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 2000ACKNOWLEDGMENTS

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

Ana lytical and preparatory support was provided by Industrial Economics Incorporated, 206 7 Massachusetts Avenue, Cambridge, Massachusetts.EXECUTIVE SUMMARY

This handbook provides an introductory survey of the theory, techniques, and existin g 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 staf f involved in preparing and presenting policy analyses; provide a means to facilitate consistency in th e use of the existing literature on non-cancer valuation across the Agency; and present a set of “off-the

shelf” approaches and suggestions on the use of these approaches for analyses of environmenta l health risk reduction. In addition, this handbook presents some of t he 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 t he economic benefits of a policy to the costs of that policy. In the pollution contro l context, these cost-benefit analyses, which include regulatory impact analyses required for major rule s under Executive Order 12866, may be used to rank regulatory o ptions, to inform decisions that rely on an economic justification, or even to evaluate entire programs. Proper evaluati on 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 h er health status, and other characteristics of his or her environment. Typically, dolla r 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 a n individual would voluntarily pay to obtain an improvement (or to avoid a decrement) in health. WT A is the smallest amount of money the individual would voluntaril y accept as compensation to forego an imp rovement (or to endure a decrement) in health. This handbook focuses on WTP, mainl y because WTP is often less problematic to measure and quantify and, as a result, is the term used mos t commonly in the economic valuation literature.
Measurin g WTP for health presents several problems to the analyst. First, whe n environmental quality improves, there are several health-related impacts on well-being (e.g., medica l costs, indi rect costs such as lost wages, pain and suffering). It is easy to overlook one or more o f these, resulting inan underestimate of the value of health. A second issue is that the health of one person mayaffect the well-being of another (e.g., the case of parents ill health affecting thei r children), suggesting that the focus on each individual's WTP for his own hea lth may be too narrow insome cases. Third, health effects of exposure to environmental contamination may be immediat e 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-1PRIMARY METHODS OF MORBIDITY VALUATION
Resear chers have used a wide range of approaches to value environmental health effects

. Several available methods measure the theoretically preferred value of individual willingnes s 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 whichvaluation is measured (e.g., before or after the incidence of morbidity), and the degree to whic h 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 welfareassociated with the incidence of one case of a health effect is comprised of four elements: th e cost of treatment, the loss of output associated with the reduction in work activity in the labo r mark et, the loss of value of non-market activities, and individual’s pain and suffering. When th e individual who suffers the disease bears the whole cost burden, the value of environmental morbidity is the indi vidual’s maximum WTP to avoid the disease, equal to the monetized value of the fou r components. In the absence of sick pay, medical insurance, and/or charity, the value of environmenta l morbidity is the sum of the WTP to avoid the costs borne by the individual and costs borne by th ird parties (e.g., insurance companies).
Threemethods are used most often to value environmental morbidity. The first is the cost-of

illness (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 directl y measures values using observed behavior and is most prevalent in the medical econo mics 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 mos t commonly used stated preference method) measures respondents' WTP for hypothetical health improvements. The averting behavior method (a revealed preference metho d) estimates WTP from observed be havioral responses to real situations. This method infers WTP from the cost an d effectiveness of actions taken to defend against illness. See Exhibit ES-1 for a summary of the thre e most common environmental morbidity valuation methods

. Several other methods have been used less frequently to value environmental morbidity, including hedonic methods, and several othe r methods that, similar to the cost-of-illness method, do not measure WTP: risk-risk tradeoffs an d health-stat e 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 healt h effects.

ES-2Exhibit 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 quantif y 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 provi de 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 valu e 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 lo w, particularly if the effect clearly results in some pain or other impairment of activity.

ES-3VALUING NON-CANCER HEALTH EFFECTS USING BENEFITS TRANSFER
Benefit s transfer is an alternative to primary research that can be used to develop benefit s 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 polic y. The techniques of benefits transfer h ave been used for many years to evaluate public policy options and to assess natura l res ource damages. Benefits transfer often is used when insufficient time or money is available t o gather the primary data required for a new valuation study.
The benefits transfer technique involves a four step process. The first s tep is to describe the policy case. In this step, the analyst describes in detai l 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 discussion s withresearchers in the field. The third step is to evaluate the suitability of existing studies for benefit s transfer. This step concerns assessing the quality and applicability of identified studies. The fourth step is to transfer the benefit estimates.
Thereare advantages and disadvantages to using the benefits transfer technique compared t o primary research. On the one hand, primary research is costly an d time-consuming, and in advance of

conducting the research there is no guarantee of success. Benefits transfers usually can b e conducted much more quickly and at lower cost using studies whose quality can be assessed i n advance. Also, when several relevant studies are available, combining them may to some exten t mitigat e problems or errors specific to any one study. On the other hand, the resulting benefit s transfer estimates are unlikely to be as accurate or precise as estimates from primary research tailore d specifically to the new policy issue. 1 Previous analyses suggest benefits transfers should be conducte d and inter preted with careful consideration of potential sources of inaccuracy or imprecision. A n additional problem specific to morbidity valuation is that the number of health effects for which WT P 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 o f existin g studies, and (2) their applicability to the new policy situation. Applicability refers to th e match betwee n the study case, or the situation examined in the original study, and the policy case , or the situation relevant to the new poli cy. Key elements of this match include the correspondence betweenthe "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 af fected by the policy. As discussed in this handbook, the value of avoiding a health effect depends o n characteri stics of the effect, such as severity and duration, as well as on characteristics of th e

1 See Chapter 4, Deciding Whether to Conduct a Benefits Transfer, for further discussion of this topic. ES-4population affected, such as income or baseline heal th status. Ideally, the analyst would prefer that the health e ffects 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 effect s 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 apply ing the relevant economic literature is not always straightforward. For example, values fo r individual health effects are not always available, or existing dose-response relationships may addres s slightly different health effects than the economics literature.
There are many reasons to exercise caution in the a pplication 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 relativel y easily, but the pain and suffering component is not captured, and the pain and suffering component canbe a major factor in valuation of some chronic effects. Although everyone would no doubt agre e that some illnesses hurt more than others, there is no acc epted scale to measure the quantity of pain or suffering. This immeasurability complicates valuation, but monetization of pain and sufferin g would remain difficult and controversial even if the amount pain could be quantified. This handboo k evaluates alternative strategies for monetizing pain and suffering, including ben efits-transfers based onexisting information on the economic value of avoided pain and suffering and primary research t o monetize pain and suffering directly.
In the second sit uation, existing WTP values are poorly matched to the effect of concern -- this can lead to issues of double-counting and increased unc ertainty in benefits transfers. There are several important factor s associated with the transfer of existing economic values for use in policy an alyses that could cause the aggregate benefits estimate to differ from the "true" value. In mos t cases, simplistic assumptions about the additivity of the values for component parts of health effect s 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 thes e two symptoms separately. On the other hand, WTP estimates may understate the true value. In general, the details of a specific benefit s transf er 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 awar e of the potential influence of these factors on the overall benefits estimates, c ollect information from the relevant health effects and economics literature that are being considered as the basis for benefit s estimatio n, and carefully consider the uncertainties in valuation for individual health effects o f concern. In th e third situation, the health effect itself is poorly characterized in the relevant health sci ence literature. In this situation, there are steps that an analyst can take to frame the potentia l value of non-cancer risks associated with a specific contaminant exposure. First, one can identify th e

ES-5critical 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 n eeded, additional information can be obtained by reviewing the health effects studies c ited 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, b y looking at the population that is subject to do ses 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 a n estima te of the probability that people exposed at this level will contract the effect, arraying th e available information in this manner provides helpful insight into the potential value of avoiding th e effects. Furthermore, this type of analysis can suggest whether additional investigation of the healt h 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-c ancer health effects valuation, as well as some insight into the major issues that could b e 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 availabl e for use by risk assessors to characterize the types of health effects that are associated with preventio n of

contaminant exposures. A basic knowledge of the methods of risk assessment and the underlyin g studies that characterize heal th effects is helpful to the economist or benefits analyst in conducting non-can cer health effects analyses. In addition, several useful sources of information on existin g 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 Federa l 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 provide s a comprehensive annotated bibliography of articles relevant to non-cancer health valuation. Th e abstracts provide a concise description of each article and are organized into the following categories : ! Valuation Theory and Methods ! General Applications ! Com monly Applied Methods of Averting Behavior, Contingent Valuation, and/o r 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-cance r valuation for specific health effects. The case studies address effects that are likely to be o f continuing interest to EPA analysts in future policy development. The six effects are: lung function ; repro ductive 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 o f effects.

ES-7TABLE 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

iTABLE 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

iiINTRODUCTION CHAPTER 1

This document provides an introductory survey of the theory, techniques, and existin g literature pertaining to economic valuation of non-cancer health effects. The goals of this handbo ok are as follows: ! Improv e the understanding of non-cancer valuation methods and thei r applica tion among EPA staff involved in preparing and presenting polic y 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 an d sug gestions on the use of these approaches for application in analyses o f environmental health risk reduction.
Several steps were taken to ensure that the information contained in this handbook is helpfu l to a diverse audience and applicable for a wide variety of uses. First, the exposition is geared towar d a non-techni cal audience and is deliberately kept brief. Readers with little or no familiarity with environmen tal and health economics should be able to comprehend and interpret the informatio n presented. Second, major uncertainties and limitations associated with the commonly used method s and t he existing literature are carefully explained. Consideration and appropriate presentation o f uncertainties is critical in conducting valuation analyses. Third, the handbook includes an extensiv e annotated bibliography as well as several suggestions for further reading focusing on those area s 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 summarize s the major primary research techniques that are commonl y used for health risk valuation. Chapter 4 covers methods for applying existing primary research through a process known as “benefit s transfer.” Chapter 5 explores several issues in the application of these values in benefits analyses an d suggests strategies for addressing these issues.

1-1These four chapters are designed to provide an int roduction to the methods commonly used for economic valuation of non-cancer health effects, as well as some of th e main challenges, issues, and uncertainties associated with these methods. The focus of these chapters and this handbook is onvaluation techniques to estimate health-related benefits. However, it is important to acknowledg e that within the Agency, non- quantifiable effects also provide important information in the benefits analy sis. While this handbook does not specifically discuss methods for reflecting these types o f effects in benefits analysis, a thorough economic assessment of non-cancer health effects shoul d include a description of these qualitative benefits. Chapter 6 provides information to help the benefits analyst get started. The chapter provide s references to a wide ran ge of existing health and economic literature. This chapter should provide the reader with an understanding of the types of healt h effects that have been addressed in previous health and economic research, the results of that resea rch (including specific references to previous app lications 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-cance r health effect valuation. Appendix C includes six case studies of non-cancer valuation for specific health effects. Th e case studies address effects that are likely to be of continuing interest to EPA analysts in future polic y development. The six effects are: lung function; reproductive effects associated with endocrin e disruption; developmental effects associated with endocrine disruption; childhood asthma; childhoo d 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 t o characterize the benefits of avoiding these types of effects.
This handb ook should provide a useful starting point for developing economic benefi t assessments of policies that mitigate non-cancer human health effects, and will hopefully facilitate efforts among EPA program offices to improve the cons istency, quality, and comprehensiveness of policyanal yses. Many of the techniques and approaches discussed in this handbook apply to an y adverse heal th effect, however, the focus of this handbook is on non-cancer health effects. Tw o important categories of effects excluded from this handbook are f atal and cancer risks. While most EPA program offices have developed strategies for valuation of these types of effects (see th e recently updated Agency Guidelines, USEPA, 1999), this handbook is m eant to fill a perceived gap in developing strategies for benefits analysis involving non-cancer health effects.

1-2THEORETICAL BASIS OF HEALTH EFFECTS VALUATION CHAPTER 2

This chapter surveys the economic theory which supports non-cancer and other human healt h effect s valuation. The chapter has four main sections: (1) An overview of the context in whic h economic v aluation enters policy analysis; (2) An explanation of valuation theory outlining th e assumptions and reasoning behind the measurement of economic value, and discussi ng valuation of market goods; (3) An introduction to health effects valuation highlighting special issues arising whe n applyingthe theory to human health; and (4) A summary reviewing key points and providing a guid e to further reading.

Exhibit 2-1

Health Risk Valuation Economic Theory Environmental Policy Analysis and Evaluation

2-1As illustrated in Exhibit 2-1 above, this handbook reviews topics that arise in the intersectio n of environmental policy analysis and economic theory that are relevant to health risk valuation. Th e document does not fully explore either environmental policy analysis or economic theory. For mor e informationon environmental policy and the use of applied economics at EPA, see EPA's Guideline s for Preparing Economic Analysis (US EPA, 2000a).

ECONOMIC VALUATION AND POLICY ANALYSIS
To survey the the ory of health effects valuation, it is useful first to consider how economic value estimates can inform policy decisions. Most often, the reason for estimating ec onomic 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 impac t analyses required for major rules under Executive Order 12866, may be used to rank regulator y opt ions, to inform decisions that rely on an economic justification, or even to evaluate entir e programs. Benefit-cost analysis examines public policy actions in terms of the impact on the well-bein g 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 regula tion 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 b y redistributing resources (that is, changes in equity); causing society to incur costs for administering the regulation. While this approach may no t always result in an optimal level of regulation (i.e., it achieves the best possible outcome at the lowes t cost), a properly conducted benefit-cost analy sis that considers all societal costs and benefits of the actionimplies that benefits could be redistributed so that no one is harmed. Those people bearing th e costs can, in principle at least, be compensated fully with the net benefit remaining ( surplus of benefit s over costs). Further redistribution of the surplus would allow everyone to gain from the policy. If societ al costs exceed societal benefits, on the other hand, there is no way to implement the polic y without harming someone.
For example, suppose a policy would require installation and operation of pollution control equip ment costing firms $1 million, while reducing asthma attacks among nearby residents. I n addition, suppose that the law requires that firms operate their plants in a mann er that prevents such health effects from occurring. If each of three thousand asthmatics would be willing to accept no les s than $1,000 in compensation for incurring the health decrement (or forego the improvement), then the total economic benef it 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 b e without. If the pol icy 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 cost s

2-2of such an action, with many polluters and many asthmatics involved, could be excess ive. With the pol icy, however, the asthmatics can be made equally well off through the installation of pollutio n 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 i n compensationfor incurring the health decrement (or forego the improvement), implying total benefit s 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; thi s clea rly would not be an economically efficient use of resources. In this case, it might be better t o require di rect compensation of affected individuals by the polluting companies. Alternatively, i f transactions costs for setting up a direct compensation mechanism are too high, it may be appropriat e 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 technique s and benefit-cost analysis to evaluate policies affecting health: ! First, economists measure the value of b etter health as the amount of money an individual is willing to accept to incur a health decrement (or forego the improvem ent), summed over all affected individuals, when the polluter i s responsible for compensation. If the public is judged responsib le for paying the fi rm not to pollute, the value of better health is the amount of money an in dividual 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 valu e 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 t he assignment of a monetary value by an external observer. Boththis and the first issue assume that this amount reflects the value he put s onhis own health. While it is possible that this value may include benefits fo r others (i.e., altruistic benefits), in most cases economists associate values onl y with the individual himself. ! Third , a cost-benefit framework evaluates economic efficiency withou t 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 affecte d parties. The example above follows the "polluter-pays" philosophy, but i n manycas es the governing statutes may not require polluters to completel y eliminate all health risks attributable to their actions. ! Fourth, benefits and costs are by defini tion gains and losses relative to some po intof reference, and the reference point must be specified in advance

. Policy analysts should real ize that the choice of a reference point affects the

2-3measur ement of benefits and costs. Using the above example, suppos e resea rchers are analyzing a policy designed to reduce asthma attacks by 5 0 percent from current levels in a given city. In addition, assume the geograph y of the city is such that residents o f two areas of the city currently experience different levels of asthma. If residents of Area 1 currently incur more asthm a attac ks than those of Area 2, all else equal, the policy option may have a greater v alue at Area 1 than Area 2. In some cases, an analysis of th e incremental, or marginal , effects such as this may indicate a great disparity i n value due to different reference points. ! Fifth, once the issue of who is to compensate whom is decided and th e refere nce point chosen, benefit-cost analysis implicitly accepts th e corresponding distribution of health, i ncome and economic well-being as an adequate basis for judging public policy. A deta iled analysis can show how costs and benefits are distributed by income, health status or other populatio n characteristics, but these characteristics are generally not considered i n com puting total net benefits. Concerns about fairness and equality, whil e oftenan important consideration in the policy-making process, are most ofte n considered outside of the cost-benefit framework.
These issues are not always straightforward to address. This volume, designed to provid e 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 thi s report suggest strategies for addressing these issues in particular valuationcontexts and provide examples, through case study analysis, of how analysts have addresse d these issues in the past.
In general, valuatio n 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 valuatio n cantherefore be a useful input to policy decisions. At the same time, it is helpful to acknowledge th e limitations of economic valuation and the cost-benefit framework, and recognize that consideration s of

the impacts of a policy choice beyond economic efficiency are also relevant to the decision-makin g process (e.g., equity and intergenerational concerns, and political, ethical and legal issues).

2-4THEORY OF ECONOMIC VALUATION Proper evaluati on 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 utili ty) depends on his or her consumption of

ma rketed goods and services, his or her health status, and other characteristics of his or he r environment. Typ ically, dollar equivalents of changes in well-being are measured by willingness-to-pa y compensation or willingness-to-accept compensation. Willingness-to-pay compensation (WTP) fo r healthis the largest amount of money an individual would voluntarily pay to obtain an improvemen t (or t o avoid a decrement) in health. The person feels that paying this sum in exchange for bette r health gives the same degree of well-being as keeping the money and living without the health improvement. In this sense, WTP represents the indivi dual'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 p erson 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 meas ures differ because they take different reference points to evaluate the change in well-being. WTP meas ures 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 betwee n the two measu res is likely to be small, and the choice between them inconsequential, for smal l changes in health. But there may be large differences for large changes in health. In economi c theory, the ch oice 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 statu s as the reference point, and estimate WTP to obtain improved health. In practice however, the choic e of

using WTP or WTA is a question of property rights. Carson and Mitchell (1993) discuss this issu e in more detail. WTP is used when it is determined that the public should pay the firm no t to pollute the public resource, and WTA is used when it is determined that the firm should pay the public to b e all owedto pollute the public resource. WTP is often less problematic to measure an d quantify and, as a result, is the term used most commonly in the economic valuation literature. For

2-5ease of exposition, we use the term “willingness-to-pay” (or WTP) throughout this handbook to refe r 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 an d services, and other features of his environment affect his well-being. Opportunities describe th e means available to satisfy preferences, such as income and time.
The basic role of preferences indetermining WTP is straightforward. If one individual has a strong desire for physical fitness while another does not, and the two have similar opportunities, th e 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 tha t pr eferences may change over time. Older WTP studies may become outdated due to changes i n preferences or opportunities for substitute goods.
Whiletaking a person's preferences as given, economists assume that individuals' preference s have seve ral 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 compens ates for a smaller amount of another, even if one of the goods is health. The substitution princip le is critical for measuring WTP, because it implies that health and income can be substituted for one anothe r whilemaintaining a constant degree of well-being. Examples of income traded for health include th e purchase and use of smoke detectors or bicycle helmets. In a ddition, substantial evidence indicates that people make trade-offs between health and money or other goods. For example, man y reasonably well-informed people eat high-fat diets or have other poor health habits, apparently tradin g future health risk for present enjoyment of certain foods or lifestyles. Some people take job s entailing a higher risk of death or injury inexchange for higher wages, while others do not use seat belts because of the required time or inconvenience. Economists believe ch oices 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 positiv e (technically, nonnegative). Third, economists may assume preferences are "convex," wh ich implies

2 B ecause current law may confer property rights to the environment on those exposed t o environmental contamination, research continues on better ways to measure WTA for improvement s in environmental quality. EPA is currently among the sponsors of this research.

2-6that, all else equal, WTP for additional increments of health may decline as health improves. Fo r example, in this case, individuals in poor health are expected to be willing to pay more for improve d healththan are similar but healthier people for the equivalent health increment. In some cases it migh t 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
In come and wealth are major determinants of opportunities that affect WTP. Health is a "n ormal good," that is, WTP for better health rises with income. Besides income, the price an d availability of a related good may affect opportunities. For example, if an employer subsidizes an on

site health and recreation facility, employees would be wi lling to pay less for memberships in other health clubs.
Differences in opportuni ties or preferences between individuals may also be related to age, gender , schooling, pre-existing health impairments, or other personal characteristics. Individua l va riation in preferences or opportunities causes WTP to differ between individuals, and polic y analysis ma y 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, subjec t to available opportunities. It follows that in many cases, if opportunities are held constant, actua l 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, tha t personwill buy a unit of a good as long as his or her willingness to pay is at least as great as the cos t of

ob taining the good (i.e., the utility from consuming is at least as great as the reduction i n opportunity from spending money on the good). Two cases in which this principle is applied may b e 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 , paste urized egg product sells for $2 per 16-ounce carton. If Person A and Person B each buy th e product, each will buy it until her WTP for the last carton equals $2. If Person A has a highe r 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 eq ual to that of Person B. Anyone else buyingthe nonfat egg product at the same price also values the last carton purchased at $2, regardles s of

income, health status, or differences in preferences. Conversely, anyone who does not buy th e 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. 2-7The WTP for 50 cartons, ho wever, 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 bu t 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 hav e the same WTP for 50 cartons; Person A's WTP would exceed Person B's owing to her higher incom e or greater health concerns.
The second application of revealed preference applies when W TP declines discontinuously, or"jumps down," for an additional unit of a good. For example, Person C may be willing to pa y $1000 forinstallation of an air purifying unit in his central air-conditioning system, but he is no t willing to pay anything for a second unit. If a unit costs $400, Person C will purchase it, but his WT P exceeds the market price by $600, the amount of his consumer's surplus. Similarly, Person D woul d 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 marke t 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 wit h additional con sumption of a good, then everyone buying the good values an additional unit at th e 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 provide s only a lower bound, not an exact value, for the WTP for large changes in the amount consumed, an d all purchasers do not have the same WTP for a large change. As a result, it is usua lly more difficult to estimate WTP for a large, or nonmarginal , change in co nsumption than for a small, or marginal, change. A similar outcome occurs when WTP falls discontinuously: the market price provides onl y 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 pu rifying units, health itself cannot be purchased in a market: it is a nonmarket good. Although the economic theory o f 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 e conomic value, because actual behavior in markets reveals preferences and also reflect s con strained opportunities. Valuing a nonmarket good requires finding an alternate source o f information.
Economists have applied two general approaches to measure WTP for nonmarket goods suc h as health or environmental quality. One approach is called revealed preference , because it continue s to adhere to the revealed preference principle of inferring WTP from observations of actual behavior

. The reveale d preference approach generally involves linking the nonmarket good of interest to a relat edgood which is traded in a market. For example, if two acetaminophen tablets relieve on e

2-8headache and provide no other benefit, anyone buying acet aminophen 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' statement s about how they would behave in a hypothetical situation, or how much a hypothetical change in a nonmarket good i s 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 class ified 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 va luation 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 is sue of valuing a nonmarke t good. First, when environmental quality improves, there are several health-relate d impacts on well-being; it is e asy to overlook one or more of these, resulting in an underestimate of the valu e of health. A second issue is that the health of one person may affect the well-being o f another, suggesting that the focus on each individual's WTP for his own health may be too narrow insome cases. Third, health effects of exposure to environmental contamination may be immediat e 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
Achange in environmental quality may have many health-related impacts on well-being. Th e economic measure of these impacts is WTP, which reflects the total dollar value for a change in well

being that results from a change in health. Economists assume this measure reflects all the ways that chang es in health affect a person's well being. Because analysts often rely on existing applie d methods that do not capture the total WTP (i.e., they may reflect only a part of an individual's WTP orbe onlya monetary measure of benefits, such as COI), it is important to understand th e co mponents of WTP. In addition, understanding the components of WTP is vital for conductin g benefits transfers.

2-9Illness 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. Ill ness also imposes less easily measured but equally real costs of discomfort, anxiety, pain, an d suffering. A complete measure of the value of avoiding illnes s must include the economic value of reduced suffering.
Besides costs arising from the occurrence of illness, costs may be incurred to avoid illness o r 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 hea lth effect caused by a given level of environmental contamination. As a result, bette r enviro nmental quality may raise well-being by improving health and by reducing the need fo r defensive action.
To illustrate the impact of defensive action on valuation, suppose an individual can completel y avoi d 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 ha d not been drinking from the public water supplies, but cleaning the drinking water does improve his well-bein g 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 b y accounting for the different behavioral responses individuals may have (i.e., based on the assumptio n 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 multipl ied 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 po licy is the sum of individual benefits. Consequently, the theoretical basis of health effects valuation focuses on an individual's WTP for hi s own health. This approach ignores the possibil ity 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 tw o paths: cost-shiftin g 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 wil l 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 i n valuationtheory. A relatively simple case occurs when members of a single household are concerne d for one another. Since economists often treat the household, rather than the individual, as the basic
2-10economic unit, measuring household WTP fo r the health of each of its members is quite consistent with common practice. For example, an economist might measure parents' WTP for their chil dren'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 an d self-interest.
Inaddition, individuals within a household may also experience indirect welfare effects of a n 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 sic k caregiver must re-allocate time and household i ncome to self-care and/or medical attention, a child might not be nefit 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 th e household that affect the quality of the family life. The medical expenses to care for a sick child migh t 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 t heoretical research by Jones-Lee (1991, 1992) distinguishes between altruism focuse d ex clusively on health, and more general concern for the overall well-being of others. If altruis m extends on ly to health, then Jones-Lee's analysis supports adding altruistic benefits to th e conventional measure of health benefits. Concern for the general welfare of others, however, implie s 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 altruisti c benefits.
Willingness to Pay and the Timing of Health Effects
Environmental contamination may cause immediate or delayed h ealth 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 inter est 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 WTPtoday to reduce future risk of death equals the present discounted value of future WTP to reduce a contemporan eous risk of death (Cropper and Sussman 1990). The interest rate a person would use to discount a future risk of deat h need not equal the rate of interest on financial investments, however. Recent empirical researc h confirms that workers discount future risks of fatal injuries on the job; that is, they are willing to pay les s to reduce a future risk than a present risk of equal magnitude (Viscusi and Moore 1989). Th e rate s of interest at which workers discount future risks do not appear to diverge too greatly fro m 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 benefit s in the present more highly than policies that yield the same benefits in the future (Cropper et al. 1992).
2-11Health Effects Valuation under Risk
Environmental contamination may not cause an adverse health effect with certainty, but rathe r 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 expos ure 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 abou t the level of environmental contamination, their opportunities for avoiding it, or many other factors affecting their welfare. Sit uations involving uncertainty present three additional complications for valuing health: ! First, the mathematical expectation o f utility (i.e., probability of an outcome effect multiplied by its economic effect) may not adequately reflect individua l motivations and behavior. ! Second, there may be wide divergence between scientific assessments o f environmental health risks and the level of risk perceived by ordinary people

. For example, in general people t end to overestimate the probability of small risks

. The divergence between subjective risk perceptions and scientifi c estimat es of risks complicates measurement of WTP using both direct an d 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 b ehavior); for example, undertaking measures to reduce the likelihood of

contracting asthma. Alternatively, individuals may take measures to lesse n the effect of the health condition (i.e., an ex post behavior); for example, usin g an inhaler to reduce asthma symptoms.

4 This complex issue requires a much lengthier discussion than is possible to cover given th e scope of this document. Useful general sources include Slovic (1987) and Fischhoff et al. (1978). In addition, Portney (1992) presents the iss ue relative to contamination perceptions in a town. The author gives an example of a town of resident s who would be willing to pay to reduce the presence of a contaminant they feel is carcinogenic but risk assessors say is benign. 2-12SUMMARY AND GUIDE TO FURTHER READING
This chapter has surveyed the economic theory wh ich 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 , whichevaluates the economic efficiency of a policy. A detailed analysis ma y show the distri bution of costs and benefits by income, health status or other charact eristic, but typically the focus is on total net benefit: the differenc e between benefits and costs summed over all affected individuals. ! Economists define benefits and costs as dollar equivalents of changes in well

being, and assume that each individual is the best judge of his or her own well

being. In economic theory, individual well-being depends on consumption o f marketed goods and servic es, health, and other factors. Economists assume that people are willing to make tradeoffs among the facto rs which contribute to well-being; these tradeoffs imply that the value of health can be expressed in dollars. ! One meas ure of the economic value of improved health is the amount o f moneyan individual would be willing to pay to obtain the health improve ment. A second measure is the amount of money the individua l would be willing to accept in compensation to foreg o a health improvement. Both WTP and WTA measure dollar equivalents of changes in economic well

being, 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, mos t studies e stimate WTP, because it often is less problematic to measure an d quantify. ! WTP may va ry over individuals according to differences in their desire fo r health, their income, or other personal characteristic s. 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 reveal s WTP for goods traded in markets. ! The re vealed preference principle sometimes can be extended to measur e WTPfor nonmarket goods such as health. Stated preference methods, whic h rely on i ndividuals' statements of value rather than actual behavior, also are used to value health. Other approaches often used by health economists, suc h 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 impact s on well-being. A complete valuation of health must account for all these , including changes in pain and suffering and defensive expenditures, whic h WTP/WTA is expected to reflect. ! If people incur costs to avoid health effects of env ironmental contamination, the value of reduced contamination will not be measured accurately by simpl y multiplying the number of actual health effects avoided by some monetar y value -- the estimate must also include a measure of the avoided defensiv e expenditures. ! Some cases of health valuation may warrant consideration of altruisti c benefits, or WTP for improvements in the health of others. ! It may be necessary to account for differences between costs borne by sic k individuals and costs shifted to other people. ! Individuals may discount future health effects; that is, they may b e willing to pay less today to avoid future, rather than present, health problems. ! Healtheffects valuation in the face of risk and uncertainty presents additiona l compli cations, including the difficulty of accounting for any divergence s betweenactual risks and subjectively-perceived risks, and risk characteristic s that may influence values such as immediacy of risk, amount of control over risk, o r voluntariness. 5 In addition, it is important to distinguish betwee n methods m easuring ex ante or ex post values since nearly all health effect s 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 an d Spash (1993). A widely cited text on valuation in environmental economi cs is Freeman (1993); his chapters on valuation under risk and on valuation of morbidity and mortality are particularly relevant

. Johansson's books on enviro nmental 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 exp lanation 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 ris k characteristics that may be influential to individual's values.

2-14PRIMARY METHODS OF MORBIDITY VALUATION CHAPTER 3

Resear chers have used a wide range of approaches to value environmental health effects

. Several available methods measure the theoretically preferred value of individual willingnes s 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 whichvaluation is measured (e.g., before or after the incidence of morbidity), and the degree to whic h theyaccountfor the major elements of willingness to pay outlined in Chapter 2. 6 This chapte r 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 th e key elements of available valuation methods. The second sec tion presents some general issues that arise in th e practice of measuring health effects and linking those measurements to valuatio n estimates. The next three sections present the theoretical basis, methodological concerns, and overal l evaluationof 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 commo nly 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 fo r 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 welfareassociated with the incidence of one case of a health effect is comprised of four elements: th e cost of treatment, the loss of output associated with the reduction in work activity in the labo r mark et, the loss of value of non-market activities, and individual’s pain and suffering. When th e 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 w illingness to accept (WTA). As noted in Chapter 2, we focus our discuss ion on WTP, which is less problematic to measure and quantify, and most commonly found in the economics literature. 3-1is the indi vidual’s maximum WTP to avoid the disease, equal to the monetized value of the fou r components. In the absence of sick pay, medical insurance, and/or charity, the value of environmenta l morbidi ty is the sum of the WTP to avoid the costs borne by the individual and costs borne thir d parties (e.g., insurance companies).
Threemethods are used most often to value environmental morbidity. The first is the cost-of

illness method that directly measures values using observed behavior. This method is most prevalen t inthe medical economics literature. The cost-of-illness method does not measure willingness-to-pay comp ensation (WTP) for reduced morbidity, but the costs incurred as a result of illness, including di rectcosts such as medical expenses and indirect costs such as foregone earnings. Two othe r met hods are more prevalent in the environmental economics literature. The contingent valuatio n method takes the stated preference approach described in Chapter 2 and measures respondents WT P for hypothetical health improvements. The averting behavior m ethod 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 i llness. Several other methods have been used less frequently to value environmental morbidity, including hedonic method s (a revealed preference approach), and several other methods that, similar to the cost-of-illnes s 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 ea ch method is whether it measures WTP for reduced incidence of illness or reduced risk of illness. Theoretically, approaches can be categorized as revealed preferenc e and stated preference methods measuring values using actual or hypothetical behavior. 8 In situation s involving risk of illness, rather than the certainty of illness, the various methods differ according to whether va lue 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 su mmarizes 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 valu e 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 indirec t (Mitchell and Carson 1989; Freeman 1993); however, this additional classification is not essential t o the current discussion. 3-2Exhibit 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 Award 7 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.

3-3Amo ng the three most commonly applied methods, each approach has its strengths an d weakness es, summarized in Exhibit 3-2 below. The cost-of-illness method is the mos t str aightforwardto implement and to explain to policy-makers. But it does not measure WTP an d neglects t he value of avoided pain and suffering. The contingent valuation method is the mos t flexible: in principle, surveys could be designed to value any illness. The method also appears t o 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 introduce s numerous sources of potential inaccuracy and imprecision. The averting behavior method is the onl y 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.

3-4In summary, the economic value of health is a sometim es elusive concept that is difficult to quantify precisely. For that reason, it is useful to use more than one technique to estimate the value wh ere possible. In addition, while any of the methods discussed in this chapter may provide a val uation estimate, it is important to critically evaluate the plausibility of an estimate for it s 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 val ue 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 to o low, particularly if the effect clearly results in some pain or other impairment of activity.
Alth ough 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 environm ental 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 re duced 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 hav e exploi ted 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 morbidit y avoidance and market behavior.

HEALTH EFFECTS MEASUREMENT AND VALUATION
EPA has developed Agency-wide Guidelines for conducting economic analyses to reflec t cur rent understanding of environmental policy making and economic analysis. These Guideline s provide both a general framework for conducting an economic analysis (see Chapter 5, USEP A 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 th e course of conducting such an analysi s, 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) m easures 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 valu e of a n identifiable life, but instead the value of reducing fatal risks in a population. The VSL i s calcu lated 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 ris k of

death by 1 in 10,000, then the value per statistical life is the willingness to pay for the ris k re duction divided by that risk, or $1 million ($100 divided by 1/10,000). This method does no t account for differences in value estimates that may be associated with varying populatio n characteristics (e.g., age, income) and health states (e.g., mortality risk levels). 3-5Differences in the kind and degree of morbidity can influence both the value of reduced illnes s 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 mayvary in frequency and duration, while length of chronic impairment may vary because o f differences i n life expectancy or age at onset. Common sense and economic theory predict that a person will be willing to pay less to avoi d a mild, short-term symptom that is easily relieved than a more severe, long-lasting impairment with no cur e. 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, an d health status); and ! the co ntext of the health effect (e.g., whether the health effects hav e catastrophic versus more commonly encountered con sequences; whether the risks are imposed versus borne voluntarily). 10 Accounting for these differences in kind and degree of morbidity promotes accuracy in the estimatio n of benefits. 11
Whileit may seem obvious that the value of avoiding a health effect depends on how advers e a person perc eives the effect to be, morbidity often is measured in ways that bear little relation t o individual perceptions of adversity. Freeman (1993) stresses that biomedical researchoften focuses on effects that individuals might not perceive as adverse, or even n otice at all, such as reductions in forced expiratory volume in response to high ozone concentrations. This type of effect may have n o economic value, because a person may be willin g 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 th e Appendix C discussion of the economic valuation of lung function. In this case study, beca use 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 o f health effects that may influence individuals WTP.

11 Chapter 5 includes discussion of the strategies for adjusting values to better match th e definition of effects used in economic and health science studies. 3-6Health effects measured by populatio n surveys are by necessity closely linked to individual perceptions but often introduce a separate problem by confounding illness and behavi oral responses to illn ess. Examples include "restricted activity days," when a person misses some of his norma l activities; "work loss days," when a person does not w ork for pay due to illness or impairment; and "bed disability days," which indicate confinement to bed for most of the day. These measures reflec t the presence of illness as well as a person's decision about how to react to illness. Research indicate s that th ese decisions are related to economic factors such as employment, sick pay and nonlabo r income, casting doubt on their validity as measures of illness alone (Freeman, 1993).
Besides the issue of matching morbidity measures to heal th effects perceived and valued by people, there is the problem of aggregating morbidity measures consistently with the likely effects o f an environmental policy. Aggregate morbidity generally is measured either by prevalence , the total numberof people having a disease, or by incidence , the number of people newly contracting th e dise ase. Both prevalence and incidence also can be measured as rates (proportions of a relevan t population). Hartunian et al. (1981) point out that prevalence-based me asures are more appropriate for analyzing policies to relieve existing illness, while incidence-based measures are relevant fo r 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 expose d population have the disease. In some cases there may be incidence-type outcomes t hat are linked to chron ic 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 matc h the value to the health effect of the policy.
From a valuation standpoint, morbidity is an intermediate link between environmental chang e and economi c value. There is a clear distinction in disciplines between estimating dose-respons e rel ationships for environmental exposures and the resulting health effects, and estimating th e willingness to pay of affected individuals for avoiding those health effects. This distinction suggest s two general approaches to health effects measurement for va luation (Dickie et al. 1987). The more commonapproach is to value health effects, while leaving assessment of the pollution-morbidity lin k to health scientists.
An alt ernate approach is to incorporate the environment-health relationship in a mor e comprehensive model of economic behavior. For example, researchers have attempted to discern co rrelations between pollution levels and the sum of medical and defensive costs incurred fo r potentially pollution-induced health effects. The result is a "reduced form" relationship betwee n environmental and economic welfare indicators. This approach avoids t he problem of poor linkage betw een measured health effects and those that individuals perceive and value, and has the adde d advan tage of allowing better control for the costs and health effects of defensive behavior. Th e obvious disadvantages of this approach are that economists lack the specialized expertise which healt h scientists bring to mor bidity assessment, and that the estimates are often based on correlations and may provide little insight into the causal links between pollution and health effects.

3-7COST-OF-ILLNESS
The cost-of-illness method of morbidity valuation is closely related to the human capita l approachto mortality valuation, which focuses on the present discounted value of earnings lost fro m premature death. The human capital approach pred ates Adam Smith (Landefeld and Seskin 1982), is used in damage assessments for wrongful death cases in Federal jurisdictions, the District o f 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 man y comp onents of value, including pain and suffering, defensive expenditures, lost leisure time, an d altruistic benefits.
The cost-of-illness method also has been widely used for damage assessment and benefit-cos t analysis. The method measures direct and indirect costs of morbidity. Direct costs include the valu e of

go ods and services used to diagnose, treat, rehabilitate and accommodate ill or impaire d individuals

. Indirect costs reflect the value of foregone productivity, most often measured a s foregone ea rnings. The total cost of illness is the sum of direct and indirect costs. Standar d references on cost-of-illness methodology include Rice (1966); Cooper and Rice (1976); Rice , Hodgson, and Ko pstein (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 acc ount for about 60 percent of the total cost of illness in the United States, according t o 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 majo r impairments studied by Hartunian et al. (1981) -- cancer, coronary heart disease, stroke and motor vehicle in juries -- indirect costs account for about 70 percent of the total, again counting bot h morbidity and mortality losses.
Link to Health Valuation Theory
The theoretical basis of the cos t-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 th e 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 measure s ex post costs rather than WTP. A number of researchers have examined t he theoretical relationship betweenWTP and cost-of-illness or human capital measures of value. Studies of mortality valuatio n have concluded that foregone earnings from premature death are a lower bound on WTP-base d values of statistical lives (Conley 1976; Arthur 1981). The comparison of the cost-of-illness an d WTP-based morbidity values is not quite as straightforward, but most authors agree that unde r plausibleconditions an individual's cost of illness is a lower bound on WTP (Harrington and Portne y 1987; Berger et al. 1987).

3-8The main reason the cost of illness is less than WTP is the failure to account for all the welfar e effect s of illness that are reflected in WTP. As shown in Exhibit 3-1, the cost-of-illness metho d ignore s pain and suffering, defensive expenditures, lost leisure time, and any potential altruisti c be nefits. Unless the omitted items make up a constant proportion of WTP for all illnesses, th e amount of d ivergence between individual costs of illness and WTP will vary by disease. Ther e presently is little empirical evidence on the size of this divergence, but using and estimated adjustmen t factor to account fo r 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, larg e portions of the costs of illness are shifted from the imp aired individual to others, through insurance and sick pay. These costs will not be reflected in individual WTP, but cost-of-illness measure s typically count third party costs as well as individual costs.
Arelated theoretical problem affecting the cost-of-illness method is that, especially for mino r impairments, individuals exercise considerable choice over the amount of medical care and work los s 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 th e measurem ent of the value of lost production. Key difficulties include: (1) accounting for the ful l impactof 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 earnin gs in three distinct ways. A chronic or acute illness can cause a personto 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 c omplete withdrawal from the workforce of a totally disabled person. Finally, an y restrictions on job opportunities caused by chronic impairment may re sult in a lower rate of pay per hour worked.
Thesedistinctions are important because some measures of work loss count only hours misse d from a person's usual work schedule, evaluated at the hourly wage. While this would be appropriat e for mos t 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 clo sely linked to education and age or experience, as well as to gender and other demographi c characteristics. The incidence rates of many health impairments also vary markedly by some of the same ch aracteristics. If the wage rates applied to lost work time do not match the demographi c

3-9distributionof illness, indirect cost estimates will be inaccurate indicators of actual earnings loss. Fo r example, more educated persons earn higher wages and are healthier, suffering fewer days of work loss than les s-educated, lower-paid workers. Most cost-of-illness studies do not control for th e effect of schooling on wages and work loss, leading to an overestimate of foregone earnings. Man y studies do, however, account for age and gender differences when estimating indirect costs.
While a careful matching of wage rates to demographic characteristics promotes accura cy in estimating l ost earnings, it has the implication that the cost of illness varies with persona l characteristics, in a pattern that mirrors the distribution of wages. Some analysts prefer to avoid thi s outcome by making few if any adjustments for wage differences among demographic groups.
More practical problems arise for measuring foregone productivity of per sons not employed in paid work, such as students, retired persons and homemakers, because no wage rate is observed forthese indiv iduals. Some studies do not value the time of these individuals. A more commo n 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 appro ach 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. Mo st cost-of-illness studies in medical economics apply the market cost approach.
It is also important to recognize th at, 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 i n 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-base d meas ures assign costs of all existing cases of an illness to the year in which the costs are incurred. Incidenc e-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 cost s unless inci dence is rising rapidly, and the difference is larger for indirect than for direct cost s (Hartunian et al. 1981).
Besides differences in the magnitude of cost measures, prevalence and incidence-base d approaches have different data requirements and different degrees of a ggregation. Prevalence costs are often computed from aggregate data, while incidence c osts are built up from costs of individual

3-10cases. Prevale nce costs often are estimated for broad disease categories such as "diseases of th e respiratory system," while incidence costs focus on more narrowly defined impairments such a s asthma. Prevalence-based morbidity costs are b ased on prices and wages observed in a given year, while incidence costs require forecasts of future medical costs and wages. Forecasting can b e 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-ill ness method typically follow some variation of

the method ology set out by Rice (1966). Total US health care expenditures are divided int o several categorie s 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 b y summing overexpenditure categories. Expenditure data are available from the Health Car e Fin ancing Agency; one source of data used to allocate costs to diseases is the Hospital Discharg e Survey. Tolley et al. (1994) review a number of potential sour ces of inaccuracy in the methods used to assign costs to expenditure categories and to specific diseases. Despite these problems, a ke y 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).
Pr evalence-basedmeasures of indirect costs typically apply a fixed dollar value to th e estimated duration of restricted activity. For example, Cooper and Rice apply mean earnings by ag e and gender to work loss days for employed individuals, and use a market-cost approach to valu e 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 earnings information is available from a number of sources, including the Labor Department's Curren t 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. 3-11Incidence Approach
Incid ence-basedcost of illness measures often follow a methodology similar to that o f Hartunianet al. (1981). This approach involves estimating the direct and indirect costs for each yea r of

illness, weighted by the probability an individual would survive each year, and computing th e present discounted value of this stream of costs.
Estimates of direct costs sometimes use data on actual costs incurred by patients; the Nationa l 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. T his approach, used by Hart unian et al. (1981) and USEPA (2000b), involves estimating the costs of eac h component of treatment, and multiplying by the probability a patient will receive the treatment.
Hartuni an et al. estimate indirect costs of long-term illnesses among the employed usin g estimates of the duration of impairment and the earnings differential attributable to disability. I n pr inciple, this approach will include all sources of lost earnings among impaired, employe d individuals, includ ing shorter work schedules and lower wages. However, data on earnings losses forchronic impairments are quite sparse. Hartunian et al. report studies of specific diseases, an d someeconomists 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 t o estimate s of restricted activity days. Lost housekeeping services are valued using a market cos t approach.
Other Cost of Illness Techniques
The methodologies of Rice (1966) and Hartunian et al. (1981) represent comprehensiv e 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 admission s ordoctors visits have been computed (Seskin 1979; Dickie and Gerking 1991). Also, househol d 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-of

illness methods have been applied for many years and are well-developed, and measures of direct an d indirect costs are easily explained without reference to complex economic theory. While the metho d does not attempt to value less tangible components of WTP such as pain and suffering, individual cos t of

illness is, under plausible conditions, a lower bound on WTP. The method ofte n

3-12accounts 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 t he same time, the cost-of-illness method has several shortcomings which lead man y economists to reject the app roach as inadequate for benefit estimation. The most serious problem is th at 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 diff erence between illn ess costs and WTP, and no reason to expect the difference to be similar for differen t health effects. By not accounting for the value of avoiding p ain and suffering, the method could be misleading about the relative damages of different diseases. Also, measures of the value of lost tim e are o ften incomplete or imprecise, even among the employed, but particularly for homemakers , childr en and retired persons. Finally, costs of illness are often shifted to third parties such a s 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 Ciriacy

Wantrup (194 7) and was first applied years later by Davis (1963). Early work often focused o n va luing recreation benefits and air quality changes, but assessments of a whole range of value s relevant to public policy, including values for avoided morbidity, currently use the method. One typ e of stated preferen ce 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 ski n cancer risk, and reductions in risk of chronic bronchitis. Contingent valuation is quite controversial, especially w hen 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 cer tain types of b enefits, 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 Bj ornstad and Kahn (1996) also provide a comprehensive review of the method. Diamond and Hausman (1994 ) givea decidedly less sympathetic treatment of the method. The potential controversy in using value s fro msurvey methods (such as contingent valuation) makes it particularly important to see k plausibility checks for these estimates.
Link to Valuation Theory
Th e contingent valuation method measures WTP (or WTA) and so is consistent with th e economic theory of health valuation. If respondents understand the commodity to be valued an d answervaluation questions truthfully, the method yields estimates of individual WTP. Valuatio n

3-13questions can ask for household WTP or even for the WTP an individual may have for others outsid e of

the household (i.e., altruism). Contingent valuation appears to be the only method capable o f measuring th ese altruistic benefits. As shown in Exhibit 3-1, contingent valuation potentiall y 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 valuat ion studies have estimated ex post WTP instead.
Methodological Problems Although the contingent valuation me thod sets out to find the theoretically correct measure of ec onomic benefit, many economists doubt that the measures obtained actually correspond t o individuals' true WTP (see Diamond and Hausman 1994). The main objections to contingen t 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 wit h the gener ally held properties assumed by economists. For example, researchers have expresse d concernthat contingent valuation responses are "insensitive to scope" and are unduly sensitive to th e sequencing of alternatives to be valued. Insensitivity to scope, for example, would occur if WTP t o avoid five symptoms was no larger than the WTP to avoid one symptom. Sequencing problem s would imply that the values of individual symptom avo idance were unduly sensitive to the order in whichthe symptoms were presented to respondents for valuation. In addition, researchers have note d that contingent valuation responses may include value s for other related things, sometimes referred to as "embedded" values. For example, whe n individuals are asked their WTP to reduce the visual aesthetic effects of air pollution, there is some evidence that some respondents include value fo r reducing health effects of air pollution in their answers. One reason why this occurs is becaus e 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 respon dents almost certainly lack experience paying for a commodity not normally traded in markets. For example, respondents may not have direct ly purchased relief from the specific illness being e valuated or purchased reductions in that health risk. This criticism is particularly apt fo r efforts to value health risks, especially for low probability illnesses, because of the apparent difficultie s people have in understanding risk information.

3-14Critics have proposed other reasons why contingent valuation responses may not reflect WTP

. Respondents may express a g eneral 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 contributin g to a wor thy project such as environmental improvement; or they may state a WTP because the y as sume that by virtue of the survey, the commodity has some value. Furthermore, the amount a n individual states he is WTP may be influenced by the survey's payment vehicle. For example, suppos e two surveys are designed to measure a value for the same good, but one uses a hypothetical tax as the p ayment vehicle and the other a referendum bid. Respondents may provide different value s depend ing on the payment vehicle (e.g., respondents may object to the tax increase but not th e 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 contingen t valuation argue that poorly designed studies may suffer from any nu mber of problems, but well designed and executed studies provide reliable information abou t individual WTP. These economists believe that contingent valuation responses reflect stabl e preferences, in accordance with economic theory, and often correspond closely to value measure s 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 collect s relevant information about respondents' personal characteristics, attitudes concerning the commodity to be va lued, 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 m ajor techniques used to elicit valuations are the "open-ended" and "referendum" approaches. Two other methods are used less frequently: "contingent ranking" and "contingen t behavior" (s ee Freeman 1993). Early research typically used open-ended questions of the for m "What is the most you would be willing to pay for...?" Respondents might circle a dollar figure fro m 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 sugges ted 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.

3-15Inprinciple, the open-ended approach directly elicits each respondent's maximum WTP. Bu t respondents appear to find it quite difficult to answer this type of question, as evidenced by high rate s of nonresponse, zero responses, or implausibly high values. Presumably, these problems arise becaus e 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 t o 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. Thi s procedure places the respondent ina 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 i t 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 follo w-up valuation question, or by econometric analysis of the responses. 13
On e valuation method of the stated preference approach that has recently been applied t o environmental economics is conjoint analysis. Conjoint analysis is related to contingent valuation i n 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 amenitie s and prices. As discussed in Smith (1997), the method elicits estimates of marginal WTP b ased on a respondent ranking, rating, or constructing equivalent sets of alternatives. For example, respondent s may be asked to rank or rate their preference for living in one of two areas where at each locatio n 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 c hange in the level of risk associated one alternative would make them indifferent between two competing alternative s (e.g., how would the risks of incurring kidney disease from exposure in one location n eed 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 conjoin t analysis methods to health symptom research includes a recent effort funded by Environment Canad a (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 techni que 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 (th e technique originated from marketing research); th e lack of experiences with the technique makes it di fficult to compare its results with those from the contingent valuation method. In addition, th e

13 A variety of literature exists that provides a more thorough discussion of t he survey issues associated with the contingent valuation approach, including Mitchell and Carson (1989) and a 199 2 expert panel of economists review of the contingent valuation method (USDOC 1992). 3-16limited amount of work in this area makes it difficult to resolve issues related to estimation technique s and theoretical consistency. Smith (1997) provides a more detailed discussion of these technica l issues. Regardless of the value elic itation procedure, many researchers prefer in-person interviews to telephone or mail surveys. In-person interviews allow researchers to maintain greater control ove r the informationpresented to respondents and permit the use of more complex survey designs with follow-up questions that depend on answers given previously. Lower nonresponse rates usuall y occur, but in-person surveys are more costly may be susceptible to "interviewer effects" in whic h respondents answers are influenced by the person collecting the data.
Issues of sampling and survey design are critical to implementation of the contingent valuatio n meth od. Most researchers naturally prefer some form of random sampling from the relevan t population, with a sample size large enough to support precise estimation of values and detaile d 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 th e valuation question, is a particularly important issue. F or example, people who return a mail survey may be the people most concerned about a particular health or environmental problem, leading t o biased inferences about the population at large. Contingent valuation researchers stress that resp ondents 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 WT P forlight s ymptoms, most respondents presumably have a clear understanding of the commodity

. Respondents would be less familiar with rare diseases, and might require much information about th e nature of the disease before expressing a meaningful value for avoiding it. Contingent valuatio n surveys aiming to value risk reductions often place great emphasis on explaining risks to respondent s or eliciting respondents' own risk perceptions. R esearchers, though must be careful to avoid using survey i nstruments 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 goa ls of focus groups and pretesting often include insuring that respondents interpret contingent valuatio n questions as intended.
Metho ds of data analysis vary with the form of the valuation question and other factors

. Res earchers generally report mean or median WTP, and often correlate responses with individua l charac teristics such as income. Frequently, additional analysis is used to test whether response s accord with predictions of economic theory, or whether they suffer from any known sources o f bias.

3-17Evaluation
The co ntingent valuation method estimates WTP, accounts for all effects of illness o n individual well-being, and appears to be the only method capable of eliciting dollar values for altruis m towards per sons 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 metho d is quit e controversial, however, and potentially susceptible to numerous sources of bias an d inaccuracy. In contrast to the cost-of-illness method, it requires costly data collection methods.

AVERTING BEHAVIOR METHOD
The av erting behavior method is a revealed preference approach used to infer WTP fro m actions taken to prevent or to mitigate adverse health outcomes of pollution. Averting behavior can take several f orms, including (1) the purchase of a durable good, such as an air purifier or wate r purifier ; (2) the purchase of a nondurable good such as bottled water or a service such as medica l care; or (3) a change in daily activities, such as staying indoors. Thus, averting actions may b e intended to avoid exposure to environmental contamination, or to mitigate the health effects o f 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 Dicki e 1995). The first empirical applications concerned cleaning activities to reduce soiling damages fro m air pollution, but the focus quickly turned to health damages. The most frequent empirical applicatio n has i nvolved actions taken to avoid contaminated water supplies (Abdalla, Roach and Epp 1992 ; Harrington, Krupnick and Spofford 1989). Other applications have investigated individuals' effort s to avoid potential hazardous waste contamination (Smith and Desvousges 1985), to reduce rado n concen trations in the home (Akerman, Johnson and Bergman, 1991; Doyle et al. 1991; Smith , Desvousge s and Payne 1995), or to reduce asthma or angina symptoms (Chestnut et al. 1988)

. Researchers a lso have examined use of medical care to offset effects of air pollution exposur e (Cropper 1981; Gerking and Stanley 1986; Dickie and Gerking 1991b). This offsetting behavio r method i ncorporates 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 condition ers 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 Alth ough we have focused our discussion on WTP, WTA measures are usually mor e consistent with policy concerns for reasons mentioned in the previous section. However, WT A measures are often more difficult to measure because the value an individual states is not bound by his income. Thes e 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). 3-18Link to Health Valuation Theory
The avertin g behavior method is based on generally accepted economic theory and th e revealed preference approach to measuring WTP. Because it measures WTP, the approach account s for all of the effe cts 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 bottle d 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 actionand health improvement, then in theory the individual will continue to avert until the cost jus t equals his WTP for the health improvement. For example, if substituting a gallon of bottled water for a gallon of tap water yield s 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. Thu s marginal WTP, or the WTP for a small change in health or health risk, is inferred from two pieces o f 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 inChapter 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 onbottled wateris willing to pay at least $20, though perhaps not exactly $20, to avoid the contamination

. Several stu dies have used averting expenditures to estimate a lower bound on WTP to avoi d contaminated water. Empirical efforts to estim ate the exact WTP for a nonmarginal change, rather than simply to bound it, require complex theoretical and econometric methods (Dickie and Gerki ng 1991; Agee and Crocker 1996).
Methodological Problems Although the basic theory is straightforward, several strict conditions must be imposed to est imate WTP using the averting behavior method (see Bartik 1988). The most serious proble m 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 suntannin g 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 reduc e 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 wit h taking averting action can be quite complicated.

3-19A 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 reaso n to use the wage rate since the time spent indoors is not entirely lost.
Even when th e cost of averting action is clear, the perceived benefit of the action may b e difficult to infer. A person's choice of averting behavior, and thus the value reve aled by his actions, is based on his perception of the resulting health effects. As discussed in Chapter 2, individual s 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, rathe r than a decision about the level of a con tinuous variable. For example, a person decides whether or not to purchase an air purifying or water purifying system. As discussed in Chapter 2, discret e choices by themselves do not directly reveal WTP, but only bound it. It is possible to use discrete ch oice 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 avertin g expenditures to bound WTP.
Data Collection and Analysis
Most appl ications of the averting behavior method use surveys to collect data on avertin g actions ta ken, their costs, and perhaps on the actual or perceived health effects. Information o n respondents' health status, attitudes and socioeconomic characteristics generall y is also obtained. A measure of the value of time such as the hourly wages is particularly important, since many avert ing 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 expenditure s and a l ower bound on WTP. More precise estimation requires more complete information on th e actual or perceived effects of defensive b ehavior, such as the reduction in symptoms or health risk, or the increase in a child's birthweight.
A second w ay of implementing the averting behavior method avoids the difficulties o f hou sehold 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 approa ch, it is important to first find evidence that individ uals would undertake such behavior. Establishing this behavioral evidence provides the information necessary to link cost to WTP. Data necessary to i mplement this type of approach are obtaine d from literature reviews and experts on the health effects in question.

3-20Finall y, a third approach employs aggregate data on defensive expenditures together with technic al information on the health improvement or risk reduction that would be achieved b y defensive behavior. Dardis (1980) applied this method to data on smoke detectors to estima te WTP forreduced risk of death, but there do not appear to have been any applications to valuation o f environmental health effects.
Methods of data analysis vary widely in averting behavior studies, ranging from simpl e ta bulations of averting expenditures to the estimation of sophisticated econometric models

. Generally, attempts to bound WTP with averting costs require the least complex data analysis, whil e more complex methods are required to quantify relationship between averting action and healt h 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 thei r actions.
There are a few major weaknesses of using the averted behavior approach that should b e noted. First, it is difficult to isolate WTP for he alth from the other impacts of averting behavior on well-being. Second, averting actions often are d iscrete choices without readily observed costs, and implementation may require information on the perceived benefits of averting action. Finally, there areoften multiple benefits of an averted expenditure, and at time negative effects. For example, bik e helmets re duce the severity of head injuries as well as the risk of death, but they can also b e uncomfo rtable to wear and aesthetically displeasing. These characteristics complicate th e interpretation of the amount paid for the bike helm et, 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 me thods have been the most widely used approaches for valuing environmental morbidity. Several other methods have been use d 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.

3-21Hedonic Price Method
Hedonic methods are based on the idea that goods and services often can be viewed a s "bundl es of characteristics." For example, a house could be described by characteristics of th e dwe lling 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 wast e site. In hedonic theory (Rosen 1974), the price of the house reflects the charac teristics it offers, and individuals’ valuations of those characteristics. It follows that the characteristics have implicit price s 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 hazardou s wastesite" is $1000 per mile. The revealed preference principle then implies that the marginal WT P for distance from the site must be $1000 per mile. If the relationship between distance to the site an d 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 th e implicit prices of characteristics. Data from markets for houses, automobiles and jobs have been use d to estimate marginal WTP for improvements environmental quality or reductions in risk of death o r injury. As discuss ed 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 (se e Epple 1987 ; Bartik 1987). Although established estimation approaches exist (Biddle and Zarki n 1988), they are complex.
The major drawback of the hedonic property method for valuing morbidity is that the implici t 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 a ssociated with less odor, noise or traffic, or with a better view. The value of all the se 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 v isibility 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 th e economic value of characteristics of workers and jobs. According to the theory, employers must pay higherwag es to attract workers to jobs viewed as more dangerous or less pleasant than alternat e oc cupations. Application of the theory requires that careful consideration be given to the man y factors causing wages to differ. For example, while neurosurgery is less dangerous than logging, th e differences in compensation for these occupations is probably better expl ained by differences in the

3-22amounts 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, cli mate or average air pollution concentrations, to estimate implicit prices for thes e characteristics. The second app lication 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 underli e many calculations of the ? value of a statistical life." After controlling for differences in education an d experience of workers, and other characteristics of their jobs, the wage decrease associated with a small re duction in job risk reflects the marginal WTP for reduced risk. Reviews of the theory and empi rical 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 extension s to value risks of nonfatal injuries. Many economists regard estimated wage-risk tradeoffs as the mos t successful application of the economic theory of health valuation. Unfortunately, wage-risk tradeoff s of ten are unsuitable for morbidity valuation. Apart from premature death, the health effects o f environment al 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 avoide d asthma attack from the wage-death risk relationship. The risk-risk tradeoff method, however, offers one way of linking wage-ris k tradeoffs to the valuation of serious illnesses.

Risk-Risk Tradeoffs
The risk-risk tradeoff method involves asking individuals about tradeoffs they would b e 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 peoplewith a hypothetical choice between residence in two cities, which differed in the risk of a fatal automobile a ccident and risk of chronic bronchitis. The authors used an interactive compute r program to present alternate combinations of the risks until reaching the point whe re 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 media n respon dent viewed chronic bronchitis as about one-third (0.32) as adverse as a fatal automobil e accident.
The risk-risk approach is based on res pondents' statements rather than their actual behavior and so is potentially susceptible to many of the criticisms leveled at the contingent valuation method

. A possibl e advantage of the risk-risk approach over CV, however, is that it may be easier fo r respondents to make tradeoffs between two risks than betw een 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 doe s

3-23no tyield WTP estimates; but it offers an obvious chance to link morbidity valuation to wage-ris k tradeoffs. For example, Viscusi, Magat and Huber apply a $2 million value of a statistical life to th e median bronchitis-death risk tradeoff to estimate a value per statistic al 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 s et 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 o r index which ranks health outcomes in terms of how ad verse individuals believe them to be. Often, th e extreme points on the scale are ? perfect health" and ? immediate death," but some application s 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 ind ividuals' views of different illnesses and may be useful in benefits transfer (see Desvousges, Johnson, and Banzhaf 1994). Health state inde x methods t hat are keyed to tradeoffs with immediate death are sometimes used to develop quality

adjusted life year (QALY) estimates, particularly in the health economics literature.
There are three main approaches to constructing health-state indexes

. The standard gamble approachis similar to the risk-risk method and relies heavily on expected utility theory. A responden t might be presented with two situations: (1) the cert ainty 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. Th e idea is to find the risk of death which the respondent thinks is just as adverse as having chroni c bronchitis with certainty. Thus, respondents are not making tradeoffs between risk of death and ris k of

chronic bronchitis, as in the risk-risk approach, but between risk of death and certain chroni c bronchitis.
Asecond approach is the time-tradeoff method, which asks respondents to trade years of lif e in full health against years of life with a chronic ailment. For example, a respondent might be aske d 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 th e adversity of chronic bronchitis relative to perfect health and to death.
Th e third approach is the rating scale method, in which respondents are asked to scor e differen thealth outcomes on a numerical scale, such as a one-to-ten scale. If immediate death i s assigned the value one, and full health the value 10, then the ranking of a given impairment indicate s how adverse it is relative to the two extre mes. Analysts often compress the scale to lie in the zeroone interval.

3-24Each of these methods provides potentially usefu l information about individual preferences overdi fferent health outcomes. An obvious question is whether the three methods would yiel d similar results. It appears that, at a minimum, the three indexes rank health outcomes in the same order. But wheth er 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 obt ained 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 hea lth 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, th e time-tradeoff method assumes that chronically ill individuals are willing to trade a constant proportio n of

thei r remaining life years for better health, regardless of their current age and life expectancy

. Restri ctive assumptions about the substitution of income for health and the discounting of futur e health effects also are implicit in health-state indexes.
Several analysts have attempted to develop schedules of nonfatal health effects valuations b y applicationof the results of health-state indices (see, for example, Miller et al. 1989 and Miller 1997)

. Health-stateindex methods may be used to develop estimates of quality-adjusted life years, which i n turnare sometimes combined with estimates of the value of a statistical life year (VSLY) to generat e a value for avo idance of a particular health effect. Health effects valuation estimates of this sor t suffer from two problems: (1) as noted above, the health-state index results do not estimate WTP, and ref lect a set of restrictive economic assumptions; (2) VSLY estimates, typically derived fro m annualizing value of statistical life measures, reflect an additional set of restrictive assumptions abou t the valuation of avoided mortality over time and among various age groups (see EPA’s Guidelines forEconom ic Analysis for further discussion of this issue). An example of the second class o f problems is that current estimate s of VSLY assume all life-years have the same value, although no currentem pirical evidence supports this assumption. As a result, valuation estimates that rely o n 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 ac cidental injuries is another potentially useful source of information, although they have not been fully evaluated by econom ists as to their usefulness for valuation of health effects. Injuries affect individual well-bein g in much the same way as illnesses: injured persons may incur direct and indirect costs and may endure pain and suffering. Many injure d persons receive substantial compensation for their injuries, but most sources of compensation (healt h and automobile insurance, paid sick leave, workers' compensation) cover only some portion of direc t an d/or indirect costs of injuries. Compensation for pain and suffering generally is available onl y 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 injur y

3-25agree 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 persona l injury cases, thou gh most states restrict recovery to financial losses of survivors in wrongful death actions.
Thus the n ature of the injury and the source of compensation affect the relevance o f information on injury compensation for health valuation. Only compensation for nonfatal injuries pai d throughthe liability system will be indicative of comprehensive values for health, inclusive of pain an d suffering. While most claims are settled out of court, the compensation paid to settle claims generall y 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 in complete reporting by attorneys and court officials. In addition to these limitations, it is important to remember that damage award s represent a source of data that economists are only beginning to understand relative to economi c theory -- in short, damage awards are not welfare measures, nor are they WTP or COI estimates. Th e monetary equivalent of the change in an individual's well being may have no bearing on what is agree d 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 healt h 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-cance r health effec ts. First, the injuries compensated through jury awards are not representative of al l personal injuries. The vast majority of injuries do not lead to a liability claim, and only a smal l minority of claims reach a jury. Legal scholars agree that the cases which come to trial are no t randomlysel ected (Priest and Klein 1984). Viscusi's (1988) results, in one of the few studie s including dat a on settlements and trial verdicts, point to a similar conclusion. He found tha t settleme ntamounts differ significantly from the damages awarded by juries. Moreover, th e 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 environmenta l health effects is that most personal injuries are unlikely to resemble the non-cancer health effect s in fluencedby environmental policy. The major causes of injury reported by Hensler et al. (1991 ) woul d 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 whic h would be affected by environmental policy. Injuries from medical malpractice, however, may matc h environmental health effects more closely. Any use of damage awards to value environmental healt h effects should pay careful attention to the match between the personal injuries being compensated an d the health effects to be valued.

3-26Damage awar ds represent compensation for an injury that has already occurred. The more appropr iate value for policy analysis is the WTP to reduce the risk of an injury which, from th e 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 damage s 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 obtaine d (Chestn utand Violette 1990; Pratt and Zeckhauser 1996). In addition, some of the significan t 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 distinctionbetween determinants of damage awards and WTP reflects fundamental differences in th e 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 award s are a rich source of data on the economic value of personal injury, but they do not provid e estimates of

WTP. Further research is warranted to examine the relationship between damage awards an d WTP, and more generally to investigate the suitability of damage awards for valuation o f environmental health effects.

3-27VALUING 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 valuin g 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 dat a required for a new valuation study. Existing applications of benefits transfer and assessments of the methodology often hav e focused on natural resource damage assessments. The typical application might involve using existin g value estimat es developed for one or more sites ("study sites") to estimate monetary damages a t 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

. Applicat ions of benefits transfer to value health effects often have aimed to provide only roug h approxi mations of the monetary benefits of avoiding morbidity. For example, the Clean Air Ac t anal ysis calculates ranges of values for multiple symptom health effects by combining results o f studies of each of the individual health effects , and adjusted available WTP valuation estimates for avoidance o f severe chronic bronchitis to reflect the milder severity of chronic bronchitis case s 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 nu mber of existing child-specific value estimates is limited, transfers for estimating the value o f children's health effects will likely involve values developed for adults. However, analysts are unclea r on how well children's preferences reflect such things as their understanding of risk. In addition , chil dren 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 begu n to explor e the difficulties and issues of using adult values for estimating children's benefits in th e Children's Health Valuation Handbook (USEPA, forthcoming).

4-1This chapter explains how benefits transfer can be used to value environmental health effects

. It evaluates the merits of benefits transfer relative t o primary valuation research, and discusses key issues involved in conducting a benefits transfer. The chapter also outlines a four-step procedure fo r applyingbenefits transfer to value morbidity, illustrated in Exhibit 4-1. The procedure draws heavil y from previous work, including work conducted to support EPA's ongo ing 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. 4-2DECIDING WHETHER TO CONDUCT A BENEFITS TRANSFER
The advantages of benefits transfer over primary research are clear. Primary research i s costlyand time-consuming, and in advance of conducting the research there is no guarantee th e 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 an d defensibility can be assessed in advance. Also, when several relevant studies are available, combinin g them may to some extent mitigate problems or errors specific to any one study.
The disadvantages of benefits transfer a re equally clear: the resulting estimates are unlikely to be as accurate or precise as estimates from primary research tailored specifically to the new polic y issue. Previous analyses suggest that results from benefits transfers must be interpreted with caution

. For example, Smith (1992) compared r esults of two transfer-based studies that estimated benefits of

reduc ing effluent discharges from the same paper mills to the same rivers. He found that th e 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 region s were identical, implying that the results from one region would not accurat ely reflect benefits in the oth er. While neither of these examples is specific to health valuation, they suggest that benefit s transfe rs should be conducted and interpreted with careful consideration of potential sources o f inaccuracy or imprecision. An additional problem specific to morbidity valuation is that the numbe r of

health eff ects for which WTP estimates exist is quite limited: there is not much available t o transf er. Exhibit 4-2 presents an overview of the advantages and disadvantages of conductin g 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 i n advance of transferring benefits, w hile quality of primary research unknown in advance. C Combining several existi ng studies (i.e., through me ta-analysis) may mitigate errors in any on e study. C Benefit estimat es generated are unlikely to be as acc urate or precise as estimates from primar y research. C Ther e are few existing studies of WTP fo r reduced morbidity.

In view of t he likely tradeoff between the relatively low cost of benefits transfer and th e reliability of the resulting benefit estimates, the question of whether to apply benefits transfer may b e best co nsidered within the context of the policy decision and the options available for assessin g be nefits. Factors worth considering include: the accuracy required of the resulting estimate; th e

4-3avai lability of relevant existing studies; the degree to which additional primary research woul d improve t he accuracy or reduce the uncertainty of the resulting benefit estimate; and the time an d financial resources available to conduct the analysis (Atkinson, Crocker and Shogren 1992).
Not surprisingly, the two major issues involved in benef its transfer concern (1) the quality of existin g studies, and (2) their applicability to the new policy situation. Applicability refers to th e match betwee n the study case, or the situation examined in the original study, and the policy case , or the situation relevant to the new poli cy. Key elements of this match include the correspondence betweenthe "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 af fected by the policy. As discussed in Chapter 2, the value of avoiding a health effect depends on characteristic s of the effect, such as s everity 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 an d populations considered in the study and policy cases be quite similar. Secondarily, the analyst woul d prefer a defensible method to adjust for important differences. In addition to the quality an d applicability of existing studies, a third important issue in benefits transfer is determining the extent of the market , or the number of per sons 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.

1 6 It is important to note that determining the extent of the market is a necessary concer n anytime an aggregate benefit estimate is developed. The issue is not exclusively associated with the benefits transfer method. 4-4Our 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 well

being, and the characteristics of the affected population.
! Step 2 -- Identify existing, relevant studies

. The second step generall y involves literature searches and discussions with researchers in the field.
! Step 3 -- Evaluate the suitability of existing studies for benefits transfer

. The th ird step concerns assessing the quality and applicability of identifie d studies.
! Step 4 -- Transfer the benefit estimates

. Often, benefits transfer requires that adjustments be made t o account for differences between the circumstances of the original study and the policy application. The analyst should discuss the rationalefor making any adjustments, the empirical basis for doing so, and the potential direction an d 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 relevan t existing studies, assess their suitability for transfer, and conduct the transfer first depends on a n accurate and thorough description of how the policy will affect health and economic well-being. A s summarized in Exhibit 4-4, such a description involves: (1) initial consideration of the measuremen t of

healt h effects; (2) a thorough description of the characteristics of the health effect likely t o 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 effec t. When planning an assessment of health benef its, 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, consul t Desvousges et. al (1998). In this book the authors define transfer as the "use of existing informatio n designed for one specific context to address policy questions in another context" (p. 4). 4-5Exhibit 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 effect s of the policy. ! Would p eople perceive the effect as adverse? As discussed in Chapter 3, health scientists often measure effe cts that ordinary people might not notice or perceive as affecting their well-being. It is difficult or impossible to place a meaningful economi c value on these effects. ! Does the measure reflect a health effect alone, such as an asthma attack, or an indirec t outcome as well, such as a day of work lost? ! What i s the degree of uncertainty in the health effect measurement? Generally , greater efforts at precision in benefit estimation are warranted when health effects ar e measured with greater precision.
Characteristics of Morbidity Affecting WTP
A crit ical element of describing the health effects of the policy is to account for th e characteristics of the health effect which influence WTP. Accounting for these characteristics is a necessary precond ition 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 o f preferences, discussed in Chapter 2, makes it particularly important to accoun t for thesecharacteristics. For example, an individuals' total WTP to avoid an effect will inc rease as duration increases. Convexity also suggests that WTP for a givenreduction 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 o r relieved, the lower is WTP for prevention of the effect.

4-6! Does a health effect occur alone or as part of a gro up of symptoms? Does the occurrenceof one effect increase the likelihood of another? The WTP to avoi d a set of symptoms, for example, may be less than the sum of the values o f 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 a spect 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, includin g 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 o nly for the first th ree 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 i s important to review EPA policy and guidance on the appropriate method to ad dress potential differences between the affected population and the population evaluated i n 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 inthe general population, and those restricted to certain types of individuals, such as asthmatics, children or the elderly. Thi s distinctioninfluences the total size of the affected population, which is a key determinant of aggregat e benefits. O ther features to consider include the amount of information affected individuals hav e concerning the health effect, and the accuracy of their perceptions of it.

4-7IDENTIFY EXISTING, RELEVANT STUDIES
The second step in the benefits protocol, summarized in Exhibit 4-5, is to identify existin g 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. Ideal ly, the analyst will find several high-quality studies that value a similar health effect in a similar population, but more often so me 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 o f survey articles; examination of economic, medical and environmental databases; and consultation wit h researchers to identify government- or university-sponsored publications, unpublished res earch, 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 benefit s transfer. As summarized in Exhibit 4-6, determining whether an existing study is appropriate fo r benefits tr ansfer will involve two main factors: the quality of the original research, and th e applicabili ty of the research to the new policy situation. Quality refers to the defensibility of th e researchmethodology 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 t he study been peer-reviewed? How is it viewed in the professiona l community? ! How do t he results obtained in the study compare with results in othe r studies, or with expectations from theory?

4-8Applicability concerns whether available studies involve health effects and populations simila r to the policy case , and whether adjustments can be made for important differences. Similarity can be a ssessed 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 stud y and th e policy case will reveal the characteristics which are similar, and the nature and extent of differences. Typically, there will be some important differences in t he health effects or populations considered in available studies, and those relevant to the policy case. The analyst would then conside r 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 gene ral 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 o f the health effe cts of the policy to match the available estimates. Adjustments to the study estimate s typically involve one of four procedures:
1. The most basic type of adjustment considers how WTP changes with the scope of th e 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 emergenc y 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 quantitativ e changes in health outcomes of interest.
2. The an alyst may use a valuation function estimated in the study to account fo r differences in health effects or populations. A valuation f unction expresses WTP as a function o f explanatory variables, such as the nature of the health effect an d personal characteristics such as income. For example, if the study includes a valuatio n functionwith the level of baseline risk as a determinant of WTP, then the analyst ma y insert the level of baseline risk relevant to the policy case into the study's valuation function.

4-93. The analyst may estimate the impact of a difference between the study and the polic y bycombining results from several studies. For example, if different contingen t valuationstudies have estimated WTP for the same symptom of varying duration, the n it may be possible to infer a relationship betwee n duration and WTP from the group of

studies. This relationship then could be used to adjust for differences in th e duration of symptoms in the policy case and the durations valued in the studies.
4. The analystmay use judgment or economic theory to bound the likely effects of differences between policy and study cases.
As i llustrated by these examples, the ability to adjust for differences between the study and policy cases is enhanced considerably when the study provides an estimated valuation function, whic h canbe 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 d ata 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 migh t estimate the work loss or medical expenses caused by a particular healtheffect in order to apply existing cost-of-illness estimates. A more exten sive adjustment procedure might follow the recent work of Desvousges, Johnson, an d Banzhaf (19 94) and French et al. (1996). Those authors convert health effects into a health-stat e index. The index indicates the adversity o f the impairment relative to other health effects, some of whi ch 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 a dversity factor implied bythe health-state index. Although health-state indexes suffer from several potentia l shortc omings 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.
Afinal issue to consider in assessing the applicability of a study, particularly an older study, i s wh ether the values estimated are likely to remain stable over time. As economic growth raise s 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 risin g price level infl ates 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 bas e year.

USE INFORMATION IN THE STUDY TO ESTIMATE BENEFITS
The fourth and final step of the protocol is to transfer the valuation information from th e studies to the policy case. The actual transfer o f benefit estimates itself may involve four substeps, as shown in Exhibi t 4-7: (1) combining existing estimates; (2) applying the estimates to the policy ca se; (3) aggregating benefits to the relevant population; and (4) considering the uncertainties and limitations of the procedure.

4-10Exhibit 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 differen t estimates of the same value based on different subsamples, assumptions or estimation procedures. Some of the estimate s 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 " est imate, and developing low-, mid- and high-range values. More sophisticated procedures hav e beenemployed by some analysts. For example, Desvousges, Johnson, and Banzhaf (1994) converte d health effects to a single metric using health-state indexes and then applied meta-anal ysis, or formal statist ical procedures for combining results from several studies. Analysts may weight results o f different studies accordi ng 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 b e converted to the constant dollars of some base year by adjusting for inflation.
Estimate Individual Benefits in the Policy Case
Oncethe available estimates are combined in some manner, they can be applied to estimate th e individual benefits in the policy case. At its simplest, this would involve directly applying values fro m the stud ies to the health effects in the policy case. For example, the analyst might multiply th e expected number of work days lost by an appropriate daily wage rate. In other cases, availabl e studies may provide an estimate of only one component of the value of a health effect; the analyst maysum the se values to obtain a more comprehensive estimate. For example, one study may esti mate the associated medical expenses, while another provides information on work loss

. Executing this part of the procedure often requires accounting for differences between the s tudy and policy cases, as discussed under Step 3.

4-11Aggregate Benefits
Afterco mputing individual benefits, the analyst often will want to aggregate over th e population affected by the policy to compute an overal l benefit estimate. This step requires careful con sideration of what economists call the "extent of the market," or simply the number of peopl e affected. One approach to aggregation involves multiplying an average per-person benefit by the number of peopleaffected. In other cases the analyst may want account for effects of income, age or o ther characteristics by aggregating benefits separately within population categories. As note d 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 sou rces of uncertainty and possible bias in the benefits transfer. Benefit s transfer involves a series of judgments and assumptions, each of which affects the fina l outcometo some degree. The simple technique of sensitivity analysis is quite helpful in assessing th e plausible range of benefits. The analyst can modify assumption s or procedures to gauge the impact onthe overall estimate of benefits. If available resources warrant, simulation techniques can be use d to estimate a probability distribution for benefits. For example, Monte Carlo proc edures 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 th e uncertainties and possible inaccuracies involved. In some cases there will be known source s 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 equa l, this would result in an underestimate. More generally, inaccuracy or imprecision may flow from th e original estimates of health effects or economic values; from differences between existing studies an d the policy case; and from judgments made in conducting the transfer. Each of these potential source s of inaccuracy and/or imprecision may be discussed qua litatively, and quantified where appropriate.

4-12ISSUES IN APPLYING THE VALUATION LITERATURE CHAPTER 5

Valuation of health effects is generally of interest when an estimate of the reducti on 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, value s 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 strategie s 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 o f economic values for health effects. Three situations that are commonly encountered are: (1) No on e has designed studies to pro vide willingness-to-pay compensation (WTP) values -- often, a cost-ofillness measure can be developed relatively easily, but the pain and suffering component is no t captured, and the pain and suffering c omponent 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 issue s 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 fo r 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 an d suffering refers to the personal and subjective harms of illness: physical pain an d attendant suffering, mental anguish, emotional distress, anxiety, embarras sment, inconvenience and loss of the enjoyment of good health. The term "pain and suffering" usually applies to the individua l experiencing an illness, but sometimes it refers more broadly to the distress of family and friends as well.

5-1Exhibit 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) an d costs of illness (COI).
Exa mine damage awards (settlements and jury verdicts ) in personal injury cases. Compare values fo r quality-adjusted life years (QALYs) and COI.
Conduct direct valuation using contingent valuation , averting behavior, or COI methods.

Uncl ear whether the health effect valuation closel y 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 expose d individuals.
Exa mine whether the effect is an aggregate of multipl e effects or symptoms.
Examine selection bias associated with the choice o f residence of study subjects.

Healt h effect is poorly characterized in the relevan t health sciences literature. Define the nature of the health effect.
Cal culate 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 " maybe more a pt 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 intens e suffering of longer duration.

5-2Altho ugh everyone would no doubt agree that some illnesses hurt more than others, there is no a ccepted 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 th e amount pain could be quantified. Despiteits intangibility, pain and suffering is recognized as an important consequence of illnes s 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 c omponent of damages from personal inj ury in the US, as well as in each of 10 other countries surveyed by Pfennigstorf and Gifford (1991); legal origins of financial compensation fo r "pain or d istress of body or mind" date to ancient Rome (O'Connell an d 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 symptom s (Bergeret al. 1987) than the medical expenses and lost income that are th e focus of the cost-of-illness approach. ! Cost-of-illness researchers generally recognize t hat the omission of pain and suffering implies that "the cost relationship among diseases is thus no t completely correct" (Cooper and Rice 1976, p. 21).
Valuation of Avoided Pain and Suffering In this section we evaluate four strategies for moneti zing pain and suffering. The first three approaches involve comparisons of values to attempt to i solate 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 CO I methods.

5-3The section continues with an overview of pain and suffering in relation to the c ost of illness, followed by brief summaries of empirical evidence on the value of pain and suffering from WTP/CO I 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 th e 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 domin ant approach to monetizing health effects, an outcome which leads to widespread neglect of the eco nomic 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 cos t-of-illness approach focuses on medical expenses, foregone earnings, and in som e studies, the value of foregone nonmarket production. The approach omits the value of leisure time, averting c osts, and the value of avoiding pain and suffering. Neglecting these elements of illnes s implies th at the COI understates economic benefits of reduced illness. Environmental policie s resu lting 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 Exhibi t 5-2. All monetary amounts have been converted to 1996 dollars using the Con sumer Price Index (a conversion wh ich does not affect the ratio of WTP to COI). The first four studies listed compar e 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.) Th e other two studies listed compare estimates of WTP and social COI taken fro m 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.

5-4The 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 i s 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 individ ual COI, by a

margin that may vary widely depending on the health effects or pollution reductions considered, th e populations affected, or the data and methods used. Among the four studies estimating WTP and COI from common data, ratio s of WTP to medical expenses range from 1.9 to 9.8. The median of the r atios shown is 3.7; the mean is 3.8. Corresponding ratios of WTP to COI range from 2.0 t o 31.5 (excluding one extreme outlier based on only 5 observations), with a median of 3.9 and a mean of 8.1.
Som e economists have suggested that WTP can be approximated as a constant mark-up o f COI. Rowe and Chestnut (1985) and Chestnut (1995) suggest there is su fficient 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 wa s 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 (Cropp er and Freeman 1989). The wide range of ratios presented in Exhibit 5-2 casts doubt on the propositio n thatthe 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 take n from d ifferent data sources range from 2.1 to 20.0, suggesting that individual WTP exceeds (pe r capita) social COI. These results also provide evidence that WTP/COI ratios vary according t o 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 an d su ffering and other subjective harms of illness or injury, although the data are limited in thei r applicability because of the lack of a basis in eco nomic theory. As discussed in Chapter 3, damage awards are not estimates of WTP, and the sign and magnitude of the difference between damages an d WTP is unknown. In general, further research is needed before damage award estimates can b e established as a source of economic values for avoidance of health effects. Nonetheless, damag e aw ards appear to reflect reasoned judgments about appropriate levels of total compensation fo r inflicted injury, and available data represent large numbers of injuries of many different types.

5-5Exhibit 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

5-6Exhibit 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.

5-7Compensatory damages consist of special damages (financial losses like medical expenses an d foregone earnings) plus general damages(nonfinancial losses like pain and suffering). Typically, onl y total damages are reported, without itemization of special and general components; researcher s 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. Ratio s of

total to special damages fall in a broad range (1.3 to 24.2), but are less widely dispersed tha n 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 t o victims of vi olent crime and yields a markedly higher share of general damages in total damages

. Setti ng the Cohen study aside as unrepresentative of valuations of unintentional injuries, th e hypothesis that total damages are a constant mark-up of special damages is rejected at the one percen t significance level. This result accords with rejection of a constant W TP/COI ratio and is consistent with regres sion results presented in four of the original studies (Hammitt 1985; Viscusi 1988 ; Bovbjerg et al. 1991; Rodgers 1993).
Summary of QALY/COI Comparisons
Studies compa ring 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 th e lost QALYs using an estimate of the value of a life-year. As discussed in Chapter 3, current estimate s of the value of a life year are highly uncertain, in part because of the restrictive assumptions require d to generate these estimates (for example, there is an implicit assumption that all l ife years should be valued equa lly, although no empirical evidence exists that all QALYs have the same value). Th e QALY valuation procedure is a benefits transfer from studies of the value of a statistical life applie d to a QALY health outcome measure. The injury is not monetized directly, either by individual s affec ted (as in WTP studies), or by third parties (as in damage award studies). As discussed i n 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 suff ering that is omitted from COI studies. Two studies that provide a basis for developing ratio s are Miller, Luchter and Brinkman (1989) and Miller (1997); these are described in more detail in the appendix Ratios of QALY values to COI inthese 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 hy pothesis that the ratio of

the QALY valuation to COI is constant is rejected at conventional levels of statistical significance

.

5-8Primary Research for Valuation of Pain and Suffering
Each of the three most widely used methods of valuing environmental health e ffects (cost-ofillness, contingent valuation and averting behavior) coul d be used to estimate the value of avoiding pain a nd 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 fun damentally, use of contingent valuation (or averting behavior) to value pain an d suffering would be neither more straightforward nor less co stly than using the method to estimate a comprehensive WTP to avoid the entire illness. Unless the resulting value for pain and sufferin g could be transferred to other health effects (and evidence on the variability of WTP/COI ratio s highlights the difficulties of doing so), there would seem to be little advantage in primary research t o value pain and suffering.
Contingent Valuation
The fle xibility available when designing a contingent valuation study is potentially a majo r advantage for directly estimating a separate value for avoiding pain and suffering. Only on e contingent valuation study, however, has been designed specifically for this purpose. Schwab, Christ e 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 traffi c 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 est imates of the value of a statistical life (after adjusting for inflation and exchange rates), whic h would be expected if the value of life includes financial losses. Reported WTP increases significantl y with the seve rity of a nonfatal injury and with respondent income. Somewhat surprisingly, th e bereavement of relatives is assigned a higher value that the pain of the victim, although this differenc e is not statistically significant.
This study is useful primarily in demonstrating the feasibility of contingent valuation for valuin g pain and suffering, though the validity of the approach cannot be assessed based on only one study. The sp ecific valuations obtained are less useful, for two reasons. First, no estimates of financia l losses of accident victims were presented for comparisonto pain and suffering values. Second, the validity of transferring valuations of traffic accidents in Switzerland to envi ronmental health effects in the US would be questionable.

5-9Cost of Illness
Discussions of the omission of pain and suffering from the cost of illness generally neglect th e fact that some illness costs are i ncurred 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, peopl e 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, woul d not be reflected in financial costs of medication, therapy, or treatment for physical pain or emotiona l suffering. Also, treatments used may only limit, rather than eliminate, pain and suffering, leaving th e value of avoiding the residual pain and suffering unaccounted. In short, no application of the cost-of

illness approach will account fully for pain and suffering, but illness costs may include a partia l monetization.
Averting Behavior
To the extent that people voluntarily make expenditures to avoid pain and suffering, th e averting behavior approach method offers a third valuation approach. The AB would rely on simila r expenditures to those used in the COI (costs for treatment of pain and suffering), but would examin e the expenditures from the perspective of an individual deciding whether to be ar the costs in view of pain and suffering relieved, rather than treating the costs as externally imposed consequences of illnes s. Also, the AB method would recognize the distinction between expenditures incurred an d WTP.
The inability to measure the amount of pain and suffering relieved per dollar of expenditure would be a major ob stacle 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 amoun t 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. Availabl e evidence indicates that WTP exceeds individual COI, as well as social COI, by a margin that varies with the health effects an d populations considered. Evidence from damage awards bolsters the view that painand 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, b ut the accuracy of the bound is uncertain.

5-102. Availa ble evidence does not support estimating WTP by marking up illnes s costs using a WTP/COI ratio, except in preliminary, screenin g analys es of benefits. In addition to any methodological problems in th e studies providing WTP/COI ratios (including the use of small sample s unrepresentative of the national population), the unexplained va riation in the ratios precludes their use where high degrees of accuracy and precision ar e required. The use of WTP/COI ratios could be defended in screening analyse s of benefits if the heal th effect to be valued is matched carefully to the effect wi th the estimated WTP/COI ratio. In matching health effects, ke y consid erations would be the pain and suffering of the effects and of thei r treatment. 3. Available evidence does not justify the use of damage awards for pai n and suffering, or ratios of total to special damages, to adjust the COI fo r pain and suffering. Damage award data provide a monetary valuation o f painand suffering which, like WTP/COI ratios, may be useful in preliminary , screening analyses of benefits. A fundamental problem is that the quantitativ e relationship between damage awards and WTP is unknown. In addition, a ke y consideration would be finding a close match between the environmenta l healtheffect and a corresponding damage award, because the types of injurie s compensated b y damage awards often bear little resemblance to non-cancer healtheffects likely to be influenced by environmental policy. This difficulty might be o vercome by using medical malpractice awards, or by scalin g in

juries according to severity (as in the Rodgers 1993 and Bovbjerg et al

. 198 9 studies). A further complication is that amounts awarded are highl y 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 forvaluation of environmental health effects. Research comparing damag e awards to WTP for specific health effects would be helpful in resolving the keyquestio n of the sign and magnitude of the difference between damag e awa rds and WTP. Other questions of interest include whether specia l 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 narrowe r injury definitions.

5-115. Further research is also warranted on the suitability of QALY-base d injury valuation data for valuation of environmental health effects . QALY- basedvaluations provide another source of information on th e po tential value of avoiding pain and suffering, but valuations obtained by combinin g values of life years with QALYs do not measure WTP. Thes e estimat es reflect a series of simplistic, restrictive assumptions about th e substitutionof income for health, the discounting of future health effects, an d individual’s valuations for reduction of mortality risk that must be addressed before the estimates would be suitable for val uation of environmental health effects.
6. Pri mary research to estimate WTP to avoid pain and suffering is feasible, but would not appear to be any less costly or more beneficia l than prim ary research to estimate an overall WTP to avoid illness . Contingent valuation seems the most promising approach for direct valuatio n 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 valu e avoidance of the illness.
7. If comprehensive illness valuations are required, inclusive of pain an d suffering, then WTP to avoid illness is the ideal economic measure to us e for prac tical application of existing methods. In practice, primar y estimationof WTP generally is preferable to benefits-transfer procedures lik e adjusting COI using WTP/COI ratios o r damage awards. Likewise, primary estimation of overall WTP to avoid an illness appea rs superior to attempting to estimate a separate WTP to avoid pain and suffering. However , in theory, WTA is the i deal economic measure to use to value illness. As mentione d earlier, the WTAapproach is ideal when the property rights belong to those at r isk, but is often not used because it is more problematic to measure an d quantify than WTP.

IMPROVING THE MATCH OF THE HEALTH EFFECT DESCRIPTION TO AN EXISTING VALUE
In this sect ion, we discuss issues that may arise in attempting to match economic values to heal th effects evaluated in the health science literature. EPA health benefits analyses hav e tr aditionally 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 pe r symptom-day of morbidity (derived from the economics literature) by the expected numb er of cases 5-12or symptom-days avoided (derived from the health science l iterature). Before applying the damage function app roach to specific illnesses, however, it is useful to consider whether any genera l 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 whe n 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 workplac e 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 th e potential impact of each of these factors and strategies to address these concern s below.

Source of Risk
Unit economic values and/or health effects from the relevant literature do not always match th e actual health effect occurring in the population. Often, the "risk scenario" presented to subjects in the e conomic 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 risk s differ from risks in the workplace in that workplace risks are for the most part borne volunt arily 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 th e mortality valuation literature (Beggs 1984, Litai 1980, Fisher et al. 1989, Weinstein and Quinn 1983), efforts to establish broad adjustmen t factors for this effect have been largely unsuccessful. The available literature notes that at leas t four types of differences in the source of risk and i ts 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 b y environmental exposures fall into the involuntary category, although these exposures can sometime s 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 ass ess how closely the severity of effects predicted by health effects literature resembles the severity of effects valued in the econo mics literature. In most cases, dose-response functions do not distinguish effects according to severity and presumably could b e 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 o f chroni c bronchitis given to respondents in their survey represents a relatively severe case of thi s 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 case s, however, there is little reliable information to support quantitative adjustment o f valuation estimates for differences in severi ty. 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 healt h 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 numbe r of symptom-days avoided increases. As a result, simply multiplying marginal WTP for a si ngle day by the number of symptom-days avoided plainly overstates WTP for avoidance of multiple sympto m days in the presence of declining daily values. To estimate the magnitude of t his error or to attempt to correct for it requires an estimated relationship between daily WTP and duration of symptom s avoided. Hall (1989) estimated this relat ionship by pooling data from several contingent valuation studies and provides a quantitative adjustment procedure for this effect.

5-14Number 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 currentl y experienced. These resu lts are derived from regressions in which income (as opposed to utility) is held cons tant. Implicitly, an individual moves to a lower indifference curve as symptom-day s experienced increases while income is held constan t. 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 ris k reduction (se e Viscusi 1992). Thus, baseline risks may affect values for reducing risk of chroni c illness in the same way as baseline symptom frequency affects symptom avoidance values.
Avoidance of Multiple Symptoms Improved environmental quality may reduce sever al related symptoms concurrently. If daily WTP t o avoid a given symptom depends on the number of symptom days avoided, it is natural t o questionwhether WTP to avoid one symptom varies with joint reductions in other symptoms. Doe s WTP fo r 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, Tolle y et al. (1986) report WTP to avoid individual symptoms as well as WTP to avoid groups of three an d five sympto ms jointly, for durations of one and thirty days. In each case, the sum of mean WT P 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 typ e of

error. One useful approach is to attempt to bound the appropriate unit value for a multipl e symptom effect using estimates for the individual symptoms. A useful upper bound is the sum of th e 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 defen d as the basis of primary benefits estimates.
Selection Bias Arising from Respondent Choice of Residential Location
Some o f the available economic literature that employs a survey-based approach (e.g,

. contingent va luation 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 po llution effects. Both D ickie et al. and Rowe and Chestnut drew respondents from Glendora, while Dickie et al

. 5-15include additional subjects from Burbank. These are heavily polluted areas east of Los Angeles, wit h Glendora in particular experiencing severe ozone pollution. If individuals living in Glendora differ from s imilar 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 issu e becomes important if preferences for health vary across individuals, individual s perceive health effects from air pollution, and people have at least some discretion in choosing wher e to live. Under these conditions, a randomly chosen person from a heavily polluted city such a s Glendora is less likely, other things equal, to place a high value on health than is a similar individua l from a less-polluted area. In oth er words, we would expect that persons with the lowest values for avo iding 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 area s maybe 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 w henever 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 relevan t fa ctors not discussed above include health information and incentives for averting or mitigatin g action. For example, changes in air quality may affect incentives to acquire information about healt h effects or to undertake averting/mitigating action. Since neither health effects nor valuation estimate s typically control for these incentives, the res ulting behavioral changes could produce errors in both the health effects predicted and the estimated unit values. Al though this effect seems plausible, the importance of these factors currently is not clear.
Summary
Thereare several important factors associated with the transfer of existing economic values fo r usein 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 re sidence, their baseline risk level, and their perception of the attributes of the risk scenario, may cause availabl e estimates to understate the true value. In a few cases, a vailable literature supports an adjustment to economic values to correct for these errors. In all cases, however, benefits analysts need to be awar e of the potential influence of these factors on the overall benefits estimates, c ollect information from the relevant health effects and economics literature that are being considered as the basis for benefit s estimatio n, and carefully consider the uncertainties in valuation for individual health effects o f concern. 5-16CHARACTERIZATION OF NON-CANCER HEALTH EFFECTS
In this se ction, we discuss issues in understanding the nature of non-cancer health effect s estimates derived from the health effects literature. In order to monetize the benefits associated wit h avoiding a non-cancer health effect, an analyst must first develop a full characterization of the effec t it self. This includes a clear definition of the nature of the effect and a method for quantifying th e likelihood of its occurrence within an exposed population. The degree to which studies of non-cance r healtheffects define the nature of the effect range across a wide spectrum, from detailed description s of

specific symptoms in humans (e.g., kidney damage) to very general descriptions of a collection o f effects in animals that may or may not have direct corollaries in humans (e.g., muscoskeletal toxicity)

. Furthermore, with the exceptionof the criteria air pollutants, the magnitude of a non-cancer health effect associated with contaminant exposure is characterized only as being above or be low a dose at which there is no appreciable risk of the adverse eff ect. 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
Healthscientists use several types of studies to help define the adverse effects of exposure t o contaminants. At the simplest level, these studies can be divided into epidemiological studies o f humanpopulations and dosing studies conducted on a wide array of animals, frequently mice or rats

. Ep idemiological studies are often preferable because they allow for the direct measurement of a n effect in human s. However, it can be difficult to interpret the results of these studies because they are not controlled studies of the effects of contaminant ex posure. The contaminant exposure levels may be poorly characterized and there may be many confounding factors ranging from exposures to otherage nts to the presence of behavioral factors, such as smoking, that may contribute to th e occurrence of an effect.
On the other hand, dosing studies of animals are conduc ted using measured exposure levels ina controlled environment that is designed to minimize the influence of any potentially confoundin g 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 hav e no di rect relevance to humans because of cross species differences in how the contaminant i s 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 ch allenges remain for health scientists in applying animal dose-response information to humans. First, the dose applie d to the animals must be scaled to humans. This is commonly accomplished by using a factor based o n the relative body weights of the test animal and humans raised to a power of 0.75. The analyst shoul d be aware that this scaling represents an additional so urce of uncertainty in characterizing the health effect. Second, there may be differences in the variability of responses among animals and human
5-17popu lations. This factor complicates the identification of threshold dose level below which al l 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 dram atically. While standard cancer risk assessment me thods can be used to quantify the magnitude of risk, analogous methods are not available for quantifying non-cancer risks. Specifically, cancer risk assessmen t 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 no t provide quantitative estimates of the probability of experiencing non-cancer effects from contaminan t exposures. Non-cancer risk assessments are typically based on the use of the hazard quotient, a rati o of

the estimated dose of a contaminant to the dose level below which there will not be any appreciabl e 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 contam inant. If the dose for an exposed population is equal t o or greater than the RfD, then the population is at risk of contracting the adverse effec t associated with the contaminant.
RfDs for individual contaminants are derived from the health effects liter ature. The first step is to identify the critical effect for a contaminant; the adverse effect that occurs at the lowest dose. The second ste p is to determine the highest exposure level at which there are no statistically o r biologicall y significant increases in the frequency or severity of this effect. This is called the N o Obse rvedAdverse Effect Level (NOAEL). In the final step for defining the RfD, the NOAEL i s divided by uncertainty factors to account for several sources of unc ertainty 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 th e 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 th e 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 estimate d value on the basis of the experimental data and model used ). See USEPA 1989, Risk Assessment Guidance for Superfund, Volume 1, Human Healt h 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

. EP A develops a similar measure for the inhalation exposure routes expressed as a contaminan t concentration rather than dose. It is called the Reference Concentration (RfC).

5-18The RfD for a contaminant is derived for a sing le 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 th e non-cancer risks for exposure to a

contaminant it is important to consider both the critical and prevalent effects. Even thoug h 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 practic e within the agency is to assume that a population is at risk for the critical and prevalent effects when dose equals or exceed s 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 sever e 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 represen ts a step toward a more quantitative characteri zation 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 adve rse response (e.g., 5 percent). The BMD is then used instead of a NOAEL i n defining the R fD. An RfD developed in this way still suffers from the primary limitation of no t producing a quantitative estimate of the probability of an individual contracting the effect at differen t levels of contaminant exposure; however it does give an ind ication 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 c ontinuing to investigate approaches for developing more quantitative estimates of non-cancer risks. One such effort undertaken by OPPE involves using dose-response data (equivalen t to data used to derive the BMD) and linear low dose extrapolation to produce a quantitative estimat e of the probability of contracting a non-cancer effect over a wide range of exp osure levels, similar to those commonly estimated for cancer risks. This type of approach represents an initial step i n developing dose-response data for non-cancer health effects that will yi eld quantitative estimates of the number of cases of illness. While it is promising for the purposes of valuation, this method is no t 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 he alth effects in ways that can be monetized. These include difficulties in de fining the nature of the effect itself and i n quantifying the probability that a given exposure level will result in an individua l

20 US Environmental Protection Agency and Science Advisory Board. Superfund Site Healt h Risk A ssessment Guidelines: Review of the Office of Solid Waste and Emergency Response Draf t Risk Assessment Guidance for Superfund Human Health Evaluation Manual by the Environmental Health Committee

. February 1993. 5-19contracting the effect. There are, however, steps that an analyst can taketo help frame the potential value of non-cancer risks associated with a specific contaminant exposure.
One approach is il lustrated 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 Ris k In formation System (IRIS). In some cases, IRIS will contain enough information to develop a general de scription of the nature of the specific effects. If needed, additional information can b e obtained by reviewing the health effects studies c ited 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 willingness

to-pay data. Finally, by looking at the population that is subject to doses at or above the RfD, one ca n estimate the number of people at risk of contracting the effects. Thus, even without an estimate of the probabil ity that people exposed at this level will contract the effects, arraying the availabl e informationin this manner provides helpful insight into the valuation of the effects. Furthermore, thi s 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

5-20COLLECTING INFORMATION TO SUPPORT NON-CANCER HEALTH EFFECTS ANALYSES CHAPTER 6

The pre vious chapters provide the reader with a basic understanding of the theory an d methods of non-cancer health effects valuation as well as some insight into the major issues that coul d be encountered in health effects analyses. An understanding of the economic basis for health effect s val uation is critical to producing sound and effective analyses, regardless of the nature of th e regulatory or policy issue of interest.
In this c hapter we provide information that will help the reader get started on a non-cancer healtheffects 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 th e methods of risk assessment and the underlying studies that characterize health effects is helpful to th e economist or benefits analyst in conducting non-cancer he alth effects analyses. In the next section, we discuss several useful sources of information on existing ec onomic studies of non-cancer health effects, including references to several documents EPA has develope d that can facilitate a literature review. The chapter concludes with a brief review of health benefits approaches used in other Federa l agencies and departments. In some cases, these non-EPA efforts provide helpful information to desig n strategies for valuation.

6-1Exhibit 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 Dru g Administration, Centers for Disease Control, Agency for To xic Department of Labor Department of Transportation US Department of Agriculture Consumer Product Safety

UNDERSTANDING THE UNDERLYING HEALTH EFFECT LITERATURE
Eval uation 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 tho se analyses may then be provided to economists and policy analysts and are a critical starting point for benefits analysis. The anal yses conducted by risk assessors often identify those categories of health effects that may b e influenced by the action and describe the nature of the effects — risk assessors may refer to thi s proce ss as "hazard identification." The economist or benefits analyst may desire to gain a goo d understanding of the underlying scientific research behind the health effe cts assessments in order to better apply the existing economic valuation li terature. Often the best way to do this is to establish a

relationship with risk assessment professionals. This understanding is also useful on a broader basi s to design economic analyses that recognize the strengths and limitations of the underlying health ris k assessment. Info rmation on the effects likely to be associated with control of particular environmenta l contami nants 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; forexample, an epidemiologist may link the observed incidence of illness to ambient levels o f

6-2contamin ants, or to levels of contaminants in specific body tissues. Another techniqu e epidemiologists may use is to link disease incidence to proximity to a specific source of contaminants

. Datafro m animal studies also may be used to identify the health effects associated with speci fic contaminants. This type of research measures the relationship between dose and th e in cidence of health effects in a controlled environment designed to minimize the influence of an y potentially co nfounding 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 establis h a link between exposure t o 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 s ymptoms in humans are available (e.g., kidney damage). In other cases, only genera l descriptions of effects on animals may be available (e.g., musculoske letal toxicity) that may or may not have direct human corollaries. In addition, EPA is just beginning to develop information on dose-response relationships fo r non-threshold contaminants, including most non-carcinogens. All that may be currently available fo r many contaminants are data on the dose at which adverse effects are unlikely to occur even i n sensitive individuals (e.g., the Reference Dose, or RfD). As discussed in Chapter 5, this information , b y itself, is not sufficient to determine the full range of health effects potentially associated with a contaminan t, the magnitude or severity of these effects, or the change in the number of case s attributable to different exposure levels.
The results of health risk evaluations of environmental contaminants are available from a varie ty 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 epid emiological and animal studies. IRIS also reports the RfD, where one has been estim ated, for inhalation, ingestion, and/or dermal exposure routes. Other sources of informatio n inclu de chemical profiles developed under the auspices of the Agency for Toxic Substance an d Disease Registry (ATSDR) and a wide range of materials developed by EPA's program offices t o support health risk evaluations and benefits characterization.

6-3One 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 h ealth effects attributable to regulat eddrinking water contaminants. 21 For each constituent, the fact sheets list short-term an d long-t ermhealth 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 effect s link ed with cadmium exposure through drinking water are kidney, liver, bone, and blood damage. These materials, along with others, m ay 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, bene fits analysts and economists should ed ucate 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 typ e 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 bene fits 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 thes e cases be nefit transfer techniques are often useful (see Chapter 4). These techniques may includ e adjustments to reflect differences in the severity of the health condition, the duration of the effect, o r the affected populations. For example, the available risk assessment literature tends to focus o n moderately severe cases of chronic bronchitis; however, the best available valuation studies focus o n the severe case of chronic bronchitis (see Viscusi, et al. 1991). Krupnick and Cropper (1992) discus s how to mak e these adjustments using this available literature. In addition, if a policy applicatio n requires a value for emphysema, the analyst might find the chronic bronchitis literature useful becaus e of the similarities in symptoms and activity restrictions of th e two health conditions. Alternatively, differenc es between the effects studied and the effects of the regulations can be addresse d qualitatively and presented as one of the uncertainties inherent in the analysis.

21 Th e Contaminant Specific Fact Sheets are available in two versions, Consumer an d Techni cal , and can be downloaded from EPA's "Drinking Water and Health" Internet site a t http://www.epa.gov/OGWDW/hfacts.html. 6-4In 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 Domesti c Product (GDP) Imp licit Price Deflator, the general Consumer Price Index (CPI), or one of the CPI compone nts (e.g., for medical expenditures). Time series for these indices are provided in th e 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 li terature. Most, if not all, EPA offices have produced RIAs with examples of health effects an d valuat ion strategies that may prove useful, and in many cases those RIAs reflect the results o f extensive peer review and evaluation. Broader programmatic analyses, such as the Office of Air an d Radiati on'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 retrospectiv e analyses of Clean Water Act provisions, may include references to primary economic valuatio n literature. 23 A wide range of commercial on-line search services may also be helpful in locatin g specific subjects, titles, or authors in the primary literature. In some cases, ongoing research ma y be useful — EPA and the National Science Foundation, for example, continue to fund a wi de 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 ana lysis. For example, the Office of Prevention, Pesticides, and Toxic Substances ha s recently developed cost-of-illness estimates for many cancers, chronic conditions, and developmenta l effects — a list of conditions assessed and ranges of cost-of-illness estimates suggested in th e document are summarized in Exhibit 6-2 (EPA 2000b). 24 In addition, the National Center fo r En vironmental Economics (NCEE), has developed on-line inventories of cost-benefit analyses ,

22 For exa mple, Exhibit 6-2 includes an estimate for the cost of illness for lung cancer o f $38,569 (199 6$). This value can be adjusted to 1997 dollars using the CPI-Medical Care inde x 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 t ables are on pag e 349 in the 1998 report). The adjustment factor used is the ratio of these two values , 234.6/228.2 = 1.028, indicating anincrease 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. 6-5benefits studies, and selected In ternet 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 studie s 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, inclusio n of

a s tudy in the table and summary of the values derived does not imply that the study i s re commended 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 intereste d in using an existing study read the applicable study carefully, evaluate the quality of the study in light of the i nformation pres ented in Chapters 2 and 3 on the theory and methods used in high-quality economic research , compare the results to o ther 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
Inresponse to a wide range of regulatory requirements, several federal agencies are involve d in assessing the econo mic 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 asse ssing 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 agencie s take precludes a simple transfer of values for specific health effect assessments; however, the researc h 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 severa l concurrent health effects (e.g., nausea, stomachache, vomiting). To the extent that other n on-cancer effects involve the same group of symptoms, these estimates may provide transferable value estimate s foran an alysis of those adverse health situations. This section presents a brief overview of othe r 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 followin g Internet URL address: http://www.epa.gov/economics. Follow the directions on the home page for a listing of the available online inventories.
6-6Exhibit 6-2
SUMMARY OF SELECTED COST OF ILLNESS VALUES 1

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 $38,569 2 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

6-7Exhibit 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 Values 1
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

6-8Exhibit 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 Values 1
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

6-9Exhibit 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 Values 1

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)

6-10Exhibit 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 Values 1
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.)

6-11Exhibit 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 Values 1
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 immunitydisorders; 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

6-12Exhibit 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 Values 1
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

6-13Exhibit 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 Values 1 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.

6-14Department of Health and Human Services
Within t he Office of Public Health and Science in the Department of Health and Huma n Servi ces, several organizations are involved in non-cancer valuation studies. The Food and Dru g Administration, Centers for Disease Control Epidemiology Program Office, Agency for Toxi c Substances a nd Disease Registry, and National Institutes of Health have conducted a variety o f 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 il lnesses 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 fro m the presence of lead in food, and imported food that violates Federal Food, Drug and Cosmeti c regulations (Sargeant 1989).
For Department of Health and Human Services regulations restricting the sale and distributio n of

cigarettes and smokeless tobacco to individuals under the age of 18, the FDA estimates th e economic impact of the health effects associated with tobacco use using an ac tual 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-rev iewed rulemaking analysis does not value s pecific health effects; instead, the foregone earnings and total medical expenditur e 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 cance r fatalities avoided and reduced anxi ety associated with higher quality mammographies. The details of this research are currently unavailable.

Centers for Disease Control
To e valuate the costs effectiveness of health-related regulatory strategies associated with specific diseases, the CDC's Epidemiology Program O ffice (EPO) uses several economic valuation techniques. 26 Although currently unavailable, this office will have a bibliography of their major cost

26 No te that cost effectiveness analysis evaluates the relative effectiveness of differen t interventions, and not the total costs and benefits of a given alternative.

6-15effectiveness 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 life

years (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, includin g 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 orde r to reduce the risk for neural tu be 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 mort ality and morbidity effects. The morbidity effects associated withspina bifida evaluated in this analysis include incontinence, impairments of mobility, vision, an d cog nitive 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-effectiv e intervention strategy.
The EPO has also assessed the benefits and costs of a universal screening for elevat ed blood lead levels in one-year old children. This analysis uses the h uman capital approach to value IQ and other neurological behavior phenomenon (CDC 1997). Using a methodolog y of foregone earnings, th e study reports the prevalence of elevated blood lead levels at which universal blood lead leve l 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 A gency is in the process of publishing a paper on the costs of health affects attrib utable to ingestion of water contaminated with volatile organic compound (VOC) fro m Superfund sites (Lybarger et al., in press). The study focuses largely on the value of birth defects an d strokes , but also includes discussion of other ailments, including urinary tract disorders, diabetes, eczema and skin conditions, anemia, and speech and hea ring impairment. To calculate the costs of these effects, ATSDR combines estimated medical costs, long-term care costs, and lost pro ductivity costs due to morbidity or premature mortality.

27 Spina bifida is one of the most common types of neural tube defects causing prematur e mortality and serious lifelong disabilities (Kelly et al., 1996). 6-16National Institutes of Health
The National Institutes of Health (NIH) conduct s occasional studies of the cost of illness as par tof their overall assessment of health effects. For example, the Task Force on the Cos t Effectiveness, Quality of Care, and Financing of Asthma Care conducted a literature review o f 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 componen t 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 strategie s for selected conditions.
Department of Labor
The Occupational Safety and Health Administration (OSHA) estimates the costs and benefit s associated with a variety of occupational accidents in their economic analyses of proposed rules. Th e 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 incorporat ing costs associated with falls, muscular and skeletal disorders, and amputations.
OSHA recently developed a system for e valuating costs associated with lost work days and injury under different working circumstances using worker's compensation data. Current OSH A analyses apply this methodology to calculate medical cost, worker's lost income, miscellaneou s administrative costs associated with the accident, and indirect costs such as those associated with th e disruption at a site due to an accident.
Department of Transportation
With in the Department of Transportation (DOT), the Federal Highway Administratio n (FHWA ) conducts economic analyses to estimate accident costs for selecting among alternativ e transportationimprovements. In their analyses, the FHWA commonly calculates comprehensive cost s including: property damage, lost earnings, lost household production, medical costs, emergenc y 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-p ay 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 inju ries of varying severity (Miller et al. 1988). This cost database reports costs per injury using: (1) an abbreviated injury scale; and (2) an i njury severity scale. The abbreviated injury scale measures provide cost per injury fo r "minor","moderate", "serious", "severe", "critical", or "fatal" accident s. The severity scale provides
6-17cost per injury for "fatal", "incapacitating", "evident", "possible", or "property damage only " accidents. For t he 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 o f life losses, such as pain and suffering and immobility costs.
The FHWA uses these cost data to assess the impacts associated with accidents, but no t specific injuries, in an attempt to reflect individuals' willingness to pay to avoid accidents. A 1984 FHWA rep ort presents a method to incorporate individuals' willingness to pay to reduce injur y accidents into the costs of fatal, injuri ous, and property damage accidents (FHWA 1984). In 1991, the FHWA provided a comprehensive review of accident costs, presenting t he comprehensive costs associated with injury accidents, including individuals' willingness to pay to avoid injury (Urba n Institute 1991).
The DOT's National Highway Transportation Safety Administration (NHTSA) also analyze s the economic costs of accidents. Blincoe (1994) uses the Miller et al. (1988) approach to update th e estimates of the economic costs as sociated with motor vehicle crashes. The costs presented in this study only reflect the human capital costs associated withmotor vehicle crashes, and not intangible costs such as pain and suffering. Jointly with the Center for Disease Control (CDC), NHTS A conducted an assessment of injury impacts in the US (Rice et al. 1989). In this report NHTS A assessed the magnitude of injury impact on individuals, governme nt programs, and society at large. Concl usions from the report indicate high costs of injury associated with life years lost, medica l resources, and pain and suffering of injured persons, families, and friends.

USDA
To su pport USDA's efforts to ensure the safety and quality of the US food supply, th e Economic Research Service ( ERS), Food Safety Branch, conducts benefit-cost analyses of various USDAregulations. These studies estimate a cost encompassing all adverse health effects associate d with a particular cause (e.g., costs asso ciated with salmonella, where symptoms include abdominal pain, nausea, stomachache, vomiting, cold chills, fever, exhaustion). Depending on the source of th e healtheffect, the estimated values may include morbidity values measured using a value of a statistica l life. In other cases, the ERS analyses estimate morbid ity effects associated with certain diseases or pathogens using a cost-of-illness approach.
Ina 1996 report, Buzby et al. (1996) estimate the benefits and costs of reducing the presenc e of microbial pathogens from all food sources to avoid foodborne disease. The reportapplies a costof-illness approach, comprised of lifetime medical costs and lost productivity (e.g., foregon e earnings). The costs of productivity losses are related to premature mortality and morbidity. The repo rt derives a value of a statistical life from Landefeld and Seskin's (1982) human capital/willingness-to-pay approach. This anal ysis reports morbidity and mortality effect estimates for six pathogens, each causing several types of adverse health effects. In Food Safety , Buzby and
6-18Ro berts (1996) update the estimates from this report. In 1997, Crutchfield et al. (1997a) use th e results from the Buzby and Roberts article to present the benefits and costs associated with reduci ng pathogens from only meat and poultry food sources.
In1997, Crutchfield et al. (1997b) estimate the value of reducing nitrates in water. The repor t 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 substan ces 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 a l. (1995) use secondary research to estimate the value of groundwater contamination from agricultural chemical runoff. Although this contamination ha s 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 acut e injuries from unregulated products after 1973 (e.g., homes, schools, recreational areas, all-terrai n vehicles, furniture, lawnmowers). The Commission collects data on product injury and applies it to an injury cost model developed by National Public Services Rese arch Institute (Miller et al., 1989). This model, also used by DOT, calculates human capital and quality of life costs. The CPSC has use d 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-ill ness study by Rice et al. (1989). This study assesses the magnitude of injury impact o n individuals, government programs, and soci ety at large. The CPSC has conducted analyses related to effects of benzene, petro leum distillate, and methylene chlorides in specific products. Since the fo cus of CPSC studies is on specific products and not environmental effects, it is difficult for th e Commissi on to access relevant health effect analyses resulting specifically from environmental conditions.

6-19REFERENCES
This bibliography lists all of the citations for chapters one to six in alphabetical order and als o lists several relevant ci tations 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 Bibliograph y have ita licized keywords below their citations which correspond to the abstract categories i n Appendix A. The abbreviations AB, CV, and COI are used for averting behavior, contingen t valuation, and cost of illness respectively.

Abdalla, C.W., B.A. Roach, and D.J. Epp. "Valuing Environmental Quality Changes Using Avertin g Expenditures: An Application to Grou ndwater 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 Residentia l 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. Marc h 1981. Keywords: valuation theory and methods Atkinson, S., T. Crocker, and J. Shogren. "Bayesian Exchangeability, Benefit Transfer, and Researc h 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." Hum an 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 Politica l 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 o n Defensi ve Expenditures." Journal of Environmental Economics and Management 15(1): 111-27

. 1988. Keywords: applications: AB, CV, COI

R-1Beggs, S.D. Diverse Risks and the Relative Worth o f 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 Bjornst ad, 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 Mot or 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 Othe r Personal Injuries Created Equal?" Law and Contemporary Problems 54(1): 5-42. Winter 1991.
Bo vbjerg, 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. Summe r 1989.
Brad en, J.B. and C.D. Kolstad, eds. Measuring the Demand for Environmental Quality

. Netherlands: Elsevier Science Publishers BV. 1991. Keywords: valuation theory and methods Braj er, 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 application s

R-2Brennan, K.M . and R.M. Black III. Methodology for Valuing Health Risks of Ambient Lea d Exposure

. Report to the Ambient Studies Branch, Office of Air Quality Planning and Standards, U S Environmental Protection Agency. Mathtech, Inc., NJ. December 1987. Keywords: regulatory support document
Bres nahan, B.W. and M. Dickie. "Averting Behavior and Policy Evaluation." Journal o f Environmental Economics and Management 29(3) Part 1: 378-92. November 1995. Keywords: valuation theory and methods Bresnahan, B.W., M. Dickie and S. Ger king. "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: Medica l Costs and Productivity Losses. USDA, ERS, Agr icultural Economic Report Number 741. August, 1996. Cambridge Economics, Inc. Contingent Valuation: A Critical Assessment

. Report of a Symp osium 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 Natura l Assets: The Economics of Natural Resource Damage Assessment edited by R.J. Kopp and V.K

. Smith. Washington, DC: Resources for the Future. 1993.
Cent ers 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 Childr en 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.
Chestn ut, L.G. Human Health Benefits from Sulfate Reductions Under Title 4 of the 1990 Clea n Air Act Amendments. Final Report to the Office of Air and Radiation, US Environmental Protection Agency. 1995. Keywords: general applications

R-3Chestnut, 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 W illingness to Pay for Pollution-Induced Changes in Morb idity: A Critique for Benefit-Cost Analysis of Pollution Regulation

. Report to the Offic e 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 Statis tical Life in Determining Wrongful Death Awards

. US Environmental Protection Agenc y 230-07-90-079. June 1990.
Ches tnut, L.G. and D.M. Violette . Valuing Risks: New Information on the Willingness to Pay fo r 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' Willingnes s to Pay for Changes in Angina Symptoms." Medical Decision Making 16: 65-77. 1996. Keywords: applications: AB, CV, COI
Cifu entes, L.A. and L.B. Lave. "Economic Valuation of Air Pollution Abatement: Benefits fro m Health Effects." Annual Review of Energy and the Environment 18: 319-342. 1993. Keywords: general applications
Ci racy-Wantrup, S.V. "Capital Returns from Soil-Conservation Practices." Journal of Far m 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 an d Society Review 22: 537-555. 1988.
Coldit z, G.A. "Economic Costs of Obesity." American Journal of Clinical Nutrition 55: 503S

507S. 1992. Keywords: applications: AB, CV, COI Conley, B.C. "The Value of Human Life in the Demand for Safety." The American Economi c Review 66(1): 45-55. March 1976. Keywords: valuation theory and methods

R-4Cooper, 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 Damage s in Tort Law." Harvard Law Review 108: 1785-1917. June 1995. Cropper, M.L. "Measuring the Benefits from Reduced Morbidity." American Economic Associatio n Papers and Proceedings 71(2): 235-240. May 1981. Keywords: valuation theory and methods Cropp er, M.L. Outline: Benefits Estimation Seminars: Valuing the Health Impacts of Wate r Pollution

. January 23, 1996. Keywords: valuation theory and methods Cropper, M.L., and A.M. Freeman III. "Environmental Health Effects." Measuring the Demand fo r Environmental Quality. J.B. Braden and C.D. Kolstad (ed.) North-Holland, New York. 1991. Keywords: valuation theory and methods
Cr opper, M.L. and A.M. Freeman III. Valuing Environmental Health Effects . Washington, DC : Resources for the Future. March 1990. Keywords: valuation theory and methods Cropp er, M.L. and A.M. Freeman III. Estimating Individuals' Values for Health Benefits

. CR S 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

. Resource s 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 Environmenta l Economics and Management 19(3): 160-174. September 1990. Keywords: valuation theory and methods
Cr opper, M.L., S. Ayded, and P. Portney. Public Preference for Life Saving

. Resources for th e Future, Washington, DC. May 1992. Keywords: applications: AB, CV, COI

R-5Crutchfield, 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 A ssessment 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: A n Assessment of the Contingent Valuation Method

. New Jersey: Rowman and Allanheld. 1986. Keywords: valuation theory and methods
Da nzon, P.M. and Lillard. "Settlement Out of Court: The Disposition of Medical Malpractic e 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 Restrictin g 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: Principle s 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 fo r Elec tricity Generation

. Prepared for Northern States Power Company by Triangle Economi c Research. December 1994. Keywords: general application s Diamond, P.A. and Hausman, J.A. "Contingent Valuation: Is Some Number Better Than N o Number?" Journal of Economic Perspectives 8(4): 45-64. Fall 1994. Keywords: valuation theory and methods

R-6Dick ie, 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 fo r Medical Care." Journal of Environmental Economics and Management 21(1): 1-16. July 1991b. Keywords: general application s Dickie, M., S. Gerking, W. Schulze, A. Coulson, and D. Tashkin. Improving Accuracy and Reducin g Costs of Environmental Benefit Assessments: Value of Symptoms of Ozone Exposure: A n Application of the Averting-Behavior Method

. Draft Report to the Office of Policy, Planning an d 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. Imp roving Accuracy and Reducing Costs of Environmental Benefit Assessments: Reconcilin g Avert ing Behavior and Contingent Valuation Benefit Estimates of Reducing Symptoms of Ozon e Ex posure . Draft Report to the Office of Policy, Planning and Evaluation, US Environmenta l Protection Agency. September 1987. Keywords: applications: AB, CV, COI
Do lan, 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 an d Research ( AHCPR), Center For General Health Services Intramural Research, US Department o f Health and Human Services.1994. Epple, D. "Hedonic Prices and Implicit Markets: Estimating Demand and Supply Functions fo r Differentiated Products." Journal of Political Economy 95(1): 59-80. 1987. Keywords: valuation theory and methods

R-7Evans, 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 application s Evans, W.N. and W.K. Viscusi. "Estimation of State-Dependent Utility Functions Using Surve y 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
Fisch off, B. et al. "How Safe is Safe Enough? A Psychometric Study of Attitudes Toward s 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 Metho d 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-8Furby, L . and B. Fischhoff. Specifying Subjective Evaluations: A Critique of Dickie et al.' s Interpretation of their Contingent Valuati on Results for Reduced Minor Health Symptoms

. Report to the Office of Policy, Planning, and Evaluation, US Environmental Protection Agency. Eugen e Research Institute, OR. June 1988. Keywords: valuation theory and methods Garner, T.I. Economic Anal ysis 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 Treatm ents." Medical Care 1: 25-34. Janurary 1987. Keywords: applications: AB, CV, COI Geistfeld, M. "Placing a price on pai n 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 I nterdisciplinary 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 Amon g Hanford, Washington Downwinders." Archives of Environmental Health 51(3): 175-176. May/Jun e 1996. Gudex, C.M. "Health-Related Quality-of-Life in End-Stage Renal-Failure." Quality of Life Researc h 4(4): 359-366. 1995. Keywords: general applications Hall, J.V. et a l. Economic Assessment of the Health Benefits from Improvements in Air Quality in the South C oast 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 Co mpensation, Volume II: Payments by Auto Insurers. Santa Monica, California: The Rand Corporation. 1985.

R-9Hanemann, W.M. "Valuing the Environment through Contingent Valuation." Journal of Economi c 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: Edwar d Elgar Publishing. 1993. Keywords: valuation theory and methods Harrington, W., and P.R. Portney. "Valuing the Benefits of Health and Safety Regulation." Journa l 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 Waterborn e Disease Outbreak." Journal of Urban Economics 25(1): 116-137. January 1989. Keywords: applications: AB, CV, COI Hartunian, N.S., C.N. Smart, M.S. Thompson. The Incidence and Economic Costs of Major Healt h Impairments

. Lexington, MA: Lexington Books. 1981. Keywords: applications: AB, CV, COI
Hav eman, R. and B. Wolfe. "The Economic Well-Being of the Disabled: 1962-84." Journal o f Human Resources 25(1): 32-54. Winter 1990. Keywords: general applications Held, P.J ., et al. Cost Effectiveness of ESRD Treatment Modalities

. The Urban Institute , Washington, DC. Final Report to Health Care Financing Administration. April 30, 1992. Keywords: applications: AB, CV, COI Hensler, D.R., M.S. Marquis, A.F. Abrahamse, S.H. Berry, P.A Ebener, E.G. Lewis, E.A. Lind, R.J

. MacCoun, W.G. Manning, J.A. Rogowski, M.E. Viana. Compensation for Accidental Injuries i n the United States. Santa Monica, California: RAND. 1991.
Hoffm an, C., D. Rice, and H.S. Sung. "Persons with Chronic Conditions: Their Prevalence an d Costs" JAMA 276(18): 1473-1479. November 13, 1996. Keywords: applications: AB, CV, COI Hori, H. "Revealed Preferences for Public Goods." American Economics Review 65: 978-991

. 1975. Hu, T ., and F.H. Sandifer. Synthesis of Cost-of-Illness Methodology: Part I

. Report to th e National Center for Health Services Research, Department of Health and Human Services. 1981. Keywords: valuation theory and methods

R-10Ivanov, V.K., and A.F. Tsyb, "Chernobyl Radiation Risks: Assessments of Morbidity, Mortality, an d Disability Rates According to the Data of the National Radiation and Epidemiological Registry , 199 5." in Nagasaki Symposium: Radiation and Human Health , edited by S. Nagataki and S

. Yamashita. New York: Elsevier Science Publishers B.V.: 1996. Johansson, P. The Economic Theory and Measurement of Environmental Benefits

. Cambridge , England: Cambridge University Press. 1987. Keywords: valuation theory and methods Johansson, P. Evaluating Health Risks: An Economic Approach

. Cambridge, England: Cambridge University Press. 1995. Keywords: valuation theory and methods Johnson, R.F., M.C. Ruby, W.H. Desvousges, A.R. Gable, P. De Civita, and D. Steib. Using Stated Preferences and Health-State Classifications to Value the Health Benefits of Air Quali ty Programs. Public Works and Government Services Canada. August 1997. Johnson, W.G. and J. Lambrinos. "Wage Discrimination Against Handicapped Men and Women." The Journal of Human Resources 20(2): 264-277. Spring 1985. Keywords: general applications Jones-Lee, M .W. "Altruism and the Value of Other People's Safety." Journal of Risk an d Uncertainty 4: 213-219. April 1991. Keywords: valuation theory and methods Jones-Lee, M.W. "Paternalistic Altruism and the Value of a Statistical Life." The Economic Journa l 102: 80-90. January 1992. Keywords: valuation theory and methods Jones-Lee, M.W., M. Hammerton, and P.R. Phillips. "The Value of Safety: Results of a National Sample Survey," The Economic Journal 95: 49-72. March 1985. Keywords: applications: AB, CV, COI Joyce, T.J., M. Grossma n, and F. Goldman. "An Assessment of the Benefits of Pollution Control: The Case of Infant Health." Journal of Urban Economics 25(1): 32-51. January 1989. Keywords: applications: AB Kakalik, J., et al. The Cost of Special Education . Rand Corporation Report N-1791-ED.1981. Kelly, A.E., A .C. Haddix, K.S. Scanlon, C.G. Helmick, and J. Mulinare. "Appendix B: Cost

Effe ctiveness of Strategies to Prevent Neural Tube Defects" in Cost-Effectiveness in Health an d Medicine edited by M.R. Gold, L.B. Russell, J.E. Siegel, M.C. Weinstein. Oxford University Pre ss. 1996.

R-11Kopp, R.J. "Why Existence Value Should be Used in Cost-Benefit Analysis." Journal of Polic y Analysis and Management 11(1): 123-130. 1992. Keywords: valuation theory and methods Krupnick, A.J. Benefit Estimation and Environmental Policy: Setting the NAAQS for Photochemica l Oxidants

. Resources for the Future, Washington, DC. December 1986. Keywords: valuation theory and methods Krupnick, A.J. and M.L. Cropper. "The Effect of Information on Health Risk Valuations." Journal of Risk and Uncertainty 5: 29-48. 1992. Keywords: applications: AB, CV, COI
Kru pnick, A.J. and M.L. Cropper. Valuing Chronic Morbidity Damages: Medical Costs, Labo r Market Effects, and Individual Valuations

. Report to the Office of Policy, Planning, and Evaluation , US Environmental Protection Agency. Resources for the Future, Washington, D C. February 1989. Keywords: applications: AB, CV, COI Krup nick, A.J. and R.J. Kopp. The Health and Agricultural Benefits of Reductions in Ambien t Ozone in the United States

. Resources for the Future, Washington, DC. August 1988. Keywords: general applications Krup nick, A.J., and W. Harrington, and B. Ostro. "Ambient Ozone and Acute Health Effects : Evidence from Daily Data." Journal of Environmental Economics and Management 18: 1-18. 1990

. Keywords: general application s Kuik, O.J., F.H. Oosterhuis, H.M.A. Jansen. European Communities Envir onmental Policy Series: Assessment of Benefits of Environmental Measures

. L ondon, England: Graham & Trotman. 1992. Keywords: valuation theory and methods Landefeld, J. and E.P. Seskin. "The Economic Value of Life: Linking Theory to Practice." America n Journal of Public Health 72(6): 555-566. June 1982. Keywords: valuation theory and methods Lang, C., G. Yarwood, R. Laconde, and R. Bloxam. Environmental and Health Benefits of Cleaner Vehicles and Fuels

. Prepared for Canadian Council of Ministers of the Environmental Task Force on Cleaner Vehicles and Fuels. October 1995. Keywords: application Leebron, D.W. "Final Moments: Damages for Pain and Suffering Prior to Death." New Yor k University Law Review 64: 256-360. May 1989. Levin, F.S. "Pain and Suffering Guidelines: A Cure for Damages Measurement 'Anomie'," Universit y of Michigan Law Review 22: 303-332. Winter 1989.

R-12Link, A.N. Evaluating Economic Damages: A Handbook for Attorneys

. Westport, Conn: Quorum Books. 1992. Keywords: valuation theory and methods Litai, D. "A Risk Comparison Methodology for the Assessment of Acceptable Risk." MIT Dissertation. 1980. Loehman, E.T. et al. "Distributional Analysis of Regional Benefits and Cost of Air Quality Control. " Journal of Environmental Economics and Management 6: 222-243. 1979. Keywords: general applications
Loehm an, E.T. et al. An Interdisciplinary Study of the Health, Social and Environmenta l Economics of S ulfur Oxide Pollution in Florida

. Report to the Florida Sulfur Oxides Study, Inc

. Interdisc iplinary Center for Aeronomy and (other) Atmospheric Sciences, University of Florida , Gainesville, FL. 1978. Keywords: applications: AB, CV, COI
Loehm an, E.T. and V.H. De. "Application of Stochastic Choice Modeling to Policy Analysis of Public Goods: A Case Study of Air Quality Improvements." The Review of Economics and Statistic s 64(3): 474-480. 1982. Keywords: applications: AB, CV, COI Loomis, J.B. "The Evolution of A More R igorous Approach to Benefit Transfer: Benefit Function Transfer." Water Resources Research 28(3): 701-705. March 1992. Keywords: benefits transfer Lope z, A., R.N. Dexter, J.C. Reinert. "Valuation of Developmental Toxicity Outcomes." Th e Environmental Professional 17: 186-192. 1995. Keywords: general applications Lybarger, J.A., R. Lee, D.P. Vogt, R.M. Perhac, R.F. Spengler, and D.R. Brown. "Medical Cost s and LostProductivity from Health Conditions at Volatile Organic Compound Contaminate d Superfund Sites." Environmental Research

. (in press). Magat, W.A., W.K. Viscusi, and J. Huber. "Paired Comparison and Contingent Valuatio n Approaches to Morbidity Risk Valuation." Journal of Environmental E conomics and Management 15: 395-411. 1988. Keywords: applications: AB, CV, COI Mauskopf, J.A., and M.T. French. "Estimating the Value of Avoiding Morbidity and Mortality fro m Foodborne Illnesses." Risk Analysis 11(4): 619-631. 1991. Keywords: applications: AB, CV, COI

R-13McDonnell, W.F., K.E. Muller, P.A. Bromberg, and C.M. Shy. "Predictors of Individual Difference s in Acute Responses to Ozone Exposure." American Review of Respiratory Disorders 147(4): 818- 825. April 1993. Keywords: general applications Miller, T.R. "Injury Cost Estimation: A Pain in the Neck." mimeo, 1997. Miller, T.R. "The Plausible Range for the Value of Life: Red Herrings Among the Mackerel. " Journal of Forensic Economics 3(3): 17-39. 1990. Keywords: valuation of mortality risk Miller, T.R. "Willingness-to-Pay Comes of Age: Will the System Survive?" Northwestern Universit y Law Review 83: 876-907. Summer 1989. Miller, T.R., C.P. Brinkman, and S. Luchter. "Crash Costs and Safety Investme nt." Proceedings of the 32 nd Annual Conference, Association for the Advancement of Automotive Medicine, Des Plaines , IL. 1988. Miller, T .R., S. Luchter, and C. P. Brinkman. "Crash Costs and Safety Investment." Acciden t Analysis and Prevention 21(4): 303-315. 1989. Mishan, Edward J. Cost-Benefit Analysis

. Fourth Edition. New York: Praeger. 1988. Keywords: valuation theory and methods
Mitc hell, R. and R.T. Carson. Using Surveys to Value Public Goods: The Contingent Valuatio n Method

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National Center for Health Statistics (NCHS). Current Estimates from the National Health Intervie w Survey, 1987 . Series 10 (149). Washington, DC: US GPO. 1988.
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. Adults." American Journal of Respiratory & Critical Care Medicine 151: 669-674. 1995. Portney, P.R. "Trouble in Happyville." Journal of Policy Analysis and Management 11(1): 131-132

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R-15Priest, G.L. and B. Klein. "The Selection of Dis putes for Litigation." Journal of Legal Studies 13: 1-56. 1984. Ransom, M.R. and C.A. Pope. "Elementary-School Absences and PM(10) Pollution in Utah Valley. " Environmental Research 58(2): 204-219. August 1992. Keywords: general applications Reinert, J.C., S.G. Slotnick and D.J. Viviani. "A Discussion of the Methodologies Used in Pest icide Risk-Benefit Analysis." The Environmental Professional 12: 94-100. 1990. Keywords: valuation theory and methods Rice, D. P. "Estimating the Cost of Illness." Health Economics Series

. Public Health Service , Washington, DC. May 1966. Keywords: applications: AB, CV, COI Rice, D.P., E. MacKenzie and Associates. "Cost of Injury in the United States: A Report t o Congress." University of California, San Francisco and Johns Hopkins University. 1989. Rice, D.P. , T.A. Hodgson and A.N. Kopstein. "The Economic Cost of Illness: A Replication and Update." Health Care Financing Review 39: 61-81. 1985. Keywords: applications: AB, CV, COI Rodgers , G.B. "Estimating Jury Compensation for Pain and Suffering in Product Liability Case s Involving Nonfatal Personal Injury." Journal of Forensic Economics 6(3): 251-262. 1993.
Rosen , S. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition. " Journal of Political Economy 81(1): 34-55. January-February 1974.
Rose nthal, D.H. and R.H. Nelson. Why Existence Value Should Not be Used in Cost-Benefi t Analysis

. Paper. June 1991. Keywords: valuation theory and methods Rowe, R.D. et a l. Benefits of Air Pollution Control in California

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R-16Rowe, R.D. an d L.G. Chestnut. Oxidants and Asthmatics in Los Angeles: A Benefits Analysis

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Salkever , D. "Updated Estimates of Earnings Benefits from Reduced Exposure of Children T o Environmental Lead." Environmental Research 70: 1-6. 1995. Sargeant, K.A. Health Benefits Assessment in EPA and Other Federal Agencies

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Schwab C., N.G. Christie and N.C. Soguel. "The Pain of Rode Accident Victims and th e Bere avement of their Relatives: A Contingent Valuation Experiment." Journal of Risk an d Uncertainty 13: 277-291. 1996.
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R-17Smith, D.H., D.C. Malone, K.A. Lawson, L.J. Okamoto, C. Battista, and W.B. Saunders. " A National Es timate of the Economic Costs of Asthma." American Journal of Respiratory an d Critical Care Medicine 156: 787-793. September 1997. Keywords: application: COI Smith, V. K. "On Separating Defensible Benefit Transfers from 'Smoke and Mirrors.'" Wate r Resources Research 28(3): 685-694. March 1992. Keywords: benefits transfer Smith, V.K. "Pricing What Is Priceless: A Status Report on Non-Market Valuation of Environmental Resources." in The International Yearbook of Environmental and Resource Economics 1997/1998: A Survey of Current Issues edited by H. Folmeer and T. Tietenberg. Brookfield, VT: Edward Elgar

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Smith , V.K. and W.H. Desvousges. "The Generalized Travel Cost Model and Water Qualit y Benefits: A Reconsideration." Southern Economic Journal 52: 371-381. 1985. Keywords: valuation theory and methods Smith, V.K., W.H. Desvousges, J.W., Payne. "Do Risk Information Programs Promote Mitigating Behavior?" Journal of Risk and Uncertainty10(3): 203-221. May 1995. Keywords: applications: AB, CV, COI
Sn ell, E.W., R.E. Unsworth, and M. Dickie. The Applicability of Benefits Transfer Approach t o Assess the Economic Benefits of Reduced Air Toxi cs Emissions Under the Clean Air Act. Report to the Office of Policy Analysis and Review, US Environmental Protection Agency. 1993. Strauss, M.J. et al. "Cost and Outcome of Care for Patients with Chronic Obstructive Lung Disease. " Medical Care 24(10): 915-924. October 1986. Keywords: applications: AB, CV, COI Taylor, D.C. "Y our Money or Your Life? Thinking About the Use of Willingness-to-Pay Studies to Calculate Hedonic Damages." Washington and Lee Law Review 51: 1519-1556. Fall 1994.

R-18Taylor, T.N., P.H. Davis, J.C. Torner, J. Holmes, J.W. Meyer, and M.F. Jacobson. "Lifetime Cost of Stroke in the United States." Stroke 29(9): 1459-1466. 1996. Thompson, M.S

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The Urban Institute. "The Costs of Highway Crashes." F ederal Highway Administration Research Report Number FHWA-RD-91-055, Washington, D.C. October 1991.
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US Environmental Protection Agency. Air Quality Criteria for Particulate Matter , vol. 3, Offic e of Research and Development. April 1996.
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US Environ mental Protection Agency. The Children's Health Valuation Handbook

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R-19US Environmental Protection Agency. Estimating and Valuing Morbidity in a Policy Context : Procee dings of June 1989 Association of Environmental and Resource Economists Workshop

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US Environmental Protection A gency. Guidelines for Preparing Economic Analysis. Final Draft. 2000a.
US Environmental Protection Agency. The Medical Cos ts of Five Illnesses Related to Exposure to Pollu tants

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US Environmental Protection Agency. National Primary Drinking Water Regulations, Contaminan t Specific Fact Sheets , Office of Water. October 1995. Keywords: regulatory support document
US En vironmental Protection Agency. Regulatory Impact Analysis: Benefits and Costs of Fina l Surface Water Treatment Rule

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US Environmental Protection Agency. Regulatory Impact Analysis: Benefits and Costs of Propose d National Primary Drinking Water Regulations for Inorganic Chemicals

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US Environmental Protection Agency. Regulatory Impact Analysis for the Proposed Rulemaking on Corrective Action for Solid Wa ste Management Units

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US Environmen tal Protection Agency. Review of the National Ambient Air Quality Standards for Ozone: Ass essment of Scientific and Technical Information

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R-21Viscusi, W.K., W. Magat and J. Huber. "Pricing Environmental Health Risks: Surv ey Assessments of

Ri sk-Risk and Risk-Dollar Trade-offs for Chronic Bronchitis." Journal of Environmenta l Economics and Management 21(1): 32-51. 1991. Keywords: application, CV
Von Schirnding, Y.E.R., and R.I. Ehrlich. "Environmental Health Risks of Toxic Waste Sit e Exposures — An Epi demiological Perspective." South African Medical Journal 81(11): 546-569. 1992. Waitzman, N.J. and R.M. Scheffler and P.S. Romano. The Costs of Birth Defects. Lanham , Maryland: University Press of America, Inc. 1996. Keywords: applications: AB, CV, COI Weinstein, M.C. and R.J. Quinn. Psychological Considerations in Valuing Health Risk Reductions

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. Report to the Washington State Department of Ecology. National Economic Research Associates, Inc., Seattle, WA. December 31, 1990. Keywords: applications: AB, CV, COI Wittels, E., J.W. Hay and A.M. Gotto, Jr. "Medical Costs of Coronary Artery Disease in the Unite d 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

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