ity. Therefore discounting is applied only to human capital loss. Following Pearce and Ulph (1995) a social discount rate of 3 percent has been used.'<sup>6</sup>

# _Willingness to Pay_

As noted above, economists consider the appropriate value of avoided premature mortality to be what an individual would pay to reduce his risk of death. This should reflect the value of foregone consumption and leisure time and the loss of contact with loved ones. WTP can be estimated using the contingent valuation method (CVM) and hedonic pricing.

CVM estimates the WTP or willingness to accept (WTA) a change in the quantity and/or quality of a good by using survey techniques (Mitchell and Carson 1989 and Hoevenagel 1994). In the questionnaire a hypothetical change is described and the respondent is asked directly for his WTP or WTA this change. The main values derived through the CVM in this study are for health impacts such as asthma attacks and premature death.

Hedonic pricing estimates the WTP/WTA through (i) the difference in the value of the same property in different areas with different environmental risks (property value differential); or (ii) the wage differential people are willing to pay (or accept) for a decrease (or increase) in risk of death related to a job.

In this study we focus on the WTP estimated through CVM and wage differential studies. Because CVM is a costly and complex method, studies have been conducted in only a limited number of countries for a limited number of environmental goods and services. In the United States and Europe numerous CVM studies have been conducted on the WTP to reduce the risk of mortality and morbidity impacts. Wage differential studies are also numerous in these countries. WTP/WTA estimates, based on both CVM and wage differential studies, are not available for Mexico. Therefore, we estimate the WTP for risk reduction through "benefit transfer" of WTP studies perfortned outside Mexico.

Benefit transfer is an application of monetary values from a particular valuation study in one area to a policy decision setting in another geographic area (Navrud 1999). When transferring values it is important to know when data from other studies can be used and under what conditions. The value that people attach to avoided health risks depends on the type and magnitude of risk (low probability, high impact), the extent to which the risk is experienced voluntarily, on cultural settings, income, and the futurity of the risk. The most important factors for applying benefit transfer in this study are the level of real per capita income, represented by purchasing power parity (PPP) per capita income, and the income elasticity of WTP (6).17 For reasons explained above we assume a best estimate for the income elasticity of 1.0.18

> **16** A more extensive discussion on the discounting can be found in Cesar and others (2000).

> " It seems plausible that risk preferences might also change with the status of development. However, we have not included this difference in risk aversion between countries in our benefit transfer due to lack of data. js A more elaborate discussion on WTP and benefit transfer is presented in Cesar and others (2000).

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