protocol, summarized in Exhibit 4-5, is to identify existing 

studies which may be relevant to the policy case. Using the description of the effects of the policy 

as a guide, the analyst can search the literature for relevant existing studies. Ideally, the analyst will 

find several high-quality studies that value a similar health effect in a similar population, but more 

often some compromises must be made in the quality of the study, its applicability, or both. A 

comprehensive search for relevant studies would include searches of published literature; reviews of 

survey articles; examination of economic, medical and environmental databases; and consultation with 

researchers to identify government- or university-sponsored publications, unpublished research, and 

works in progress. 

Exhibit 4-5 

STEP 2 OF BENEFITS TRANSFER PROTOCOL: FIND RELEVANT STUDIES 

1 Use description of policy case from Step 1 as guide. 

2. Search published literature. 

3. Review survey articles. 

4. Examine economic, medical and environmental databases. 

5. Contact researchers. 

ASSESS THE SUITABILITY OF EXISTING STUDIES FOR TRANSFER 

The third step of the proposed protocol is to assess the suitability of existing studies for benefits 

transfer. As summarized in Exhibit 4-6, determining whether an existing study is appropriate for 

benefits transfer will involve two main factors: the quality of the original research, and the 

applicability of the research to the new policy situation. Quality refers to the defensibility of the 

research methodology employed and the reliability and precision of the estimates obtained. In a later 

chapter of this memorandum, detailed guidelines are presented for assessing the quality of cost of 

illness, contingent valuation and averting behaviors studies. These guidelines should be helpful in 

judging whether a study is appropriate for benefits transfer, and a full discussion of the assessment 

of quality of existing studies is deferred to the later chapter. Some general issues to consider, 

however, are: 

! Were current "best research practices" used in the original study? 

! Has the study been peer-reviewed? How is it viewed in the professional 

community? 

! How do the results obtained in the study compare with results in other 

studies, or with expectations from theory? 

4-8
Applicability concerns whether available studies involve health effects and populations similar 

to the policy case, and whether adjustments can be made for important differences. Similarity can 

be assessed by describing the health effects, impacts on well-being, and affected population in a 

manner parallel to the description of the policy. A careful comparison of the descriptions of the study 

and the policy case will reveal the characteristics which are similar, and the nature and extent of 

differences. Typically, there will be some important differences in the health effects or populations 

considered in available studies, and those relevant to the policy case. The analyst would then consider 

prospects for adjusting for these differences. 

Exhibit 4-6 

STEP 3 OF BENEFITS TRANSFER PROTOCOL: 

ASSESS THE SUITABILITY OF EXISTING STUDIES FOR TRANSFER 

1. Assess the quality of original study. 

C See Chapters 2 and 3 for guidelines for assessing quality of cost of illness, averting behavior, 

and contingent valuation studies. 

2. Assess the applicability of the study to the policy case. 

C Similarity of health effects. 

C Similarity of populations. 

C Ability to adjust for differences. 

C Temporal stability of values estimated in study. 

Two general kinds of adjustments may be made. Most commonly, analysts adjust the study 

estimates to better match the policy case. Less frequently, analysts may adjust the description of the 

health effects of the policy to match the available estimates. Adjustments to the study estimates 

typically involve one of four procedures: 

1. The most basic type of adjustment considers how WTP changes with the scope of the 

health change by applying estimates of the WTP per unit of health change from an 

original study to the number of units expected as a result of the policy. Health units 

might include the number of days with particular symptoms, the number of emergency 

room visits, or the number of new cases of chronic bronchitis. At a minimum, 

therefore, the original study needs to provide WTP values for specific quantitative 

changes in health outcomes of interest. 

2. The analyst may use a valuation function estimated in the study to account for 

differences in health effects or populations. A valuation function expresses WTP as 

a function of explanatory variables, such as the nature of the health effect and 

personal characteristics such as income. For example, if the study includes a valuation 

function with the level of baseline risk as a determinant of WTP, then the analyst may 

insert the level of baseline risk relevant to the policy case into the study's valuation 

function. 

4-9
3. The analyst may estimate the impact of a difference between the study and the policy 

by combining results from several studies. For example, if different contingent 

valuation studies have estimated WTP forthe same symptom of varying duration, then 

it may be possible to infer a relationship between duration and WTP from the group 

of studies. This relationship then could be used to adjust for differences in the 

duration of symptoms in the policy case and the durations valued in the studies. 

4. The analyst may use judgment or economic theory to bound the likely effects of 

differences between policy and study cases. 

As illustrated by these examples, the ability to adjust for differences between the study and 

policy casesis enhanced considerably when the study provides an estimated valuation function, which 

can be evaluated at alternate values of explanatory variables, rather than simply a unit value estimate, 

such as mean WTP. The range of adjustments that might be conducted expands further if data from 

the original study are available. 

An alternative to adjusting the estimates from the available studies is to alter the description 

of the health effects of the policy. For example, an analyst might estimate the work loss or medical 

expenses caused by a particular health effect in order to apply existing cost-of-illness estimates. A 

more extensive adjustment procedure might follow the recent work of Desvousges, Johnson, and 

Banzhaf (1994) and French et al. (1996). Those authors convert health effects into a health-state 

index. The index indicates the adversity of the impairment relative to other health effects, some of 

which have been valued in other research. The value of the health effect of the policy then can be 

computed by adjusting the WTP estimate for a different health effect by the relative adversity factor 

implied by the health-state index. Although health-state indexes suffer from several potential 

shortcomings discussed in Chapter 3, this approach may warrant further research, especially to 

compare WTP estimates implied by this approach to those generated by primary research. 

A final issue to consider in assessing the applicability of a study, particularly an older study, is 

whether the values estimated are likely to remain stable over time. As economic growth raises 

incomes, WTP for better health should rise over time. Changes in the technology, cost and method 

of delivering medical services also may affect WTP to avoid some health effects. In addition, a rising 

price level inflates monetary values over time. At a minimum, when using an older study it is 

important to standardize units by expressing all monetary values in the dollars of some relevant base 

year. 

USE INFORMATION IN THE STUDY TO ESTIMATE BENEFITS 

The fourth and final step of the protocol is to transfer the valuation information from the 

studies to the policy case. The actual transfer of benefit estimates itself may involve four substeps, 

as shown in Exhibit 4-7: (1) combining existing estimates; (2) applying the estimates to the policy 

case; (3) aggregating benefits to the relevant population; and (4) considering the uncertainties and 

limitations of the procedure. 

4-10
Exhibit 4-7 

STEP 4 OF BENEFITS TRANSFER PROTOCOL: 

TRANSFER VALUATION INFORMATION FROM STUDIES TO THE POLICY CASE 

1. Combine existing estimates. 

2. Apply existing results to the policy case to estimate individual monetary values. 

3. Aggregate benefit estimates to the whole of the affected population. 

4. Discuss qualitatively, and quantitatively where possible, uncertainty, potential bias, and other 

limitations. 

Combining Existing Estimates 

Often, several relevant studies will be available, or a single study will provide different 

estimates of the same value based on different subsamples, assumptions or estimation procedures. 

Some of the estimates may be discarded as unreliable or inapplicable to the policy case. Common 

approaches for combining the remaining estimates include simple averaging, choosing a single "best" 

estimate, and developing low-, mid- and high-range values. More sophisticated procedures have 

been employed by some analysts. For example, Desvousges, Johnson, and Banzhaf (1994) converted 

health effects to a single metric using health-state indexes and then applied meta-analysis, or formal 

statistical procedures for combining results from several studies. Analysts may weight results of 

different studies according to the reliability of the estimates, as indicated by sample size, standard 

error, or even subjective judgments of the quality of the original research. Also, it is important not 

to forget the simple fact that dollar values from studies conducted in different years must be 

converted to the constant dollars of some base year by adjusting for inflation. 

Estimate Individual Benefits in the Policy Case 

Once the available estimates are combined in some manner, they can be applied to estimate the 

individual benefits in the policy case. At its simplest, this would involve directly applying values from 

the studies to the health effects in the policy case. For example, the analyst might multiply the 

expected number of work days lost by an appropriate daily wage rate. In other cases, available 

studies may provide an estimate of only one component of the value of a health effect; the analyst 

may sum these values to obtain a more comprehensive estimate. For example, one study may 

estimate the associated medical expenses, while another provides information on work loss. 

Executing this part of the procedure often requires accounting for differences between the study and 

policy cases, as discussed under Step 3. 

4-11
Aggregate Benefits 

After computing individual benefits, the analyst often will want to aggregate over the 

population affected by the policy to compute an overall benefit estimate. This step requires careful 

consideration of what economists call the "extent of the market," or simply the number of people 

affected. One approach to aggregation involves multiplying an average per-person benefit by the 

number of people affected. In other cases the analyst may want account for effects of income, age 

or other characteristics by aggregating benefits separately within population categories. As noted 

earlier, careful aggregation of benefits is an important step of benefits transfer and in cases where 

primary research has been conducted. 

Consider Uncertainties and Limitations 

The final step is to evaluate sources of uncertainty and possible bias in the benefits transfer. 

Benefits transfer involves a series of judgments and assumptions, each of which affects the final 

outcome to some degree. The simple technique of sensitivity analysis is quite helpful in assessing the 

plausible range of benefits. The analyst can modify assumptions or procedures to gauge the impact 

on the overall estimate of benefits. If available resources warrant, simulation techniques can be used 

to estimate a probability distribution for benefits. For example, Monte Carlo procedures were used 

to gauge the uncertainty in benefit estimates in EPA's The Benefits and Costs of the Clean Air Act, 

1970 to 1990. 

At a minimum, benefits transfer studies generally include a verbal description of the 

uncertainties and possible inaccuracies involved. In some cases there will be known sources of bias 

whose direction, if not magnitude, is clear. For example, an analyst may have transferred cost-ofillness estimates but was unable to value the pain and suffering components of value; all else equal, 

this would result in an underestimate. More generally, inaccuracy or imprecision may flow from the 

original estimates of health effects or economic values; from differences between existing studies and 

the policy case; and from judgments made in conducting the transfer. Each of these potential sources 

of inaccuracy and/or imprecision may be discussed qualitatively, and quantified where appropriate. 

4-12
ISSUES IN APPLYING THE VALUATION LITERATURE CHAPTER 5 

Valuation of health effects is generally of interest when an estimate of the reduction in risk of 

that effect can be established. Understanding the health science basis for the effect, however, and 

properly applying the relevant economic literature is not always straightforward. For example, values 

for individual health effects are not always available, or existing dose-response relationships may 

address slightly different health effects than the economics literature. This chapter suggests strategies 

for avoiding common pitfalls in the application of the valuation literature. 

As noted in previous chapters, there are many reasons to exercise caution in the application of 

economic values for health effects. Three situations that are commonly encountered are: (1) No one 

has designed studies to provide willingness-to-pay compensation (WTP) values -- often, a cost-ofillness measure can be developed relatively easily, but the pain and suffering component is not 

captured, and the pain and suffering component can be a major factor in valuation of some chronic 

effects; (2) Existing WTP values are poorly matched to the effect of concern -- this can lead to issues 

of double-counting and increased uncertainty in benefits transfers; and (3) The health effect itself is 

poorly characterized in the relevant health science literature. In this section, we discuss strategies for 

dealing with each of these three situations. Exhibit 5-1 provides an overview of the chapter. 

ESTABLISHING AN ECONOMIC VALUE FOR PAIN AND SUFFERING 

Pain and suffering refers to the personal and subjective harms of illness: physical pain and 

attendant suffering, mental anguish, emotional distress, anxiety, embarrassment, inconvenience and 

loss of the enjoyment of good health. The term "pain and suffering" usually applies to the individual 

experiencing an illness, but sometimes it refers more broadly to the distress of family and friends as 

well. 

5-1
Exhibit 5-1 

TYPICAL PROBLEMS IN APPLYING THE VALUATION LITERATURE 

Problem Strategies for Addressing the Problems 

No measure of pain and suffering is available. 

Compare willingness-to-pay compensation (WTP) and 

costs of illness (COI). 

Examine damage awards (settlements and jury verdicts) 

in personal injury cases. 

Compare values for quality-adjusted life years (QALYs) 

and COI. 

Conduct direct valuation using contingent valuation, 

averting behavior, or COI methods. 

Unclear whether the health effect valuation closely 

matches the existing value. 

Examine the source of the risk of health effects. 

Examine the severity of health effects. 

Examine the duration of health effects. 

Examine the baseline risk experienced by exposed 

individuals. 

Examine whether the effect is an aggregate of multiple 

effects or symptoms. 

Examine selection bias associated with the choice of 

residence of study subjects. 

Health effect is poorly characterized in the relevant 

health sciences literature. 

Define the nature of the health effect. 

Calculate the hazard quotient (to determine how a 

contaminant dose compares to the reference dose for that 

contaminant) 

The degree and duration of pain and suffering varies for different health effects. "Discomfort" 

may be more apt a term than pain for the subjective effects of acute symptoms associated with 

temporary decrements in lung function. Kidney disease, in contrast, would involve more intense 

suffering of longer duration. 

5-2
Although everyone would no doubt agree that some illnesses hurt more than others, there is 

no accepted scale to measure the quantity of pain or suffering. This immeasurability complicates 

valuation, but monetization of pain and suffering would remain difficult and controversial even if the 

amount pain could be quantified. 

Despite its intangibility, pain and suffering is recognized as an important consequence of illness 

or injury by the law, by respondents to health surveys, and by cost-of illness researchers. 

! In the law, pain and suffering is a compensable component of damages from 

personal injury in the US, as well as in each of 10 other countries surveyed 

by Pfennigstorf and Gifford (1991); legal origins of financial compensation for 

"pain or distress of body or mind" date to ancient Rome (O'Connell and 

Carpenter 1983). 

! Survey respondents have ranked pain or discomfort, emotional distress, and 

the lost enjoyment of normal activities as more important effects of angina 

(Chestnut et al. 1988), asthma (Rowe and Chestnut 1985), or light symptoms 

(Berger et al. 1987) than the medical expenses and lost income that are the 

focus of the cost-of-illness approach. 

! Cost-of-illness researchers generally recognize that the omission of pain and 

suffering implies that "the cost relationship among diseases is thus not 

completely correct" (Cooper and Rice 1976, p. 21). 

Valuation of Avoided Pain and Suffering 

In this section we evaluate four strategies for monetizing pain and suffering. The first three 

approaches involve comparisons of values to attempt to isolate the economic value of avoided pain 

and suffering based on existing information. The fourth is primary research to monetize pain and 

suffering directly. 

1. Comparisons of WTP and costs of illness (COI). 

2. Damage awards (settlements and jury verdicts) in personal injury cases. 

3. Comparisons of values for quality-adjusted life years (QALYs) and COI. 

4. Direct valuation using contingent valuation, averting behavior (AB), or COI 

methods. 

5-3
The section continues with an overview of pain and suffering in relation to the cost of illness, 

followed by brief summaries of empirical evidence on the value of pain and suffering from WTP/COI 

comparisons, damage awards, and QALY valuations. Primary research options are discussed next, 

followed by conclusions and recommendations on valuation of pain and suffering. Appendix C to the 

report includes a more complete evaluation of empirical evidence from prior research. 

Pain and Suffering and the Cost of Illness 

The cost of illness is the dominant approach to monetizing health effects, an outcome which 

leads to widespread neglect of the economic value of avoiding pain and suffering. As discussed in 

Chapters 2 and 3, the effects of illness on economic well-being include: 

! medical expenses 

! foregone earnings (or foregone market production) 

! foregone nonmarket production 

! lost leisure time 

! averting costs 

! pain and suffering. 

The cost-of-illness approach focuses on medical expenses, foregone earnings, and in some 

studies, the value of foregone nonmarket production. The approach omits the value of leisure time, 

averting costs, and the value of avoiding pain and suffering. Neglecting these elements of illness 

implies that the COI understates economic benefits of reduced illness. Environmental policies 

resulting in reduced illness therefore appear less economically beneficial than they actually are. 

Knowledge of the value of avoiding pain and suffering would be useful in bridging the gap between 

the COI and WTP. 

Summary of WTP / COI Comparisons 

Relevant results from six studies that report estimates of WTP and COI are presented in Exhibit 

5-2. All monetary amounts have been converted to 1996 dollars using the Consumer Price Index (a 

conversion which does not affect the ratio of WTP to COI). The first four studies listed compare 

estimates of WTP and individual COI from a common data source. (Individual COI excludes costs 

borne by persons outside the ill individual's household, through insurance, paid sick leave, or other 

programs.) The other two studies listed compare estimates of WTP and social COI taken from 

separate studies using different data sources. (Social COI includes costs borne by persons outside 

the ill individual's household.) Further details on the original studies are given in the appendix. 

5-4
The difference between WTP and COI is a measure of the value of avoiding subjective harms 

of illness, including pain and suffering, while the proportionate mark-up of WTP over COI is 

indicated by the WTP/COI ratio. Economic theory predicts that WTP will exceed individual COI 

because individual COI does not include a WTP to avoid pain and suffering. 

Results presented in Exhibit 5-2 support the contention that WTP exceeds individual COI, by 

a margin that may vary widely depending on the health effects or pollution reductions considered, the 

populations affected, or the data and methods used. Among the four studies estimating WTP and 

COI from common data, ratios of WTP to medical expenses range from 1.9 to 9.8. The median of 

the ratios shown is 3.7; the mean is 3.8. Corresponding ratios of WTP to COI range from 2.0 to 

31.5 (excluding one extreme outlier based on only 5 observations), with a median of 3.9 and a mean 

of 8.1. 

Some economists have suggested that WTP can be approximated as a constant mark-up of 

COI. Rowe and Chestnut (1985) and Chestnut (1995) suggest there is sufficient evidence to expect 

that WTP exceeds COI by at least a factor of two for certain health outcomes (i.e., hospitalizations 

for respiratory or cardiovascular illness and restricted activity days). While this conclusion was 

reached in this one case, each situation needs to be evaluated separately. Cropper and Freeman 

(1989) argue that WTP/COI ratios will vary by illness and by population group considered (Cropper 

and Freeman 1989). The wide range of ratios presented in Exhibit 5-2 casts doubt on the proposition 

that the WTP/COI ratio is constant, and a formal statistical test discussed in the appendix leads to 

rejection (at the one percent significance level) of the hypothesis of a constant ratio. 

The WTP/COI ratios from the two studies comparing estimates of WTP and social COI taken 

from different data sources range from 2.1 to 20.0, suggesting that individual WTP exceeds (per 

capita) social COI. These results also provide evidence that WTP/COI ratios vary according to 

characteristics of individuals involved, such as age or choice of medical treatments. 

Summary of Damage Award Studies 

Damage awards provide a second source of information about the economic value of pain and 

suffering and other subjective harms of illness or injury, although the data are limited in their 

applicability because of the lack of a basis in economic theory. As discussed in Chapter 3, damage 

awards are not estimates of WTP, and the sign and magnitude of the difference between damages and 

WTP is unknown. In general, further research is needed before damage award estimates can be 

established as a source of economic values for avoidance of health effects. Nonetheless, damage 

awards appear to reflect reasoned judgments about appropriate levels of total compensation for 

inflicted injury, and available data represent large numbers of injuries of many different types. 

5-5
Exhibit 5-2 

COMPARISON OF WTP AND COI ESTIMATES 

Study and Health 

Effect Metric 

WTP 

Method 

WTP 

Estimate 

COI 

Estimate 

WTP/ 

COI 

Ratio 

Earnings 

Included? 

Lost 

Individual 

COI? 

Social or 

Berger et al. 1987, Air 

Pollution-related 

Symptoms 

One 

Symptom 

Day 

CV Yes Individual 

- Cough $114.74 $18.38 6.2 

- Sinus Congestion $41.26 $10.25 4.0 

-Throat Congestion $66.34 $21.55 3.1 

- Itchy Eyes $73.21 $21.99 3.3 

- Heavy Drowsiness $214.44 $2.72 78.9 

- Headache $164.16 $5.21 31.5 

- Nausea $72.30 $3.78 19.2 

- All Symptoms $121.76 $5.93 20.5 

Chestnut et al. 1988, 

1996, Angina Episodes 

One 

Episode 

CV, AB Yes Individual 

AB $54.40 $18.54 2.9 

CV $57.26 3.1 

CV $60.13 3.2 

CV $147.45 8.0 

Rowe and Chestnut 

1985, Asthma Severity 

Reduce 

bad 

asthma 

days 

CV No Individual 

$631.70 $196.91 3.2 

$919.98 $196.91 4.7 

$697.86 $70.89 9.8 

5-6
Exhibit 5-2 

COMPARISON OF WTP AND COI ESTIMATES 

Study and Health 

Effect Metric 

WTP 

Method 

WTP 

Estimate 

COI 

Estimate 

WTP/ 

COI 

Ratio 

Earnings 

Included? 

Lost 

Individual 

COI? 

Social or 

Dickie and Gerking 

1991, Unspecified 

Health Effects of 

Ozone 

Eliminate 

days of 

ozone 

AB No Individual 

>12 ppmh $138.53 $36.45 3.8 

$167.69 $84.57 2.0 

$249.35 $67.08 3.7 

$304.76 $160.40 1/9 

> 9 

pmmh 

$249.35 $59.79 4.2 

$298.93 $131.24 2.3 

$380.58 $94.78 4.0 

$457.87 $215.81 2.1 

Agee and Crocker 

1996, Child Lead 

Reduce 

child 

body lead 

1 percent 

AB Yes Social 

All $670 mill. $219 mill. 3.1 

No 

chelation 

$461 mill. 2.1 

Chelation $4.38 bill. 20.0 

USEPA 1997, Chronic 

Bronchitis 

One Case Risk-risk 

tradeoff 

Yes Social 

All ages $260 K 

Age 30 $77 K 3.4 

Age 40 $58 K 4.5 

Age 50 $60 K 4.3 

Age 60 $41 K 6.3 

Notes: CV is contingent valuation, AB is averting behavior, see Appendix C case study for more information on 

individual studies. 

5-7
Compensatory damages consist of special damages (financial losses like medical expenses and 

foregone earnings) plus general damages (nonfinancial losses like pain and suffering). Typically, only 

total damages are reported, without itemization of special and general components; researchers 

impute general damages from the total and from available information on financial losses. 

The damage award studies reinforce the conclusion that a comprehensive valuation of injury 

or illness, inclusive of pain and suffering, exceeds purely financial costs by a nontrivial margin. Ratios 

of total to special damages fall in a broad range (1.3 to 24.2), but are less widely dispersed than 

WTP/COI ratios. Mean ratios by study are 1.9 (Viscusi 1988), 5.9 (Rodgers 1993), 2.9 (Hammitt 

1985), 3.2 (Bovbjerg et al. 1989) and 12.7 (Cohen 1988). Cohen's study focuses on injuries to 

victims of violent crime and yields a markedly higher share of general damages in total damages. 

Setting the Cohen study aside as unrepresentative of valuations of unintentional injuries, the 

hypothesis that total damages are a constant mark-up of special damages is rejected at the one percent 

significance level. This result accords with rejection of a constant WTP/COI ratio and is consistent 

with regression results presented in four of the original studies (Hammitt 1985; Viscusi 1988; 

Bovbjerg et al. 1991; Rodgers 1993). 

Summary of QALY/COI Comparisons 

Studies comparing COI to valuations of quality-adjusted life years (QALYs) provide a third 

option for valuing pain and suffering, though the results of these studies should be viewed with 

caution. These studies estimate the number of QALYs lost for a given illness, and then monetize the 

lost QALYs using an estimate of the value of a life-year. As discussed in Chapter 3, current estimates 

of the value of a life year are highly uncertain, in part because of the restrictive assumptions required 

to generate these estimates (for example, there is an implicit assumption that all life years should be 

valued equally, although no empirical evidence exists that all QALYs have the same value). The 

QALY valuation procedure is a benefits transfer from studies of the value of a statistical life applied 

to a QALY health outcome measure. The injury is not monetized directly, either by individuals 

affected (as in WTP studies), or by third parties (as in damage award studies). As discussed in 

Chapter 3, there is little or no evidence concerning how well a QALY-based valuation would match 

direct estimates of the WTP to avoid injury. 

Nonetheless, ratios of QALY values to COI in existing literature also suggest that there is a 

significant value for pain and suffering that is omitted from COI studies. Two studies that provide 

a basis for developing ratios are Miller, Luchter and Brinkman (1989) and Miller (1997); these are 

described in more detail in the appendix Ratios of QALY values to COI in these studies range from 

3.2 to 14.9, with a mean of 8.8 in the first study and 6.2 in the second. The hypothesis that the ratio 

of the QALY valuation to COI is constant is rejected at conventional levels of statistical significance. 

5-8
Primary Research for Valuation of Pain and Suffering 

Each of the three most widely used methods of valuing environmental health effects (cost-ofillness, contingent valuation and averting behavior) could be used to estimate the value of avoiding 

pain and suffering. Contingent valuation appears to be the most promising approach, but no firm 

conclusions can be reached because of the limited amount of prior research. 

More fundamentally, use of contingent valuation (or averting behavior) to value pain and 

suffering would be neither more straightforward nor less costly than using the method to estimate a 

comprehensive WTP to avoid the entire illness. Unless the resulting value for pain and suffering 

could be transferred to other health effects (and evidence on the variability of WTP/COI ratios 

highlights the difficulties of doing so), there would seem to be little advantage in primary research to 

value pain and suffering. 

Contingent Valuation 

The flexibility available when designing a contingent valuation study is potentially a major 

advantage for directly estimating a separate value for avoiding pain and suffering. Only one 

contingent valuation study, however, has been designed specifically for this purpose. Schwab, Christe 

and Soguel (1996) asked respondents to assume that they would be compensated by insurance for 

all financial losses in a study of the pain and suffering of victims, and relatives of victims, of traffic 

accidents in Switzerland. 

Schwab, Christe and Soguel found that WTP to avoid the pain and suffering is larger for a 

permanent, severe disability than for a fatal accident. The value of avoiding the pain and suffering 

of a statistical victim of a fatal accident is in turn somewhat lower than earlier contingent valuation 

estimates of the value of a statistical life (after adjusting for inflation and exchange rates), which 

would be expected if the value of life includes financial losses. Reported WTP increases significantly 

with the severity of a nonfatal injury and with respondent income. Somewhat surprisingly, the 

bereavement of relatives is assigned a higher value that the pain of the victim, although this difference 

is not statistically significant. 

This study is useful primarily in demonstrating the feasibility of contingent valuation for valuing 

pain and suffering, though the validity of the approach cannot be assessed based on only one study. 

The specific valuations obtained are less useful, for two reasons. First, no estimates of financial 

losses of accident victims were presented for comparison to pain and suffering values. Second, the 

validity of transferring valuations of traffic accidents in Switzerland to environmental health effects 

in the US would be questionable. 

5-9
Cost of Illness 

Discussions of the omission of pain and suffering from the cost of illness generally neglect the 

fact that some illness costs are incurred for treatment or control of pain and suffering, though this 

expenditure probably falls short of the WTP to avoid pain. As discussed in Chapter 2, people 

generally are willing to pay more than they actually pay for all but the last unit of a good purchased. 

This excess of WTP over expenditure, or the consumer surplus of avoiding pain and suffering, would 

not be reflected in financial costs of medication, therapy, or treatment for physical pain or emotional 

suffering. Also, treatments used may only limit, rather than eliminate, pain and suffering, leaving the 

value of avoiding the residual pain and suffering unaccounted. In short, no application of the cost-ofillness approach will account fully for pain and suffering, but illness costs may include a partial 

monetization. 

Averting Behavior 

To the extent that people voluntarily make expenditures to avoid pain and suffering, the 

averting behavior approach method offers a third valuation approach. The AB would rely on similar 

expenditures to those used in the COI (costs for treatment of pain and suffering), but would examine 

the expenditures from the perspective of an individual deciding whether to bear the costs in view of 

pain and suffering relieved, rather than treating the costs as externally imposed consequences of 

illness. Also, the AB method would recognize the distinction between expenditures incurred and 

WTP. 

The inability to measure the amount of pain and suffering relieved per dollar of expenditure 

would be a major obstacle for the AB method, because it would be difficult to quantify the benefit 

obtained from the expenditure. A second limitation arises with prescription medication if the amount 

prescribed does not match the amount the individual would choose. The AB method, like the COI, 

is unlikely to suffice as a general methodology for monetizing pain and suffering. 

Conclusions 

1. Available evidence indicates that WTP exceeds individual COI, as well 

as social COI, by a margin that varies with the health effects and 

populations considered. Evidence from damage awards bolsters the view 

that pain and suffering and other nonfinancial impacts of illness comprise a 

substantial share of the economic value of illness. Consequently, the COI can 

be viewed as a lower bound estimate of WTP, but the accuracy of the bound 

is uncertain. 

5-10
2. Available evidence does not support estimating WTP by marking up 

illness costs using a WTP/COI ratio, except in preliminary, screening 

analyses of benefits. In addition to any methodological problems in the 

studies providing WTP/COI ratios (including the use of small samples 

unrepresentative of the national population), the unexplained variation in the 

ratios precludes their use where high degrees of accuracy and precision are 

required. The use of WTP/COI ratios could be defended in screening analyses 

of benefits if the health effect to be valued is matched carefully to the effect 

with the estimated WTP/COI ratio. In matching health effects, key 

considerations would be the pain and suffering of the effects and of their 

treatment. 

3. Available evidence does not justify the use of damage awards for pain 

and suffering, or ratios of total to special damages, to adjust the COI for 

pain and suffering. Damage award data provide a monetary valuation of 

pain and suffering which, like WTP/COI ratios, may be useful in preliminary, 

screening analyses of benefits. A fundamental problem is that the quantitative 

relationship between damage awards and WTP is unknown. In addition, a key 

consideration would be finding a close match between the environmental 

health effect and a corresponding damage award, because the types of injuries 

compensated by damage awards often bear little resemblance to non-cancer 

health effects likely to be influenced by environmental policy. This difficulty 

might be overcome by using medical malpractice awards, or by scaling 

injuries according to severity (as in the Rodgers 1993 and Bovbjerg et al. 

1989 studies). A further complication is that amounts awarded are highly 

variable, even within severity categories. It is not clear whether this variability 

indicates errors in valuing similar injuries, or whether the severity categories 

are too broad to distinguish important differences in injuries. 

4. Further research is warranted on the suitability of damage award data 

for valuation of environmental health effects. Research comparing damage 

awards to WTP for specific health effects would be helpful in resolving the 

key question of the sign and magnitude of the difference between damage 

awards and WTP. Other questions of interest include whether special 

damages closely approximate estimates of the COI for the same health effects, 

and the extent to which the dispersion of awards is reduced by using narrower 

injury definitions. 

5-11
5. Further research is also warranted on the suitability of QALY-based 

injury valuation data for valuation of environmental health effects. 

QALY-based valuations provide another source of information on the 

potential value of avoiding pain and suffering, but valuations obtained by 

combining values of life years with QALYs do not measure WTP. These 

estimates reflect a series of simplistic, restrictive assumptions about the 

substitution of income for health, the discounting of future health effects, and 

individual’s valuations for reduction of mortality risk that must be addressed 

before the estimates would be suitable for valuation of environmental health 

effects. 

6. Primary research to estimate WTP to avoid pain and suffering is 

feasible, but would not appear to be any less costly or more beneficial 

than primary research to estimate an overall WTP to avoid illness. 

Contingent valuation seems the most promising approach for direct valuation 

of pain and suffering. Unless the WTP estimates obtained could be 

transferred across health effects, however (and the variability in WTP/COI 

ratios highlights the difficulty of doing so), there would be no advantage in 

using CV to value pain and suffering, as opposed to using CV to value 

avoidance of the illness. 

7. If comprehensive illness valuations are required, inclusive of pain and 

suffering, then WTP to avoid illness is the ideal economic measure to use 

for practical application of existing methods. In practice, primary 

estimation of WTP generally is preferable to benefits-transfer procedures like 

adjusting COI using WTP/COI ratios or damage awards. Likewise, primary 

estimation of overall WTP to avoid an illness appears superior to attempting 

to estimate a separate WTP to avoid pain and suffering. However, in theory, 

WTA is the ideal economic measure to use to value illness. As mentioned 

earlier, the WTA approach is ideal when the property rights belong to those 

at risk, but is often not used because it is more problematic to measure and 

quantify than WTP. 

IMPROVING THE MATCH OF THE HEALTH EFFECT 

DESCRIPTION TO AN EXISTING VALUE 

In this section, we discuss issues that may arise in attempting to match economic values to 

health effects evaluated in the health science literature. EPA health benefits analyses have 

traditionally applied a "damage function approach" to estimate the aggregate benefits of avoiding 

morbidity. The damage function approach involves multiplying unit economic values per case or per 

symptom-day of morbidity (derived from the economics literature) by the expected number of cases 

5-12
or symptom-days avoided (derived from the health science literature). Before applying the damage 

function approach to specific illnesses, however, it is useful to consider whether any general 

conclusions may be reached concerning the sources of potential errors introduced by a potentially 

poor match in the description of effects in the economics and health science literature. 

There are at least six potential sources of errors that should be considered when attempting to 

match health effects and economics literature in the damage function approach: 

! The source of the risk of health effects (e.g., environmental versus workplace 

exposure); 

! The severity of health effects; 

! The duration of health effects; 

! The baseline risk experienced by exposed individuals; 

! Whether the effect is an aggregate of multiple effects or symptoms; and 

! Selection bias associated with the choice of residence of study subjects. 

We discuss the potential impact of each of these factors and strategies to address these concerns 

below. 

Source of Risk 

Unit economic values and/or health effects from the relevant literature do not always match the 

actual health effect occurring in the population. Often, the "risk scenario" presented to subjects in 

the economic valuation studies differs from the environmental cause that is being evaluated in the 

analysis (e.g, air pollution or groundwater contamination). For example, groundwater pollution risks 

differ from risks in the workplace in that workplace risks are for the most part borne voluntarily and 

the nature of workplace risks may be more familiar and better understood by the affected population. 

Although there is some empirical literature on this topic in the mortality valuation literature (Beggs 

1984, Litai 1980, Fisher et al. 1989, Weinstein and Quinn 1983), efforts to establish broad adjustment 

factors for this effect have been largely unsuccessful. The available literature notes that at least four 

types of differences in the source of risk and its perception may be important in estimating WTP to 

avoid risk: 

! Voluntary versus involuntary exposures; 

! Controllable versus uncontrollable exposures; 

5-13
! Ordinary versus catastrophic risks; 

! Old versus new risks. 

These studies are in general agreement that individuals are willing to pay less to reduce familiar, 

controllable risks borne voluntarily. Furthermore, many analysts agree that risks presented by 

environmental exposures fall into the involuntary category, although these exposures can sometimes 

be mitigated through averting behavior. In general, quantitative adjustments to WTP are possible 

based on available literature, but this concern must nonetheless be recognized in evaluating potential 

sources of uncertainty in benefits estimates. 

Severity of Health Effects 

It can sometimes be difficult to assess how closely the severity of effects predicted by health 

effects literature resembles the severity of effects valued in the economics literature. In most cases, 

dose-response functions do not distinguish effects according to severity and presumably could be 

taken to represent cases of average severity. There are notable exceptions, however. For example, 

the Viscusi, Magat and Huber (1991) study of chronic bronchitis indicates that the description of 

chronic bronchitis given to respondents in their survey represents a relatively severe case of this 

morbidity effect. In this case, subsequent analysis of survey data was performed by another team of 

analysts who developed a quantitative severity adjustment procedure (Krupnick and Cropper 1992). 

In most cases, however, there is little reliable information to support quantitative adjustment of 

valuation estimates for differences in severity. A qualitative analysis of the direction of effect may 

be all that is possible. Where the severity of effect is greater in economic studies compared to health 

effects literature, benefit estimates are overstated, and vice versa. 

Duration of Illness Avoided 

Several contingent valuation studies (Loehman et al. 1978, 1979; Rowe and Chestnut 1986; 

and Tolley et al. 1986) provide evidence that WTP per symptom-day avoided declines as the number 

of symptom-days avoided increases. As a result, simply multiplying marginal WTP for a single day 

by the number of symptom-days avoided plainly overstates WTP for avoidance of multiple symptom 

days in the presence of declining daily values. To estimate the magnitude of this error or to attempt 

to correct for it requires an estimated relationship between daily WTP and duration of symptoms 

avoided. Hall (1989) estimated this relationship by pooling data from several contingent valuation 

studies and provides a quantitative adjustment procedure for this effect. 

5-14
Number of Symptom-Days Currently Experienced and Baseline Risk 

Both Loehman et al. (1978) and Tolley et al. (1986) report that estimated WTP for avoiding 

a given number of symptom days increases with the number of days the symptom is currently 

experienced. These results are derived from regressions in which income (as opposed to utility) is 

held constant. Implicitly, an individual moves to a lower indifference curve as symptom-days 

experienced increases while income is held constant. Thus this effect is separate from the effect of 

duration on daily WTP, which concerns movements along a given indifference curve. 

Several studies have examined how health risk valuations vary with baseline risk; most of the 

evidence favors the idea that individuals at higher risk are willing to pay more for a given risk 

reduction (see Viscusi 1992). Thus, baseline risks may affect values for reducing risk of chronic 

illness in the same way as baseline symptom frequency affects symptom avoidance values. 

Avoidance of Multiple Symptoms 

Improved environmental quality may reduce several related symptoms concurrently. If daily 

WTP to avoid a given symptom depends on the number of symptom days avoided, it is natural to 

question whether WTP to avoid one symptom varies with joint reductions in other symptoms. Does 

WTP for a joint reduction in several symptoms equal the sum of the individual symptom values? 

There is evidence in some valuation contexts that WTP is subadditive (i.e., WTP for joint changes 

is less than the sum of WTP for separate changes), but the effect may be small. For example, Tolley 

et al. (1986) report WTP to avoid individual symptoms as well as WTP to avoid groups of three and 

five symptoms jointly, for durations of one and thirty days. In each case, the sum of mean WTP 

values for individual symptoms slightly exceeds the mean WTP for avoiding the group of symptoms. 

Professional judgment applied on an illness-by-illness basis is the best way to mitigate this type 

of error. One useful approach is to attempt to bound the appropriate unit value for a multiple 

symptom effect using estimates for the individual symptoms. A useful upper bound is the sum of the 

WTP values for each of the relevant symptoms, while a lower bound can be developed from a highend value for a single symptom. This type of approach can be used to develop rough estimates that 

are useful in conducting sensitivity tests and uncertainty analysis, but may be more difficult to defend 

as the basis of primary benefits estimates. 

Selection Bias Arising from Respondent Choice of Residential Location 

Some of the available economic literature that employs a survey-based approach (e.g,. 

contingent valuation studies), may draw respondents from relatively small geographic areas. Two 

examples are the Dickie et al. (1986) and Rowe and Chestnut (1986) studies of air pollution effects. 

Both Dickie et al. and Rowe and Chestnut drew respondents from Glendora, while Dickie et al. 

5-15
include additional subjects from Burbank. These are heavily polluted areas east of Los Angeles, with 

Glendora in particular experiencing severe ozone pollution. If individuals living in Glendora differ 

from similar individuals living elsewhere in terms of preferences for health, then errors will occur 

when extrapolating results from these two studies to the national population. 

This issue becomes important if preferences for health vary across individuals, individuals 

perceive health effects from air pollution, and people have at least some discretion in choosing where 

to live. Under these conditions, a randomly chosen person from a heavily polluted city such as 

Glendora is less likely, other things equal, to place a high value on health than is a similar individual 

from a less-polluted area. In other words, we would expect that persons with the lowest values for 

avoiding health effects would "self-select" the areas with the lowest level of environmental health 

amenities. Therefore, all else equal, WTP estimates from studies that focus on heavily exposed areas 

may be derived from individuals who place a lower than average value on respiratory health 

improvements. 

Other Determinants of Unit Values 

The damage function approach is prone to error whenever unit values vary significantly over 

the population, if illness reductions are concentrated among individuals with high or low values, or 

if the factors causing unit values to vary affect utility in a nonlinear fashion. Potentially relevant 

factors not discussed above include health information and incentives for averting or mitigating 

action. For example, changes in air quality may affect incentives to acquire information about health 

effects or to undertake averting/mitigating action. Since neither health effects nor valuation estimates 

typically control for these incentives, the resulting behavioral changes could produce errors in both 

the health effects predicted and the estimated unit values. Although this effect seems plausible, the 

importance of these factors currently is not clear. 

Summary 

There are several important factors associated with the transfer of existing economic values for 

use in policy analyses that could cause the aggregate benefits estimate to differ from the "true" value. 

In most cases, two of these factors, caused by inconsistencies in the duration and severity of effects, 

are likely to cause economic values to overstate the true value. On the other hand, several attributes 

of the subjects in the relevant economic studies, including the influence of their choice of residence, 

their baseline risk level, and their perception of the attributes of the risk scenario, may cause available 

estimates to understate the true value. In a few cases, available literature supports an adjustment to 

economic values to correct for these errors. In all cases, however, benefits analysts need to be aware 

of the potential influence of these factors on the overall benefits estimates, collect information from 

the relevant health effects and economics literature that are being considered as the basis for benefits 

estimation, and carefully consider the uncertainties in valuation for individual health effects of 

concern. 

5-16
CHARACTERIZATION OF NON-CANCER HEALTH EFFECTS 

In this section, we discuss issues in understanding the nature of non-cancer health effects 

estimates derived from the health effects literature. In order to monetize the benefits associated with 

avoiding a non-cancer health effect, an analyst must first develop a full characterization of the effect 

itself. This includes a clear definition of the nature of the effect and a method for quantifying the 

likelihood of its occurrence within an exposed population. The degree to which studies of non-cancer 

health effects define the nature of the effect range across a wide spectrum, from detailed descriptions 

of specific symptoms in humans (e.g., kidney damage) to very general descriptions of a collection of 

effects in animals that may or may not have direct corollaries in humans (e.g., muscoskeletal toxicity). 

Furthermore, with the exception of the criteria air pollutants, the magnitude of a non-cancer health 

effect associated with contaminant exposure is characterized only as being above or below a dose at 

which there is no appreciable risk of the adverse effect. There is no indication of the probability of 

exposed individuals contracting such an effect nor any measure of the severity of the effect. 

Defining the Nature of a Health Effect 

Health scientists use several types of studies to help define the adverse effects of exposure to 

contaminants. At the simplest level, these studies can be divided into epidemiological studies of 

human populations and dosing studies conducted on a wide array of animals, frequently mice or rats. 

Epidemiological studies are often preferable because they allow for the direct measurement of an 

effect in humans. However, it can be difficult to interpret the results of these studies because they 

are not controlled studies of the effects of contaminant exposure. The contaminant exposure levels 

may be poorly characterized and there may be many confounding factors ranging from exposures to 

other agents to the presence of behavioral factors, such as smoking, that may contribute to the 

occurrence of an effect. 

On the other hand, dosing studies of animals are conducted using measured exposure levels 

in a controlled environment that is designed to minimize the influence of any potentially confounding 

factors. However, these advantages are offset by difficulties in translating the effects measured in 

animals to corresponding human effects. Some effects observed in an animal dosing study may have 

no direct relevance to humans because of cross species differences in how the contaminant is 

metabolized. For example a contaminant may be transformed into a more toxic compound when it 

is metabolized in rats, but detoxified by metabolic processes in humans. The reverse can also occur. 

Even if the animal effect can be linked to a specific human effect, several challenges remain 

for health scientists in applying animal dose-response information to humans. First, the dose applied 

to the animals must be scaled to humans. This is commonly accomplished by using a factor based on 

the relative body weights of the test animal and humans raised to a power of 0.75. The analyst should 

be aware that this scaling represents an additional source of uncertainty in characterizing the health 

effect. Second, there may be differences in the variability of responses among animals and human 

5-17
populations. This factor complicates the identification of threshold dose level below which all 

members of the human population, including sensitive individuals, are at negligible levels of health 

risk. 

Quantification of Non-Cancer Health Effects 

EPA's current methods for assessing non-cancer and cancer risks differ dramatically. While 

standard cancer risk assessment methods can be used to quantify the magnitude of risk, analogous 

methods are not available for quantifying non-cancer risks. Specifically, cancer risk assessment 

methods can produce estimates of the probability associated with contracting cancer as a result of 

exposure to a contaminant.18 In contrast, available non-cancer risk assessment methods do not 

provide quantitative estimates of the probability of experiencing non-cancer effects from contaminant 

exposures. Non-cancer risk assessments are typically based on the use of the hazard quotient, a ratio 

of the estimated dose of a contaminant to the dose level below which there will not be any appreciable 

risk (the Reference Dose or RfD).19 Such an approach can only be used to determine how a 

contaminant dose compares to the RfD for that contaminant. If the dose for an exposed population 

is equal to or greater than the RfD, then the population is at risk of contracting the adverse effect 

associated with the contaminant. 

RfDs for individual contaminants are derived from the health effects literature. The first step 

is to identify the critical effect for a contaminant; the adverse effect that occurs at the lowest dose. 

The second step is to determine the highest exposure level at which there are no statistically or 

biologically significant increases in the frequency or severity of this effect. This is called the No 

Observed Adverse Effect Level (NOAEL). In the final step for defining the RfD, the NOAEL is 

divided by uncertainty factors to account for several sources of uncertainty in characterizing human 

responses to contaminant doses, including extrapolation of health effects data across species, interindividual variability in response, and the quality of the health effects data. 

18 Standard practice for cancer risk assessment yields a plausible upper-bound estimate of the 

probability of contracting cancer per unit intake of a chemical over a lifetime. In general, EPA's 

cancer risk assessment protocol involves calculation of the upper 95th percent confidence limit of the 

slope of the cancer dose-response curve (i.e., there is only a five percent chance the probability of a 

response could be greater than the estimated value on the basis of the experimental data and model 

used). See USEPA 1989, Risk Assessment Guidance for Superfund, Volume 1, Human Health 

Evaluation Manual (Part A), Interim Final, EPA/540/1-89/002, Chapter 7, for more details. 

19 The Reference Dose (RfD) is used to define the safe dose level for the oral exposure route. 

EPA develops a similar measure for the inhalation exposure routes expressed as a contaminant 

concentration rather than dose. It is called the Reference Concentration (RfC). 

5-18 
The RfD for a contaminant is derived for a single critical effect. There are usually multiple 

adverse effects observed, however, as the dose is increased above the threshold for the critical effect. 

Risk assessors refer to these as prevalent effects. In evaluating the non-cancer risks for exposure to 

a contaminant it is important to consider both the critical and prevalent effects. Even though 

prevalent effects may occur only at higher doses, they may be more severe than the critical effect. 

This raises the question of how can we evaluate the risks for prevalent effects. Current practice 

within the agency is to assume that a population is at risk for the critical and prevalent effects when 

dose equals or exceeds the RfD (i.e., the hazard quotient $ 1). EPA's Science Advisory Board has 

accepted this approach as reasonable.20 Alternatively, if one or more of the prevalent effects is severe 

and the data are sufficient, health scientists may derive separate RfDs for these effects. 

EPA has begun to develop an alternative approach to developing RfDs that represents a step 

toward a more quantitative characterization of non-cancer risks. This approach relies on statistical 

dose-response modeling to establish a benchmark dose (BMD) that produces a predetermined level 

of change in adverse response (e.g., 5 percent). The BMD is then used instead of a NOAEL in 

defining the RfD. An RfD developed in this way still suffers from the primary limitation of not 

producing a quantitative estimate of the probability of an individual contracting the effect at different 

levels of contaminant exposure; however it does give an indication of the risk level associated with 

exposures in the range of the BMD. This information on the risk probability at the BMD may be of 

limited use if the estimated exposure level is substantially below the BMD. 

EPA is continuing to investigate approaches for developing more quantitative estimates of 

non-cancer risks. One such effort undertaken by OPPE involves using dose-response data (equivalent 

to data used to derive the BMD) and linear low dose extrapolation to produce a quantitative estimate 

of the probability of contracting a non-cancer effect over a wide range of exposure levels, similar to 

those commonly estimated for cancer risks. This type of approach represents an initial step in 

developing dose-response data for non-cancer health effects that will yield quantitative estimates of 

the number of cases of illness. While it is promising for the purposes of valuation, this method is not 

currently available for use. It is still in a preliminary stage and has yet to undergo a full internal and 

external peer review. 

Summary 

There are significant constraints in our ability to characterize and quantify non-cancer health 

effects in ways that can be monetized. These include difficulties in defining the nature of the effect 

itself and in quantifying the probability that a given exposure level will result in an individual 

20 US Environmental Protection Agency and Science Advisory Board. Superfund Site Health 

Risk Assessment Guidelines: Review of the Office of Solid Waste and Emergency Response Draft 

Risk Assessment Guidance for Superfund Human Health Evaluation Manual by the Environmental 

Health Committee. February 1993. 

5-19 
contracting the effect. There are, however, steps that an analyst can take to help frame the potential 

value of non-cancer risks associated with a specific contaminant exposure. 

One approach is illustrated in Exhibit 5-3. First, one can identify the critical and prevalent 

non-cancer effects for a contaminant using health effects data published in EPA's Integrated Risk 

Information System (IRIS). In some cases, IRIS will contain enough information to develop a 

general description of the nature of the specific effects. If needed, additional information can be 

obtained by reviewing the health effects studies cited in IRIS. As suggested by the third column of 

the exhibit, it may be possible to develop a unit valuation for the effects depending on how clearly 

they are defined. Such a valuation may be based on cost-of-illness data or the transfer of willingnessto-pay data. 

Finally, by looking at the population that is subject to doses at or above the RfD, one can 

estimate the number of people at risk of contracting the effects. Thus, even without an estimate of 

the probability that people exposed at this level will contract the effects, arraying the available 

information in this manner provides helpful insight into the valuation of the effects. Furthermore, this 

type of analysis can suggest whether additional investigation of the health effects data (e.g., doseresponse data) is warranted. 

Exhibit 5-3 

SAMPLE TEMPLATE FOR CHARACTERIZATION OF NON-CANCER HEALTH RISKS AND 

VALUATION DATA FOR CADMIUM 

Health Effect Description of 

Effect (Cost of Illness or 

Unit Valuation 

Willingness to Pay) 

Population Exposed Above 

the RfD 

Critical Effect 

Kidney Toxicity 

Prevalent Effects 

Gastrointestinal Effects 

Liver/Hepatotoxicity 

Muscoskeletal Effects 

5-20
COLLECTING INFORMATION TO SUPPORT 

NON-CANCER HEALTH EFFECTS ANALYSES CHAPTER 6 

The previous chapters provide the reader with a basic understanding of the theory and 

methods of non-cancer health effects valuation as well as some insight into the major issues that could 

be encountered in health effects analyses. An understanding of the economic basis for health effects 

valuation is critical to producing sound and effective analyses, regardless of the nature of the 

regulatory or policy issue of interest. 

In this chapter we provide information that will help the reader get started on a non-cancer 

health effects benefits analysis. Exhibit 6-1 provides an overview of the chapter. In the first section, 

we discuss several information sources used by risk assessors to characterize the types of health 

effects that are associated with prevention of contaminant exposures. A basic knowledge of the 

methods of risk assessment and the underlying studies that characterize health effects is helpful to the 

economist or benefits analyst in conducting non-cancer health effects analyses. In the next section, 

we discuss several useful sources of information on existing economic studies of non-cancer health 

effects, including references to several documents EPA has developed that can facilitate a literature 

review. The chapter concludes with a brief review of health benefits approaches used in other Federal 

agencies and departments. In some cases, these non-EPA efforts provide helpful information to design 

strategies for valuation. 

6-1
Exhibit 6-1 

COLLECTING INFORMATION TO SUPPORT NON-CANCER HEALTH EFFECTS ANALYSES 

Understanding the Underlying Health Effect 

Literature 

Epidemiological studies of human populations 

Animal Studies 

Detailed descriptions of specific symptoms in humans 

Dos-response relationships 

Health risk evaluations (toxicity information) 

Identifying Existing Economic Valuation 

Literature 

Regulatory Impact Analyses 

Programmatic Analyses 

Compendiums of relevant values and studies 

On-line inventories and databases 

Guidelines for Preparing Economic Analyses, US EPA (2000a) 

Other Federal Government Analyses of NonCancer Health Effects Substances and Disease Registry, National Institutes of Health 

Department of Health and Human Services: Food and Drug 

Administration, Centers for Disease Control, Agency for Toxic 

Department of Labor 

Department of Transportation 

US Department of Agriculture 

Consumer Product Safety 

UNDERSTANDING THE UNDERLYING HEALTH EFFECT LITERATURE 

Evaluation of non-cancer health benefits of a regulatory or policy action often starts with 

understanding the health effects of potential interest. Analyses of the health effects of interest are 

largely undertaken by health scientists and related experts; the results of those analyses may then be 

provided to economists and policy analysts and are a critical starting point for benefits analysis. The 

analyses conducted by risk assessors often identify those categories of health effects that may be 

influenced by the action and describe the nature of the effects — risk assessors may refer to this 

process as "hazard identification." The economist or benefits analyst may desire to gain a good 

understanding of the underlying scientific research behind the health effects assessments in order to 

better apply the existing economic valuation literature. Often the best way to do this is to establish 

a relationship with risk assessment professionals. This understanding is also useful on a broader basis 

to design economic analyses that recognize the strengths and limitations of the underlying health risk 

assessment. 

Information on the effects likely to be associated with control of particular environmental 

contaminants may be derived from epidemiological studies of human populations or from animal 

studies. Epidemiology generally involves developing statistical relationships between estimates of 

exposure and the incidence of health effects. Such studies may be conducted in a variety of ways; 

for example, an epidemiologist may link the observed incidence of illness to ambient levels of 

6-2
contaminants, or to levels of contaminants in specific body tissues. Another technique 

epidemiologists may use is to link disease incidence to proximity to a specific source of contaminants. 

Data from animal studies also may be used to identify the health effects associated with 

specific contaminants. This type of research measures the relationship between dose and the 

incidence of health effects in a controlled environment designed to minimize the influence of any 

potentially confounding factors. However, it is often difficult to translate animal doses and health 

impacts into human terms, or to use these studies to determine how human responses might vary in 

response to changes in dose. 

Regardless of the method used to estimate health impacts, the scientific data used to establish 

a link between exposure to pollutants and these effects will often include information important to 

the ensuing valuation process. For nonfatal effects, the degree to which health scientists can define 

the nature of the effect will vary. For some contaminants and health effects, detailed descriptions of 

specific symptoms in humans are available (e.g., kidney damage). In other cases, only general 

descriptions of effects on animals may be available (e.g., musculoskeletal toxicity) that may or may 

not have direct human corollaries. 

In addition, EPA is just beginning to develop information on dose-response relationships for 

non-threshold contaminants, including most non-carcinogens. All that may be currently available for 

many contaminants are data on the dose at which adverse effects are unlikely to occur even in 

sensitive individuals (e.g., the Reference Dose, or RfD). As discussed in Chapter 5, this information, 

by itself, is not sufficient to determine the full range of health effects potentially associated with a 

contaminant, the magnitude or severity of these effects, or the change in the number of cases 

attributable to different exposure levels. 

The results of health risk evaluations of environmental contaminants are available from a 

variety of sources. One frequently used source of contaminant toxicity information is EPA's 

Integrated Risk Information System (IRIS) — it provides summaries of a wide range of toxic, 

reproductive, developmental, and other effects associated with particular environmental contaminants, 

based on both epidemiological and animal studies. IRIS also reports the RfD, where one has been 

estimated, for inhalation, ingestion, and/or dermal exposure routes. Other sources of information 

include chemical profiles developed under the auspices of the Agency for Toxic Substance and 

Disease Registry (ATSDR) and a wide range of materials developed by EPA's program offices to 

support health risk evaluations and benefits characterization. 

6-3
One example of the types of materials available from program offices is the Office of Water's 

Contaminant Specific Fact Sheets, which provide basic information on health effects attributable to 

regulated drinking water contaminants.21 For each constituent, the fact sheets list short-term and 

long-term health effects of potential concern. For example, short-term health effects linked with 

cadmium exposure through drinking water are nausea, vomiting, diarrhea, muscle cramps, salivation, 

sensory disturbances, liver injury, convulsions, shock, and renal failure; long-term health effects 

linked with cadmium exposure through drinking water are kidney, liver, bone, and blood damage. 

These materials, along with others, may provide a good starting point for non-cancer health effects 

analysis for environmental contaminants. 

In summary, while the types of health risk information that will prove useful in any specific 

case will vary, understanding the basis for estimating health risk informs the process of selecting an 

appropriate economic valuation approach. At a minimum, benefits analysts and economists should 

educate themselves on the strengths and limitations of the results of health risk characterizations, 

preferably by working closely with health risk professionals but also through basic research into the 

data sources, methods, and perhaps even a sample of the primary research typically used for that type 

of risk assessment. 

IDENTIFYING EXISTING ECONOMIC VALUATION LITERATURE 

Using the best available descriptions of the effects of concern, an analyst can begin to assess 

the adequacy of the existing economic literature to support a non-cancer health benefits assessment. 

If the literature on the effect of concern appears sparse, studies of effects that are similar in nature 

can also be reviewed. In some cases, the existing economic valuation literature will focus on health 

effects that are similar, but not identical, to the effects of concern for a particular regulation. In these 

cases benefit transfer techniques are often useful (see Chapter 4). These techniques may include 

adjustments to reflect differences in the severity of the health condition, the duration of the effect, or 

the affected populations. For example, the available risk assessment literature tends to focus on 

moderately severe cases of chronic bronchitis; however, the best available valuation studies focus on 

the severe case of chronic bronchitis (see Viscusi, et al. 1991). Krupnick and Cropper (1992) discuss 

how to make these adjustments using this available literature. In addition, if a policy application 

requires a value for emphysema, the analyst might find the chronic bronchitis literature useful because 

of the similarities in symptoms and activity restrictions of the two health conditions. Alternatively, 

differences between the effects studied and the effects of the regulations can be addressed 

qualitatively and presented as one of the uncertainties inherent in the analysis. 

21 The Contaminant Specific Fact Sheets are available in two versions, Consumer and 

Technical, and can be downloaded from EPA's "Drinking Water and Health" Internet site at 

http://www.epa.gov/OGWDW/hfacts.html. 

6-4 
In many cases, estimates in the literature will need to be standardized to reflect the value of 

a dollar in a certain specified base year (e.g., all estimates might need to be adjusted to 1998 dollars). 

Adjustments such as this are relatively straightforward and are often made using the Gross Domestic 

Product (GDP) Implicit Price Deflator, the general Consumer Price Index (CPI), or one of the CPI 

components (e.g., for medical expenditures). Time series for these indices are provided in the 

Economic Report of the President, published each year by the Executive Office of the President.22 

Several resources are available to help in locating potentially relevant existing studies. For 

example, existing Regulatory Impact Analyses (RIAs) may provide references to relevant primary 

literature. Most, if not all, EPA offices have produced RIAs with examples of health effects and 

valuation strategies that may prove useful, and in many cases those RIAs reflect the results of 

extensive peer review and evaluation. Broader programmatic analyses, such as the Office of Air and 

Radiation's (OAR) and Office Policy Planning and Evaluation's (OPPE) retrospective study of the 

costs and benefits of the Clean Air Act (EPA 1997a), and the Office of Water's ongoing retrospective 

analyses of Clean Water Act provisions, may include references to primary economic valuation 

literature.23 A wide range of commercial on-line search services may also be helpful in locating 

specific subjects, titles, or authors in the primary literature. In some cases, ongoing research may be 

useful — EPA and the National Science Foundation, for example, continue to fund a wide range of 

economic analyses that are potentially relevant to benefits valuation efforts. 

EPA is also developing compendiums of relevant values and studies that can be useful for 

benefits analysis. For example, the Office of Prevention, Pesticides, and Toxic Substances has 

recently developed cost-of-illness estimates for many cancers, chronic conditions, and developmental 

effects — a list of conditions assessed and ranges of cost-of-illness estimates suggested in the 

document are summarized in Exhibit 6-2 (EPA 2000b).24 In addition, the National Center for 

Environmental Economics (NCEE), has developed on-line inventories of cost-benefit analyses, 

22 For example, Exhibit 6-2 includes an estimate for the cost of illness for lung cancer of 

$38,569 (1996$). This value can be adjusted to 1997 dollars using the CPI-Medical Care index 

values for 1996 (the base year) and 1997 (the target year). The February 1998 Economic Report of 

the President reports these index values are 228.2 and 234.6, respectively (the relevant tables are on 

page 349 in the 1998 report). The adjustment factor used is the ratio of these two values, 

234.6/228.2 = 1.028, indicating an increase in the medical care index of approximately 2.8 percent 

for the year. Multiply the adjustment factor by the base year valuation figure of $38,569 to yield an 

estimate of $39,649 in 1997 dollars. 

23 For example, EPA plans to evaluate changes in human health effects as part of a 

retrospective analysis of the Chesapeake Bay watershed. 

24 To obtain a copy of the Cost of Illness Handbook call the Economic and Policy Analysis 

Branch of the Economic Exposure and Technology Division in OPPTS. 

6-5 
benefits studies, and selected Internet links. These databases are accessible through the Internet.25 

Exhibit 6-3 includes a tabular summary of some of the relevant non-cancer health effects studies 

included in the NCEE database, as well as other studies, and the range of values derived. Exhibit 6-3 

does not reflect an exhaustive literature search for all potentially relevant values; in addition, inclusion 

of a study in the table and summary of the values derived does not imply that the study is 

recommended or approved for use in EPA analyses, although many of the studies referenced may 

have been used in previous EPA work. In general, analysts need to apply judgement in the use of 

these values or others available in the literature. We suggest analysts interested in using an existing 

study read the applicable study carefully, evaluate the quality of the study in light of the information 

presented in Chapters 2 and 3 on the theory and methods used in high-quality economic research, 

compare the results to other similar studies, where possible, and consult Chapter 4 for information 

on the conduct of benefits transfer exercises. 

NON-EPA ANALYSES OF NON-CANCER HEALTH EFFECTS 

In response to a wide range of regulatory requirements, several federal agencies are involved 

in assessing the economic impacts of non-cancer health effects. These agencies have analyzed the 

costs and benefits of morbidity effects stemming from a variety of circumstances. The analyses are 

often geared towards assessing the effects of a particular standard, disease, or incident, as opposed 

to a particular health effect or morbidity symptom. 

Because the valuation approaches are often not symptom-based, the approach these agencies 

take precludes a simple transfer of values for specific health effect assessments; however, the research 

provides an important source of valuation information for non-cancer analyses involving "bundles" 

of symptoms. For instance, studies by the USDA on salmonella include costs associated with several 

concurrent health effects (e.g., nausea, stomachache, vomiting). To the extent that other non-cancer 

effects involve the same group of symptoms, these estimates may provide transferable value estimates 

for an analysis of those adverse health situations. This section presents a brief overview of other 

federal agencies' analyses that assess the costs and benefits associated with morbidity effects. 

25 The National Center for Environmental Economics home page can be found at the following 

Internet URL address: http://www.epa.gov/economics. Follow the directions on the home page for 

a listing of the available online inventories. 

6-6 
Exhibit 6-2 

SUMMARY OF SELECTED COST OF ILLNESS VALUES1 

Condition Evaluated Costs (1996$, except where noted) 

Present Value Estimates of Per-Patient Medical 

Breast Cancer $80,143 - $99,303 

Childhood Acute Lymphoblastic Leukemia $300,922 - $342,104 

Kidney Cancer $111,901 - $120,250 

Lung Cancer $38,5692 

Skin Cancer $2,776 - $2,997 

Asthma $18,865 - $81,321 

Coronary artery disease $51,415 - $54,079 

High blood lead levels (asymptomatic) $5,135 - $5,200 3 

Hypertension $6,887 - $17,496 

Chronic obstructive pulmonary disease $15,531 - $28,041 4 

Low Birth Weight $47,814 - $153,312 

Cleft Lip and Palate $19,507 - $25,664 

Limb Reductions 

Upper 

Lower 

$22,574 - $36,604 

$32,422 - $67,847 

Cardiac Abnormalities 

Truncus Arteriosus 

Transposition/DORV 

Tetralogy of Fallot 

Single ventricle 

$317,613 - $378,312 

$109,343 - $124,754 

$164,308 - $200,083 

$125,271 - $230,719 

Spina Bifida $149,644 - $264,160 

Cerebral Palsy $195,386 - $700,570 

Down's Syndrome $156,155 - $353,379 

Source: USEPA, Cost of Illness Handbook, August 1997. 

Values vary depending on age at onset of illness and discount rate assumptions. 1 

Not discounted because lung cancer tends to be fatal within the first year after diagnosis. 2 

This figure calculated for a risk level IV patient. See source document for more information. 3 

Estimate in 1988$. 4 

6-7
Exhibit 6-3 

SUMMARIES OF NON-CANCER HEALTH EFFECTS VALUATION STUDIES 

Study (Date) Data 

Date 

Collected 

Methodology 

Number of 

Respondents 

or Cases 

Studied 

Non-cancer Health Effects Valued Reported Range 

of Values1 

Berger et al. 

(1987) 

1984-

1985 

Contingent 

valuation 

119 

respondents 

Seven light symptoms (coughing spells, 

stuffed sinuses, throat congestion, itching 

eyes, heavy drowsiness, headaches and 

nausea) 

$27 - $142 per additional 

symptom day avoided 

Chestnut et al. 

(1988) 

1986 Cost of illness; 

contingent 

valuation; 

averting 

behavior 

50 

respondents 

Angina $14,359 annual cost per person 

(cost of illness); $40 willingness 

to pay per avoided additional 

episode (contingent valuation); 

$2,151 average annual expense 

(averting behavior) 

Chestnut et al. 

(1996) 

1986 Cost of illness; 

contingent 

valuation; 

averting 

behavior 

50 

respondents 

Angina Negligible cost for incremental 

increase in episodes (cost of 

illness); $38 average 

expenditure per perceived 

episode avoided (averting 

behavior); $40-$103 willingness 

to pay per avoided additional 

episode (contingent valuation) 

Colditz (1992) 1980 Cost of illness Not reported Diseases resulting from obesity (non-insulindependent diabetes mellitus, hypertension, 

cardiovascular disease, gallbladder disease, 

and cholecystectomy) 

$37.4 billion nationwide 

annually 

6-8
Exhibit 6-3 

SUMMARIES OF NON-CANCER HEALTH EFFECTS VALUATION STUDIES (continued) 

Study (Date) Data 

Date 

Collected 

Methodology 

Number of 

Respondents 

or Cases 

Studied 

Non-cancer Health Effects Valued Reported Range 

of Values1 

Cropper and 

Krupnick (1990) 

1977-

1978 

Cost of illness Sample of 

2,215 men for 

data on lost 

earnings; 

14,000 

households for 

data on 

medical costs 

(of which 

4,789 persons 

report disease 

of interest) 

Selected chronic diseases (including 

bronchitis, emphysema, hypertension, 

ischemic heart disease, and non-specific heart 

disease) 

$566 - $11,050 annual loss in 

earnings; $97 - $1,257 average 

annual medical expenses 

Dickie et al. (1987) 1986 Contingent 

valuation 

221 

respondents 

(165 with 

symptoms) 

Ozone-related symptoms (sinus pain, cough, 

throat irritation, chest tightness, could not 

breath deep, pain on deep breath, out of 

breath easily, and wheezing/whistling breath) 

$0 - $3.11 (revised bids) per 

symptom day avoided 

6-9
Exhibit 6-3 

SUMMARIES OF NON-CANCER HEALTH EFFECTS VALUATION STUDIES (continued) 

Study (Date) Data 

Date 

Collected 

Methodology 

Number of 

Respondents 

or Cases 

Studied 

Non-cancer Health Effects Valued Reported Range 

of Values1 

Dickie and 

Gerking (1991a 

and 1991b) 

1985-

1986 

Household 

production 

function 

226 

respondents 

26 respiratory symptoms related to air 

pollution (including cough; throat irritation; 

husky voice; phlegm, sputum or mucous; 

chest tightness; could not take a deep breath; 

pain on deep respiration; out of breath easily; 

breathing sounds, wheezing or whistling; eye 

irritation; could not see as well as usual; eyes 

sensitive to bright light; ringing in ears; pain 

in ears; sinus pain; nosebleed; dry and painful 

nose; runny nose; fast heartbeat at rest; tired 

easily; faintness or dizziness; felt spaced out 

or disoriented; headache; chills or fever; 

nausea; and swollen glands) 

$0.49 - $1.90 to relieve one 

symptom for one day 

French and 

Mauskopf (1992) 

Not 

reported 

Quality-of-life 

(based on value 

of a statistical 

life) 

Not applicable Asthma, headache, cough, chronic bronchitis, 

and chronic arthritis 

$186 - $10,780 to avoid the 

illness 

Harrington, 

Krupnick and 

Spofford (1989) 

1984 Cost of illness; 

averting 

behavior 

176 

respondents 

(cost of 

illness); 

50 households 

(averting 

behavior) 

Giardiasis $858 - $1,255 cost of illness per 

case; $455 - $1,540 averting 

behavior per household (best 

estimate) 

6-10
Exhibit 6-3 

SUMMARIES OF NON-CANCER HEALTH EFFECTS VALUATION STUDIES (continued) 

Study (Date) Data 

Date 

Collected 

Methodology 

Number of 

Respondents 

or Cases 

Studied 

Non-cancer Health Effects Valued Reported Range 

of Values1 

Hartunian, Smart 

and Thompson 

(1981) 

Varies 

(generally 

1970s) 

Cost of illness Not applicable 

(based on cost 

of illness 

model) 

Coronary heart disease (including myocardial 

infarction, coronary insufficiency, and angina 

pectoris uncomplicated) and stroke 

$20,784 direct and indirect costs 

for coronary heart disease; 

$1,510 - $9,269 direct and 

$11,968 - $41,429 indirect costs 

for strokes (present values) 

Hu and Sandifer 

(1981) 

Varies 

(generally 

1970s) 

Summarizes 

previous cost of 

illness, cost 

effectiveness, 

and cost-benefit 

studies 

Not applicable 

(summarizes 

available 

studies) 

13 categories of diagnostic illnesses: infective 

and parasitic diseases; neoplasms; endocrine, 

nutritional, and metabolic diseases; mental 

disorders; diseases of the nervous system and 

sense organs; diseases of the circulatory 

system; diseases of the respiratory system; 

diseases of the digestive system; diseases of 

the genitourinary system; diseases of the 

musculoskeletal system; congenital 

anomalies; perinatal morbidity and mortality; 

and accidents, poisonings and violence 

Varies (no summary values 

provided) 

Krupnick and 

Cropper (1992) 

1989 Paired 

comparison 

(risk-risk and 

risk-income 

trade-offs) 

189 

respondents 

Chronic bronchitis $530,000 - $1.6 million to avoid 

a statistical case 

Loehman et al. 

(1979); Loehman 

and De (1982); and 

Green et al. (1978) 

1977 Contingent 

valuation 

396 

respondents 

Shortness of breath, coughing and sneezing, 

head congestion (including eye, ear, and 

throat irritation) 

$2 - $79 median per avoided 

symptom day (as reported in 

Green et al.) 

6-11
Exhibit 6-3 

SUMMARIES OF NON-CANCER HEALTH EFFECTS VALUATION STUDIES (continued) 

Study (Date) Data 

Date 

Collected 

Methodology 

Number of 

Respondents 

or Cases 

Studied 

Non-cancer Health Effects Valued Reported Range 

of Values1 

Magat, Viscusi and 

Huber (1988) 

1984 Contingent 

valuation and 

paired 

comparison 

368 

respondents 

Gas poisoning from bleach, child poisoning 

from bleach or drain opener, hand burns from 

drain opener 

$0.5 - $1.4 million per avoided 

statistical case 

Magat, Viscusi and 

Huber (1992) 

1990 Paired 

comparison 

178 

respondents 

Peripheral neuropathy $1.6 million per case avoided 

Rice, Hodgson and 

Kopstein (1985) 

1980 Cost of illness Not reported 16 diagnostic categories: infectious and 

parasitic diseases; neoplasms; endocrine, 

nutritional, metabolic diseases and immunity 

disorders; diseases of blood and bloodforming organs; mental disorders; diseases of 

the nervous system and sense organs; diseases 

of the circulatory system; diseases of the 

respiratory system; diseases of the digestive 

system; diseases of the genitourinary system; 

diseases of the skin and subcutaneous tissue, 

diseases of the musculoskeletal system and 

connective tissue; congenital anomalies; 

symptoms, signs and ill-defined conditions; 

injury and poisoning 

$455 billion nationwide 

annually ($211 billion in direct 

costs, $68 billion for morbidity, 

and $176 billion for mortality) 

Rowe and Chestnut 

(1985 with 1986 

addendum) 

1983 Contingent 

valuation 

82 

respondents 

Asthma $21 average for a one day 

reduction in bad asthma days 

6-12
Exhibit 6-3 

SUMMARIES OF NON-CANCER HEALTH EFFECTS VALUATION STUDIES (continued) 

Study (Date) Data 

Date 

Collected 

Methodology 

Number of 

Respondents 

or Cases 

Studied 

Non-cancer Health Effects Valued Reported Range 

of Values1 

Schwartz et al. 

(1985) 

Not 

reported 

Cost of illness Not applicable 

(based on cost 

of illness 

model) 

Lead-in-gasoline related effects, including 

children's health and cognitive effects and 

high blood pressure in adults 

$3,500 per child, $228 per 

hypertensive per year 

Strauss et al. 

(1986) 

Not 

reported 

Cost of illness 213 patients Chronic lung disease $6,979 average per 

patient per year 

Thompson (1986) Not 

reported 

Contingent 

valuation 

247 

respondents 

Rheumatoid arthritis $5,160 annually (adjusted mean) 

for cure 

US Environmental 

Protection Agency 

(1997) 

Various 

years 

Cost of illness Varies by 

health effect 

Nonfatal cancers, selected chronic conditions, 

and developmental effects 

See Exhibit 6-2 above for 

summary 

Tolley et al. (1986) 1984-

1985 

Contingent 

valuation 

176 

respondents 

(personal 

interviews) 

Seven light symptoms (coughing, stuffed 

sinuses, throat congestion, itching eyes, 

drowsiness, headache, and nausea) and 

angina 

$25 - $50 average to relieve one 

additional day of a light 

symptom; $66 - $279 average to 

relieve one additional day of 

angina 

Viscusi, Magat and 

Forrest (1988) 

1986 Paired 

comparison 

785 

respondents 

Inhalation poisoning paired with skin 

poisoning or child poisoning from insecticide 

$2,080 - $3,680 average per pair 

of injuries prevented 

Viscusi, Magat and 

Huber (1991) 

1988 Paired 

comparison 

389 

respondents 

Chronic bronchitis $457,000 to $1.2 million per 

statistical case avoided 

Weiss, Gergen and 

Hodgson (1992) 

1980-

1987 

Cost of illness Not reported Asthma $6.2 million nationwide in 1990 

6-13
Exhibit 6-3 

SUMMARIES OF NON-CANCER HEALTH EFFECTS VALUATION STUDIES (continued) 

Study (Date) Data 

Date 

Collected 

Methodology 

Number of 

Respondents 

or Cases 

Studied 

Non-cancer Health Effects Valued Reported Range 

of Values1 

Wittels, Hay and 

Gotto (1990) 

1985-

1986 

Cost of illness Not applicable 

(based on cost 

of treatment 

model) 

Coronary heart disease (including acute 

myocardial infarction, angina pectoris, and 

unstable angina pectoris 

$9,078 - $51,211 per event over 

five years 

Source: EPA/NCEE Benefits Studies database, supplemented by recent literature searches. 

Estimates have not been standardized to reflect the value of a dollar in a certain specified base year. Standardizing values to a single year's dollars is 1 

most often done using the Gross Domestic Product (GDP) Implicit Price Deflator, the general Consumer Price Index (CPI), or one of the CPI components 

(e.g., for medical expenditures). Time series for these indices are provided in the Economic Report of the President, published each year by the Executive 

Office of the President. 

6-14
Department of Health and Human Services 

Within the Office of Public Health and Science in the Department of Health and Human 

Services, several organizations are involved in non-cancer valuation studies. The Food and Drug 

Administration, Centers for Disease Control Epidemiology Program Office, Agency for Toxic 

Substances and Disease Registry, and National Institutes of Health have conducted a variety of 

analyses to quantify the impact of adverse health effects. 

Food and Drug Administration 

The Food and Drug Administration (FDA) has quantified the value of non-fatal illnesses for 

a number of Regulatory Impact Analyses (RIAs). Using a health status index and willingness-to-pay 

approach, the FDA has estimated values associated with food labeling, the human health effects from 

the presence of lead in food, and imported food that violates Federal Food, Drug and Cosmetic 

regulations (Sargeant 1989). 

For Department of Health and Human Services regulations restricting the sale and distribution 

of cigarettes and smokeless tobacco to individuals under the age of 18, the FDA estimates the 

economic impact of the health effects associated with tobacco use using an actual cost of avoidance 

technique (61 FR 44395 1996). The FDA compares the total medical costs and lost work days of 

smokers versus nonsmokers over their lifetimes. This OMB-reviewed rulemaking analysis does 

not value specific health effects; instead, the foregone earnings and total medical expenditure 

approach estimates the costs of a group of adverse health effect symptoms associated with tobacco 

use. 

The FDA most recently is conducting a study of the economic impact of increasing the quality 

of mammographies (currently undergoing OMB review). The study estimates the benefits of cancer 

fatalities avoided and reduced anxiety associated with higher quality mammographies. The details 

of this research are currently unavailable. 

Centers for Disease Control 

To evaluate the costs effectiveness of health-related regulatory strategies associated with 

specific diseases, the CDC's Epidemiology Program Office (EPO) uses several economic valuation 

techniques.26 Although currently unavailable, this office will have a bibliography of their major cost26 Note that cost effectiveness analysis evaluates the relative effectiveness of different 

interventions, and not the total costs and benefits of a given alternative. 

6-15 
effectiveness analysis efforts on the World Wide Web in the near future ("An Ounce of Prevention," 

http://www.cdc.gov). In these analyses, the EPO has applied the cost-of-illness, quality-adjusted lifeyears (QALY), and willingness-to-pay approaches to estimate costs and benefits. The CDC reports 

their standards for cost-effectiveness evaluation in Prevention Effectiveness: A Guide to Decision 

Analysis and Economic Evaluation (CDC 1996). 

CDC studies include assessments of the human health costs of various diseases, including 

spina bifida, diabetes, cryptosperdiosis, and giardiasis. All analyses measure costs of a "bundle" of 

health effects attributable to each disease and do not include symptom-specific costs. In one such 

study, the EPO evaluates the cost-effectiveness of efforts to limit folic acid intake in order to reduce 

the risk for neural tube birth defects such as spina bifida (Kelly et al. 1996).27 To do this, the EPO 

applies epidemiological data to quality-adjusted life years (QALYs) gained and years of life gained 

approaches to capture premature mortality and morbidity effects. The morbidity effects associated 

with spina bifida evaluated in this analysis include incontinence, impairments of mobility, vision, and 

cognitive function (Kelly et al. 1996). The analysis tests the sensitivity of costs to varying dietary 

supplementation and food supply fortification strategies to identify the most cost-effective 

intervention strategy. 

The EPO has also assessed the benefits and costs of a universal screening for elevated blood 

lead levels in one-year old children. This analysis uses the human capital approach to value IQ and 

other neurological behavior phenomenon (CDC 1997). Using a methodology of foregone earnings, 

the study reports the prevalence of elevated blood lead levels at which universal blood lead level 

screening is most cost effective. The CDC presents these values as guidance for health departments. 

Agency for Toxic Substances and Disease Registry 

The Agency for Toxic Substances and Disease Registry (ATSDR) has estimated the overall 

economic impact of the incidence of selected health effects associated with exposure to hazardous 

wastes. Currently, the Agency is in the process of publishing a paper on the costs of health affects 

attributable to ingestion of water contaminated with volatile organic compound (VOC) from 

Superfund sites (Lybarger et al., in press). The study focuses largely on the value of birth defects and 

strokes, but also includes discussion of other ailments, including urinary tract disorders, diabetes, 

eczema and skin conditions, anemia, and speech and hearing impairment. To calculate the costs of 

these effects, ATSDR combines estimated medical costs, long-term care costs, and lost productivity 

costs due to morbidity or premature mortality. 

27 Spina bifida is one of the most common types of neural tube defects causing premature 

mortality and serious lifelong disabilities (Kelly et al., 1996). 

6-16 
National Institutes of Health 

The National Institutes of Health (NIH) conducts occasional studies of the cost of illness as 

part of their overall assessment of health effects. For example, the Task Force on the Cost 

Effectiveness, Quality of Care, and Financing of Asthma Care conducted a literature review of costof-illness studies from five different countries and developed a range of costs of asthma (NIH 1996). 

The Task Force estimated the total annual cost of this respiratory illness and estimated the component 

direct medical and indirect costs that make up the total annual cost. Costs per patient per year were 

also estimated. NIH's goal in these types of studies is to identify cost-effective management strategies 

for selected conditions. 

Department of Labor 

The Occupational Safety and Health Administration (OSHA) estimates the costs and benefits 

associated with a variety of occupational accidents in their economic analyses of proposed rules. The 

evaluated costs are associated with specific standards and not specific injuries or health effects. For 

example, for a particular working condition, OSHA may provide a cost estimate incorporating costs 

associated with falls, muscular and skeletal disorders, and amputations. 

OSHA recently developed a system for evaluating costs associated with lost work days and 

injury under different working circumstances using worker's compensation data. Current OSHA 

analyses apply this methodology to calculate medical cost, worker's lost income, miscellaneous 

administrative costs associated with the accident, and indirect costs such as those associated with the 

disruption at a site due to an accident. 

Department of Transportation 

Within the Department of Transportation (DOT), the Federal Highway Administration 

(FHWA) conducts economic analyses to estimate accident costs for selecting among alternative 

transportation improvements. In their analyses, the FHWA commonly calculates comprehensive costs 

including: property damage, lost earnings, lost household production, medical costs, emergency 

services, travel delay, vocational rehabilitation, workplace costs, administrative, legal and pain and 

lost quality of life. The FHWA also refers to this latter cost as a "willingness-to-pay cost" (USDOT 

1994). 

To calculate costs, DOT analysts rely on a cost database developed by the National Public 

Services Research Institute to evaluate a standardized table of injuries of varying severity (Miller et 

al. 1988). This cost database reports costs per injury using: (1) an abbreviated injury scale; and (2) 

an injury severity scale. The abbreviated injury scale measures provide cost per injury for 

"minor","moderate", "serious", "severe", "critical", or "fatal" accidents. The severity scale provides 

6-17
cost per injury for "fatal", "incapacitating", "evident", "possible", or "property damage only" 

accidents. For the various severity levels, this model calculates two types of costs: human capital 

costs, such as medical costs and productivity losses, and using jury verdict data, intangible quality of 

life losses, such as pain and suffering and immobility costs. 

The FHWA uses these cost data to assess the impacts associated with accidents, but not 

specific injuries, in an attempt to reflect individuals' willingness to pay to avoid accidents. A 1984 

FHWA report presents a method to incorporate individuals' willingness to pay to reduce injury 

accidents into the costs of fatal, injurious, and property damage accidents (FHWA 1984). In 1991, 

the FHWA provided a comprehensive review of accident costs, presenting the comprehensive costs 

associated with injury accidents, including individuals' willingness to pay to avoid injury (Urban 

Institute 1991). 

The DOT's National Highway Transportation Safety Administration (NHTSA) also analyzes 

the economic costs of accidents. Blincoe (1994) uses the Miller et al. (1988) approach to update the 

estimates of the economic costs associated with motor vehicle crashes. The costs presented in this 

study only reflect the human capital costs associated with motor vehicle crashes, and not intangible 

costs such as pain and suffering. Jointly with the Center for Disease Control (CDC), NHTSA 

conducted an assessment of injury impacts in the US (Rice et al. 1989). In this report NHTSA 

assessed the magnitude of injury impact on individuals, government programs, and society at large. 

Conclusions from the report indicate high costs of injury associated with life years lost, medical 

resources, and pain and suffering of injured persons, families, and friends. 

USDA 

To support USDA's efforts to ensure the safety and quality of the US food supply, the 

Economic Research Service (ERS), Food Safety Branch, conducts benefit-cost analyses of various 

USDA regulations. These studies estimate a cost encompassing all adverse health effects associated 

with a particular cause (e.g., costs associated with salmonella, where symptoms include abdominal 

pain, nausea, stomachache, vomiting, cold chills, fever, exhaustion). Depending on the source of the 

health effect, the estimated values may include morbidity values measured using a value of a statistical 

life. In other cases, the ERS analyses estimate morbidity effects associated with certain diseases or 

pathogens using a cost-of-illness approach. 

In a 1996 report, Buzby et al. (1996) estimate the benefits and costs of reducing the presence 

of microbial pathogens from all food sources to avoid foodborne disease. The report applies a costof-illness approach, comprised of lifetime medical costs and lost productivity (e.g., foregone 

earnings). The costs of productivity losses are related to premature mortality and morbidity. The 

report derives a value of a statistical life from Landefeld and Seskin's (1982) human 

capital/willingness-to-pay approach. This analysis reports morbidity and mortality effect estimates 

for six pathogens, each causing several types of adverse health effects. In Food Safety, Buzby and 

6-18
Roberts (1996) update the estimates from this report. In 1997, Crutchfield et al. (1997a) use the 

results from the Buzby and Roberts article to present the benefits and costs associated with reducing 

pathogens from only meat and poultry food sources. 

In 1997, Crutchfield et al. (1997b) estimate the value of reducing nitrates in water. The report 

uses a contingent valuation survey to estimate respondents willingness to pay for a drinking water 

filtration system that could reduce the health effect risks associated with nitrates in water. 

Respondents were told that "nitrates are chemical substances hazardous to human health if taken in 

large quantities"; the survey did not specify actual health effects associated with lower nitrate levels. 

In an earlier effort, Crutchfield et al. (1995) use secondary research to estimate the value of 

groundwater contamination from agricultural chemical runoff. Although this contamination has 

adverse human health risks associated with it, these risks are unspecified in the analysis. 

Consumer Product Safety Commission 

The Consumer Product Safety Commission (CPSC) measures the costs associated with acute 

injuries from unregulated products after 1973 (e.g., homes, schools, recreational areas, all-terrain 

vehicles, furniture, lawnmowers). The Commission collects data on product injury and applies it to 

an injury cost model developed by National Public Services Research Institute (Miller et al., 1989). 

This model, also used by DOT, calculates human capital and quality of life costs. The CPSC has used 

this methodology to assess human health impacts related to specific products. To assess the costs 

associated with environmental sources of impacts, such as asbestos, the CPSC also has relied on a 

cost-of-illness study by Rice et al. (1989). This study assesses the magnitude of injury impact on 

individuals, government programs, and society at large. The CPSC has conducted analyses related 

to effects of benzene, petroleum distillate, and methylene chlorides in specific products. Since the 

focus of CPSC studies is on specific products and not environmental effects, it is difficult for the 

Commission to access relevant health effect analyses resulting specifically from environmental 

conditions. 

6-19
REFERENCES 

This bibliography lists all of the citations for chapters one to six in alphabetical order and also 

lists several relevant citations that are not cited in the text, but that have abstracts in the Annotated 

Bibliography (Appendix A). The articles that have been summarized in the Annotated Bibliography 

have italicized keywords below their citations which correspond to the abstract categories in 

Appendix A. The abbreviations AB, CV, and COI are used for averting behavior, contingent 

valuation, and cost of illness respectively. 

Abdalla, C.W., B.A. Roach, and D.J. Epp. "Valuing Environmental Quality Changes Using Averting 

Expenditures: An Application to Groundwater Contamination." Land Economics 68(2): 163-169. 

May 1992. 

Keywords: applications: AB, CV, COI 

Agee, M.D. and T. D. Crocker. "Parental Altruism and Child Lead Exposure: Inferences from the

Demand for Chelation Therapy." The Journal of Human Resources 31(3): 677-691. Summer 1996.

Keywords: applications: AB, CV, COI

Akerman, J., F.R. Johnson and L. Bergman. "Paying for Safety: Voluntary Reduction of Residential

Radon Risks," Land Economics 67: 435-46. November 1991. 

Keywords: applications: AB, CV, COI

Arthur, W.B. "The Economics of Risks to Life." American Economic Review 71(1): 54-64. March

1981.

Keywords: valuation theory and methods 

Atkinson, S., T. Crocker, and J. Shogren. "Bayesian Exchangeability, Benefit Transfer, and Research

Efficiency." Water Resources Research 28(3): 715-722. March 1992.

Keywords: valuation theory and methods

Baird, S.J., J.T. Cohen, J.D. Graham, A.I. Shlyakhter, and J.S. Evans. "Non-cancer Risk Assessment:

A Probabilistic Alternative to Current Practice." Human and Ecological Risk Assessment 2(1): 79-

102. March 1996.

Keyword: valuation theory and methods 

Bartik, T.J. "The Estimation of Demand Parameters in Hedonic Price Models." Journal of Political

Economy 95(1): 81-88. February 1987.

Keywords: valuation theory and methods

Bartik, T.J. "Evaluating the Benefits of Non-Marginal Reductions in Pollution Using Information on

Defensive Expenditures." Journal of Environmental Economics and Management 15(1): 111-27.

1988. 

Keywords: applications: AB, CV, COI 

R-1
Beggs, S.D. Diverse Risks and the Relative Worth of Government Health and Safety Programs: An 

Experimental Survey. US Environmental Protection Agency, EPA-223-04-85-005. June 1984. 

Bentkover, J.D., V.T. Covello and J. Mumpower. Benefits Assessment: The State of the Art. 

Holland: D. Reidel Publishing Company. 1986. 

Keywords: valuation theory and methods 

Berger, Mark C. et al. "Valuing Changes in Health Risks: A Comparison of Alternative Measures."

The Southern Economic Journal 53: 977-984. 1987.

Keywords: valuation theory and methods

Biddle, J.E. and G.A. Zarkin. "Worker Preferences and Market Compensation for Job Risk." The

Review of Economics and Statistics: 660-667. 1988.

Keywords: valuation theory and methods

Bjornstad, D.J. and J.R. Kahn. The Contingent Valuation of Environmental Resources: 

Methodological Issues and Research Needs. Brookfield, VT: Edward Elgar. 1996. 

Blincoe, Lawrence J. "The Economic Cost of Motor Vehicle Crashes, 1994." Technical Report of 

the National Highway Traffic Safety Administration, Plans and Policy, Washington, DC. 1994. 

Blodgett, J. Health Benefits of Air Pollution Control: A Discussion. CRS Report for Congress. 

Congressional Research Service, The Library of Congress. February 27, 1989. 

Keywords: valuation theory and methods 

Bovbjerg, R.R., F.A. Sloan, A. Dor and C.R. Hsieh. "Juries and Justice: Are Malpractice and Other 

Personal Injuries Created Equal?" Law and Contemporary Problems 54(1): 5-42. Winter 1991. 

Bovbjerg, R.R., F.A. Sloan and J.F. Blumstein. "Public Policy: Valuing Life and Limb in Tort: 

Scheduling 'Pain and Suffering.'" Northwestern University Law Review 83: 908-976. Summer 

1989. 

Braden, J.B. and C.D. Kolstad, eds. Measuring the Demand for Environmental Quality. 

Netherlands: Elsevier Science Publishers BV. 1991. 

Keywords: valuation theory and methods 

Brajer, V., J.V. Hall and R. Rowe. "The Value of Cleaner Air: An Integrated Approach."

Contemporary Policy Issues 9: 81-91. April 1991.

Keywords: general applications

R-2
Brennan, K.M. and R.M. Black III. Methodology for Valuing Health Risks of Ambient Lead 

Exposure. Report to the Ambient Studies Branch, Office of Air Quality Planning and Standards, US 

Environmental Protection Agency. Mathtech, Inc., NJ. December 1987. 

Keywords: regulatory support document 

Bresnahan, B.W. and M. Dickie. "Averting Behavior and Policy Evaluation." Journal of

Environmental Economics and Management 29(3) Part 1: 378-92. November 1995.

Keywords: valuation theory and methods

Bresnahan, B.W., M. Dickie and S. Gerking. "Averting Behavior and Urban Air Pollution." Land

Economics 73(3): 340-357. August 1997.

Keywords: applications: AB, CV, COI

Buzby, J.C. and T. Roberts. "ERS Updates US Foodborne Disease Costs for Seven Pathogens."

Food Safety 19 (3). September-December 1996. 

Buzby, J.C., T. Roberts, C.T. Jordan-Lin, J.M. MacDonald. Bacterial Foodborne Disease: Medical

Costs and Productivity Losses. USDA, ERS, Agricultural Economic Report Number 741. August,

1996.

Cambridge Economics, Inc. Contingent Valuation: A Critical Assessment. Report of a Symposium

sponsored by Exxon Corporation. Cambridge, MA: Cambridge Economics, Inc. April 2 and 3, 1992.

Keywords: valuation theory and methods 

Carson, R.T. and R.C. Mitchell. "Contingent Valuation and the Legal Arena" in Valuing Natural 

Assets: The Economics of Natural Resource Damage Assessment edited by R.J. Kopp and V.K. 

Smith. Washington, DC: Resources for the Future. 1993. 

Centers for Disease Control (CDC). Prevention Effectiveness: A Guide to Decision Analysis and 

Economic Evaluation. Oxford University Press. 1996. 

Centers for Disease Control (CDC). Screening Young Children for Lead Poisoning: Guidance for 

State and Local Health Officials. Atlanta: CDC. 1997. 

Chase, O.G. "Helping Jurors Determine Pain and Suffering Awards." Hofstra Law Review 23: 763-

790. Summer 1995. 

Chestnut, L.G. Human Health Benefits from Sulfate Reductions Under Title 4 of the 1990 Clean 

Air Act Amendments. Final Report to the Office of Air and Radiation, US Environmental Protection 

Agency. 1995. 

Keywords: general applications 

R-3
Chestnut, L.G. et al. Heart Disease Patients' Averting Behavior, Costs of Illness, and Willingness 

to Pay to Avoid Angina Episodes. Final Report to the Office of Policy Analysis, US Environmental 

Protection Agency. October 1988. 

Keywords: applications: AB, CV, COI 

Chestnut, L.G. and D.M. Violette. Estimates of Willingness to Pay for Pollution-Induced Changes 

in Morbidity: A Critique for Benefit-Cost Analysis of Pollution Regulation. Report to the Office 

of Policy Analysis, US Environmental Protection Agency. September 1984. 

Keyword: applications: AB, CV, COI 

Chestnut, L.G. and D.M. Violette. The Relevance of Willingness-to-Pay Estimates of the Value of 

a Statistical Life in Determining Wrongful Death Awards. US Environmental Protection Agency 

230-07-90-079. June 1990. 

Chestnut, L.G. and D.M. Violette. Valuing Risks: New Information on the Willingness to Pay for

Changes in Fatal Risks. prepared for the Office of Policy, Planning and Evaluation,

US Environmental Protection Agency. 1989.

Chestnut, L.G., L.R. Keller, W.E. Lambert, and R.D. Rowe. "Measuring Heart Patients' Willingness

to Pay for Changes in Angina Symptoms." Medical Decision Making 16: 65-77. 1996.

Keywords: applications: AB, CV, COI

Cifuentes, L.A. and L.B. Lave. "Economic Valuation of Air Pollution Abatement: Benefits from

Health Effects." Annual Review of Energy and the Environment 18: 319-342. 1993.

Keywords: general applications

Ciracy-Wantrup, S.V. "Capital Returns from Soil-Conservation Practices." Journal of Farm

Economics 29: 1181-1196. 1947.

Keywords: applications: AB, CV, COI

Cohen, M.A. "Pain, Suffering and Jury Awards: A Study of the Cost of Crime to Victims." Law and

Society Review 22: 537-555. 1988.

Colditz, G.A. "Economic Costs of Obesity." American Journal of Clinical Nutrition 55: 503S507S. 1992.

Keywords: applications: AB, CV, COI 

Conley, B.C. "The Value of Human Life in the Demand for Safety." The American Economic

Review 66(1): 45-55. March 1976.

Keywords: valuation theory and methods

R-4
Cooper, B.S. and D.P. Rice, "The Economic Cost of Illness Revisited." Social Security Bulletin: 21-

36. February 1976. 

Keywords: applications: AB, CV, COI

Courant, P.N. and R.C. Porter. "Averting Expenditure and the Cost of Pollution." Journal of

Environmental Economics and Management 8(4): 321-329. December 1981.

Keywords: valuation theory and methods

Croley, S.P. and J.D. Hanson. "The Nonpecuniary Costs of Accidents: Pain and Suffering Damages

in Tort Law." Harvard Law Review 108: 1785-1917. June 1995.

Cropper, M.L. "Measuring the Benefits from Reduced Morbidity." American Economic Association

Papers and Proceedings 71(2): 235-240. May 1981. 

Keywords: valuation theory and methods

Cropper, M.L. Outline: Benefits Estimation Seminars: Valuing the Health Impacts of Water

Pollution. January 23, 1996.

Keywords: valuation theory and methods

Cropper, M.L., and A.M. Freeman III. "Environmental Health Effects." Measuring the Demand for 

Environmental Quality. J.B. Braden and C.D. Kolstad (ed.) North-Holland, New York. 1991. 

Keywords: valuation theory and methods 

Cropper, M.L. and A.M. Freeman III. Valuing Environmental Health Effects. Washington, DC: 

Resources for the Future. March 1990. 

Keywords: valuation theory and methods 

Cropper, M.L. and A.M. Freeman III. Estimating Individuals' Values for Health Benefits. CRS 

Report for Congress. Congress Research Service, The Library of Congress. January 1, 1989. 

Keywords: valuation theory and methods 

Cropper, M.L. and A.J. Krupnick. The Social Costs of Chronic Heart and Lung Disease. Resources 

for the Future, Washington, DC. June 1990. 

Keywords: applications: AB, CV, COI 

Cropper, M.L. and F.G. Sussman. "Valuing Future Risks to Life." Journal of Environmental

Economics and Management 19(3): 160-174. September 1990.

Keywords: valuation theory and methods

Cropper, M.L., S. Ayded, and P. Portney. Public Preference for Life Saving. Resources for the

Future, Washington, DC. May 1992.

Keywords: applications: AB, CV, COI 

R-5
Crutchfield, S., J.C. Cooper, D. Hellerstein. Benefits of Safer Drinking Water: The Value of Nitrate 

Reduction. USDA, ERS, Agricultural Economic Report Number 752. June 1997b. 

Crutchfield, S.R., P.M. Feather, D.R. Hellerstein. The Benefits of Protecting Rural Water Quality: 

An Empirical Analysis. USDA, ERS, Agricultural Economic Report Number 701. January 1995. 

Crutchfield, S., J.C. Buzby, T. Roberts, M. Ollinger, C.-T. Jordan-Lin. An Economic Assessment of 

Food Safety Regulations: The New Approach to Meat and Poultry Inspection. USDA, ERS, 

Agricultural Economic Report Number 755. July 1997a. 

Cummings, R.G., D.S. Brookshire, and W.D. Schulze, eds. Valuing Environmental Goods: An 

Assessment of the Contingent Valuation Method. New Jersey: Rowman and Allanheld. 1986. 

Keywords: valuation theory and methods 

Danzon, P.M. and Lillard. "Settlement Out of Court: The Disposition of Medical Malpractice 

Claims." Journal of Legal Studies 12: 345-357. 1983. 

Dardis, R. "The Value of Life: New Evidence From the Marketplace." The American Economic 

Review 70(5): 1077-1082. December 1980. 

Davis, R.K. The Value of Outdoor Recreation: An Economic Study of the Maine Woods. Ph.D. 

Dissertation. Harvard University, Cambridge, MA. 1963. 

Keywords: applications: AB, CV, COI 

Department of Health and Human Services, Food and Drug Administration. "Regulations Restricting 

the Sale and Distribution of Cigarettes and Smokeless Tobacco to Protect Children and Adolescents, 

Final Rule." 61 FR 44395. August 28, 1996. 

Keywords: regulatory support document

Desvousges, William H. et al. Environmental Policy Analysis with Limited Information: Principles

and Applications of the Transfer Method. Edward Elgar: UK. 1998.

Keywords: benefits transfer

Desvousges, W.H., F.R. Johnson, and H.S. Banzhaf. Assessing Environmental Externality Costs for

Electricity Generation. Prepared for Northern States Power Company by Triangle Economic

Research. December 1994.

Keywords: general applications

Diamond, P.A. and Hausman, J.A. "Contingent Valuation: Is Some Number Better Than No

Number?" Journal of Economic Perspectives 8(4): 45-64. Fall 1994.

Keywords: valuation theory and methods

R-6
Dickie, M. and S. Gerking. "Valuing Reduced Morbidity: A Household Production Approach."

Southern Economic Journal 57(3): 690-702. 1991a.

Keywords: valuation theory and methods

Dickie, M. and S. Gerking. "Willingness to Pay for Ozone Control: Inferences from the Demand for

Medical Care." Journal of Environmental Economics and Management 21(1): 1-16. July 1991b.

Keywords: general applications

Dickie, M., S. Gerking, W. Schulze, A. Coulson, and D. Tashkin. Improving Accuracy and Reducing

Costs of Environmental Benefit Assessments: Value of Symptoms of Ozone Exposure: An

Application of the Averting-Behavior Method. Draft Report to the Office of Policy, Planning and

Evaluation, US Environmental Protection Agency. September 1986.

Keywords: applications: AB, CV, COI 

Dickie, M., S. Gerking, D. Brookshire, D. Coursey, W. Schulze, A. Coulson, and D. Tashkin. 

Improving Accuracy and Reducing Costs of Environmental Benefit Assessments: Reconciling 

Averting Behavior and Contingent Valuation Benefit Estimates of Reducing Symptoms of Ozone 

Exposure. Draft Report to the Office of Policy, Planning and Evaluation, US Environmental 

Protection Agency. September 1987. 

Keywords: applications: AB, CV, COI 

Dolan, P., C. Gudex, P. Kind, A. Williams. "Valuing Health States: A Comparison of Methods."

Journal of Health Economics 15: 209-231. 1996.

Keywords: valuation theory and methods

Dor, A, P.J. Held, and M.V. Pauly. "The Medicare Costs of Renal Dialysis - Evidence from a

Statistical Cost Function." Medical Care 30(10): 879-891. 1992.

Keywords: applications: AB, CV, COI

Doyle, J.K., G.H. Mclelland, W.D. Schulze, S.R. Elliott and G.W. Russell. "Protective Responses

to Household Risk: A Case Study of Radon Mitigation." Risk Analysis. 11(1): 121-134. March 1991.

Keywords: applications: AB, CV, COI

Elixhauser, A., R.M. Andrews, and S. Fox. Clinical Classifications for Health Policy Research:

Discharge Statistics By Principle Diagnosis and Procedure. Agency for Health Care Policy and

Research (AHCPR), Center For General Health Services Intramural Research, US Department of

Health and Human Services.1994.

Epple, D. "Hedonic Prices and Implicit Markets: Estimating Demand and Supply Functions for

Differentiated Products." Journal of Political Economy 95(1): 59-80. 1987. 

Keywords: valuation theory and methods

R-7
Evans, R.W. et al. "The Quality of Life of Patients with End-Stage Renal Disease." New England

Journal of Medicine 312(9): 553-559. February 1985.

Keywords: general applications

Evans, W.N. and W.K. Viscusi. "Estimation of State-Dependent Utility Functions Using Survey

Data." The Review of Economics and Statistics: 94-104. 1991.

Keywords: valuation theory and methods

Federal Highway Administration (FHWA). "Alternative Approaches to Accident Cost Concepts."

Report No. FHWA-RD-83-079. Federal Highway Administration, Washington, DC. January 1984.

Fisher, W.L., L. Chestnut, and D.M. Violette. "The Value of Reducing Risks of Death: A Note on

New Evidence." Journal of Policy Analysis and Management 8(1): 88-100. 1989.

Keywords: valuation theory and methods

Fischoff, B. et al. "How Safe is Safe Enough? A Psychometric Study of Attitudes Towards

Technological Risks and Benefits." Policy Sciences 9: 127-152. 1978.

Fisher, A., L.G. Chestnut, and D.M. Violette. "The Value of Reducing Risks of Death: A Note on

New Evidence." Journal of Policy Analysis and Management 8(1): 88-100. Winter 1989.

Keywords: valuation of mortality risk

Freeman, A.M. III. "Ex Ante and Ex Post Values for Changes in Risks." Risk Analysis 9(3): 309-

317. 1989. 

Keywords: valuation theory and methods 

Freeman, A.M. III. The Measurement of Environmental and Resource Values: Theory and Methods. 

Washington, DC: Resources for the Future. 1993. 

Keywords: valuation theory and methods 

Freeman, A.M. III. "Supply Uncertainty, Option Price, and Option Value." Land Economics 61(2): 

176-181. May 1985. 

Keywords: valuation theory and methods 

French, M.T. and J.A. Mauskopf. "A Quality-of-Life Method for Estimating the Value of Avoided

Morbidity." American Journal of Public Health 82(11): 1553-1555. November 1992.

Keywords: valuation theory and methods

French, M.T., J.A. Mauskopf, J.L. Teague, E.J. Roland. "Estimating the Dollar Value of Health

Outcomes from Drug-Abuse Interventions." Medical Care 34(9): 890-910. 1996.

Keywords: valuation theory and methods

R-8
Furby, L. and B. Fischhoff. Specifying Subjective Evaluations: A Critique of Dickie et al.'s 

Interpretation of their Contingent Valuation Results for Reduced Minor Health Symptoms. Report 

to the Office of Policy, Planning, and Evaluation, US Environmental Protection Agency. Eugene 

Research Institute, OR. June 1988. 

Keywords: valuation theory and methods 

Garner, T.I. Economic Analysis of End-Stage Renal Disease Treatments. Dissertation, University 

of Maryland. Volume 46/01-A of Dissertation Abstracts International: 210. 1984. 

Keywords: applications: AB, CV, COI 

Garner, T.I. and R. Dardis. "Cost-Effectiveness Analysis of End-Stage Renal Disease Treatments."

Medical Care 1: 25-34. Janurary 1987.

Keywords: applications: AB, CV, COI

Geistfeld, M. "Placing a price on pain and suffering: A Method for Helping Juries Determine Tort

Damages for Nonmonetary Injuries." California Law Review 83: 773-851. May 1985.

Gerking, S. and L.R. Stanley. "An Economic Analysis of Air Pollution and Health: The Case of St.

Louis." The Review of Economics and Statistics 68(1): 115-121. February 1986.

Keywords: valuation theory and methods

Green, A. et al. An Interdisciplinary Study of the Health, Social and Environmental Economics of

Sulfur Oxide Pollution in Florida. Report to the Florida Sulfur Oxides Study Inc. Interdisciplinary

Center for Aeronomy and Atmospheric Sciences, University of Florida, Gainesville, FL. February

1978.

Keywords: general applications 

Grossman, C., W. Morton, and R. Nussbaum. "Hypothyroidism and Spontaneous Abortions Among 

Hanford, Washington Downwinders." Archives of Environmental Health 51(3): 175-176. May/June 

1996. 

Gudex, C.M. "Health-Related Quality-of-Life in End-Stage Renal-Failure." Quality of Life Research 

4(4): 359-366. 1995. 

Keywords: general applications 

Hall, J.V. et al. Economic Assessment of the Health Benefits from Improvements in Air Quality in 

the South Coast Air Basin. Final Report to the South Coast Air Quality Management District. 

California State University Fullerton Foundation, CA. June 1989. 

Keywords: applications 

Hammitt, J.K. Automobile Accident Compensation, Volume II: Payments by Auto Insurers. Santa 

Monica, California: The Rand Corporation. 1985. 

R-9
Hanemann, W.M. "Valuing the Environment through Contingent Valuation." Journal of Economic

Perspectives 8(4): 19-43. Fall 1994.

Keywords: valuation theory and methods

Hanley, N. and C. Spash. Cost-Benefit Analysis and the Environment. Brookfield, VT: Edward

Elgar Publishing. 1993.

Keywords: valuation theory and methods 

Harrington, W., and P.R. Portney. "Valuing the Benefits of Health and Safety Regulation." Journal

of Urban Economics 22: 101-112. 1987.

Keywords: valuation theory and methods

Harrington, W., A.J. Krupnick and W.O. Spofford, Jr. "The Economic Losses of a Waterborne

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Ivanov, V.K., and A.F. Tsyb, "Chernobyl Radiation Risks: Assessments of Morbidity, Mortality, and 

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Jones-Lee, M.W., M. Hammerton, and P.R. Phillips. "The Value of Safety: Results of a National

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Kopp, R.J. "Why Existence Value Should be Used in Cost-Benefit Analysis." Journal of Policy

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Krupnick, A.J. and M.L. Cropper. "The Effect of Information on Health Risk Valuations." Journal

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Krupnick, A.J. and M.L. Cropper. Valuing Chronic Morbidity Damages: Medical Costs, Labor

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Krupnick, A.J. and R.J. Kopp. The Health and Agricultural Benefits of Reductions in Ambient 

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Link, A.N. Evaluating Economic Damages: A Handbook for Attorneys. Westport, Conn: Quorum 

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McDonnell, W.F., K.E. Muller, P.A. Bromberg, and C.M. Shy. "Predictors of Individual Differences 

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Miller, T.R. "Willingness-to-Pay Comes of Age: Will the System Survive?" Northwestern University

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Miller, T.R., C.P. Brinkman, and S. Luchter. "Crash Costs and Safety Investment." Proceedings of

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Miller, T.R., S. Luchter, and C. P. Brinkman. "Crash Costs and Safety Investment." Accident

Analysis and Prevention 21(4): 303-315. 1989. 

Mishan, Edward J. Cost-Benefit Analysis. Fourth Edition. New York: Praeger. 1988.

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Mitchell, R. and R.T. Carson. Using Surveys to Value Public Goods: The Contingent Valuation

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Morgan, M.G. and M. Henrion. Uncertainty, A Guide to Dealing with Uncertainty in Quantitative

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National Center for Health Statistics (NCHS). Current Estimates from the National Health Interview

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National Institutes of Health (NIH). National Heart, Lung, and Blood Institute. National Asthma 

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National Oceanic and Atmospheric Administration (NOAA). Natural ResourceDamage Assessments

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National Research Council (NRC). Health Effects of Exposure to Low Levels of Ionizing Radiation 

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Ostro, B., J.M. Sanchez, C.A. and G.S. Eskeland. Air Pollution and Mortality: Results from 

Santiago, Chile. The World Bank. 1995. 

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Pfennigstorf, W. and D.G. Gifford. A Comparative Study of Liability Law and Compensation 

Schemes in Ten Countries and the United States. Oak Brook, Illinois: Insurance Research Council. 

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Priest, G.L. and B. Klein. "The Selection of Disputes for Litigation." Journal of Legal Studies 13:

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Reinert, J.C., S.G. Slotnick and D.J. Viviani. "A Discussion of the Methodologies Used in Pesticide

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Keywords: applications: AB, CV, COI 

Rice, D.P., E. MacKenzie and Associates. "Cost of Injury in the United States: A Report to

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Rice, D.P., T.A. Hodgson and A.N. Kopstein. "The Economic Cost of Illness: A Replication and

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Rodgers, G.B. "Estimating Jury Compensation for Pain and Suffering in Product Liability Cases

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Rowe, R.D. et al. Benefits of Air Pollution Control in California. Volume 2. Report to the 

California State Air Resources Board. Energy and Resource Consultants, Inc., Boulder, CO. 

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Rowe, R.D. and L.G. Chestnut. Oxidants and Asthmatics in Los Angeles: A Benefits Analysis. 

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Rowe, R.D. and L.G. Chestnut. Valuing Changes in Morbidity: WTP Versus COI Measures. 

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Sargeant, K.A. Health Benefits Assessment in EPA and Other Federal Agencies. Report to 

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Schwab C., N.G. Christie and N.C. Soguel. "The Pain of Rode Accident Victims and the 

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Showstack, J. Service Use and Cost Associated with Kidney Transplant. Report to the Agency for 

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Smith, D.H., D.C. Malone, K.A. Lawson, L.J. Okamoto, C. Battista, and W.B. Saunders. "A

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Smith, V.K. "On Separating Defensible Benefit Transfers from 'Smoke and Mirrors.'" Water

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Smith, V.K. "Pricing What Is Priceless: A Status Report on Non-Market Valuation of Environmental

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Smith, V.K., and W.H. Desvousges. "An Empirical Analysis of the Economic Value of Risk

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Keywords: application: CV

Smith, V.K. and W.H. Desvousges. "The Generalized Travel Cost Model and Water Quality

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Keywords: valuation theory and methods

Smith, V.K., W.H. Desvousges, J.W., Payne. "Do Risk Information Programs Promote Mitigating

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Keywords: applications: AB, CV, COI

Snell, E.W., R.E. Unsworth, and M. Dickie. The Applicability of Benefits Transfer Approach to

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Keywords: applications: AB, CV, COI

Taylor, D.C. "Your Money or Your Life? Thinking About the Use of Willingness-to-Pay Studies

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Taylor, T.N., P.H. Davis, J.C. Torner, J. Holmes, J.W. Meyer, and M.F. Jacobson. "Lifetime Cost

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Tolley, G., et al. Valuation of Reductions in Human Health Symptoms and Risks. Volumes 1-4.

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Keywords: valuation theory and methods 

Tolley, G., D. Kenkel, R. Fabian, eds. Valuing Health for Policy: An Economic Approach. Chicago: 

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Keywords: valuation theory and methods 

The Urban Institute. "The Costs of Highway Crashes." Federal Highway Administration Research 

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US Department of Commerce (USDOC). Economics and Statistics Administration. Statistical 

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US Environmental Protection Agency. The Benefits and Costs of the Clean Air Act, 1970 to 1990. 

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Keywords: regulatory support document 

US Environmental Protection Agency. The Children's Health Valuation Handbook. Prepared for 

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Keywords: valuation theory and methods 

US Environmental Protection Agency. Cost of Illness Handbook, Prepared for Office of Pollution 

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Keywords: applications: AB, CV, COI 

US Environmental Protection Agency. Costs and Benefits of Reducing Lead in Gasoline: Final 

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US Environmental Protection Agency. Estimating and Valuing Morbidity in a Policy Context: 

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US Environmental Protection Agency. Guidelines for Preparing Economic Analysis. Final Draft. 

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US Environmental Protection Agency. The Medical Costs of Five Illnesses Related to Exposure to 

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Keywords: applications: AB, CV, COI

US Environmental Protection Agency. National Primary Drinking Water Regulations, Contaminant

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US Environmental Protection Agency. Regulatory Impact Analysis: Benefits and Costs of Final

Surface Water Treatment Rule. Office of Drinking Water, Washington, DC. February 1989.

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US Environmental Protection Agency. Regulatory Impact Analysis: Benefits and Costs of Proposed

National Primary Drinking Water Regulations for Inorganic Chemicals. Office of Drinking Water,

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US Environmental Protection Agency. Regulatory Impact Analysis for the Proposed Rulemaking 

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US Environmental Protection Agency. Regulatory Impact Analysis: Protection of Stratospheric 

Ozone. Volumes 1-2. Stratospheric Protection Program, Office of Program Development, Office 

of Air and Radiation, Washington, DC. December 1987. 

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US Environmental Protection Agency. Review of the National Ambient Air Quality Standards for 

Ozone: Assessment of Scientific and Technical Information. Air Quality Management Division, 

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US Environmental Protection Agency. Risk Assessment Guidance for Superfund Volume I: Human 

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US Environmental Protection Agency. The Use of the Benchmark Dose Approach in Health Risk 

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US Environmental Protection Agency and Science Advisory Board. Superfund Site Health Risk

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Assessment Guidance for Superfund Human Health Evaluation Manual by the Environmental

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US Renal Data System (USRDS). US Renal Data System: 1995 Annual Data Report. Report to

the National Institute of Diabetes and Digestive and Kidney Diseases, National Institutes of Health,

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Keywords: applications: AB, CV, COI

Viscusi, W.K. Fatal Tradeoffs: Public and Private Responsibilities for Risk. New York: Oxford

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Keywords: valuation of mortality risk

Viscusi, W.K. "Pain and Suffering in Product Liability Cases: Systematic Compensation or 

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Viscusi, W.K. "The Value of Risks to Life and Health." Journal of Economic Literature 31: 1912-

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Viscusi, W.K., and W. Evans. "Utility Functions that Depend on Health Status: Estimates and

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Viscusi, W.K. and M.J. Moore. "Rates of Time Preference and Valuations of the Duration of Life."

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Keywords: valuation theory and methods

Viscusi, W.K., W.A. Magat and A. Forrest. "Altruistic and Private Valuations of Risk Reduction."

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Keywords: application, CV

Viscusi, W.K., W.A. Magat and J. Huber. "An Investigation of the Rationality of Consumer

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Viscusi, W.K., W. Magat and J. Huber. "Pricing Environmental Health Risks: Survey Assessments

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Waitzman, N.J. and R.M. Scheffler and P.S. Romano. The Costs of Birth Defects. Lanham,

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Keywords: applications: AB, CV, COI 

Weinstein, M.C. and R.J. Quinn. Psychological Considerations in Valuing Health Risk Reductions. 

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Keywords: valuation theory and methods 

Weiss, K.B., P.J. Gergen, and T.A. Hodgson. "An Economic Evaluation of Asthma in the United 

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Keywords: applications: AB, CV, COI 

Weitzel, D.L. Economic Valuation of Environmental Health Benefits: A Review of the Literature. 

Report to the Washington State Department of Ecology. National Economic Research Associates, 

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Keywords: applications: AB, CV, COI 

Wittels, E., J.W. Hay and A.M. Gotto, Jr. "Medical Costs of Coronary Artery Disease in the United

States." The American Journal of Cardiology 65: 432-440. February 1990.

Keywords: applications: AB, CV, COI

Zeckhauser, R. "The Economics of Catastrophes." Journal of Risk and Uncertainty 12: 2-3. 1996. 

Keywords: valuation theory and methods 

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