Policy Brief - What's in a Name? A Search for Alternatives to "VSL".

Benefit-cost analyses of environmental, health, and safety regulations often rely on an estimate of the value of statistical life (VSL) to calculate the aggregate benefits of reducing human mortality risk. The VSL represents the marginal rate of substitution between mortality risk and money. Although this concept is well-understood by economists, it is viewed by many non-economists as confusing technical jargon that borders on the immoral. Based on focus groups and a quantitative ranking exercise, this article describes a systematic approach for identifying and testing alternatives to the VSL terminology, with the goal of identifying an alternative term that more clearly communicates the VSL concept to a broad audience.

Retrospective Evaluation of the Costs of Complying with Light-Duty Vehicle Surface Coating Requirements.

This paper compares the U.S. Environmental Protection Agency's (EPA) ex-ante compliance cost estimates for the 2004 Automobile and Light-Duty Truck Surface Coating National Emission Standards for Hazardous Air Pollutants to ex-post evidence on the actual costs of compliance based on ex-post cost data gathered from a subset of the industry via pilot survey and follow-up interviews. Unlike many prior retrospective studies on the cost of regulatory compliance, we use this newly-gathered information to identify the key drivers of any differences between the ex-ante and ex-post estimates. We find that the U.S. EPA overestimated the cost of compliance for the plants in our sample and that overestimation was driven primarily by differences in the method of compliance rather than differences in the perunit cost associated with a given compliance approach. In particular, the U.S. EPA expected facilities to install pollution abatement control technologies in their paint shops to reduce emissions of hazardous air pollutants, but instead these plants complied by reformulating coatings.

Valuing Ecological Improvements in the Chesapeake Bay and the Importance of Ancillary Benefits.

Reducing the excess nutrient and sediment pollution that is damaging habitat and diminishing recreational experiences in coastal estuaries requires actions by people and communities that are within the boundaries of the watershed but may be far from the resource itself, thus complicating efforts to understand tradeoffs associated with pollution control measures. Such is the case with the Chesapeake Bay, one of the most iconic water resources in the United States. All seven states containing part of the Chesapeake Bay Watershed were required under the Clean Water Act to submit detailed plans to achieve nutrient and sediment pollution reductions. The implementation plans provide information on the location and type of management practices making it possible to project not only water quality improvements in the Chesapeake Bay but also improvements in freshwater lakes throughout the watershed, which provide important ancillary benefits to people bearing the cost of reducing pollution to the Bay but unlikely to benefit directly. This paper reports the results of a benefits study that links the forecasted water quality improvements to ecological endpoints and administers a stated preference survey to estimate use and nonuse value for aesthetic and ecological improvements in the Chesapeake Bay and watershed lakes. Our results show that ancillary benefits and nonuse values account for a substantial proportion of total willingness to pay and would have a significant impact on the net benefits of pollution reduction programs.

Risk assessment for benefits analysis: framework for analysis of a thyroid-disrupting chemical.

Benefit-cost analysis is of growing importance in developing policies to reduce exposures to environmental contaminants. To quantify health benefits of reduced exposures, economists generally rely on dose-response relationships estimated by risk assessors. Further, to be useful for benefits analysis, the endpoints that are quantified must be expressed as changes in incidence of illnesses or symptoms that are readily understood by and perceptible to the layperson. For most noncancer health effects and for nonlinear carcinogens, risk assessments generally do not provide the dose-response functions necessary for economic benefits analysis. This article presents the framework for a case study that addresses these issues through a combination of toxicology, epidemiology, statistics, and economics. The case study assesses a chemical that disrupts proper functioning of the thyroid gland, and considers the benefits of reducing exposures in terms of both noncancer health effects (hypothyroidism) and thyroid cancers. The effects are presumed to be due to a mode of action involving interference with thyroid-pituitary functioning that would lead to nonlinear dose response. The framework integrates data from animal testing, statistical modeling, human data from the medical and epidemiological literature, and economic methodologies and valuation studies. This interdisciplinary collaboration differs from the more typical approach in which risk assessments and economic analyses are prepared independently of one another. This framework illustrates particular approaches that may be useful for expanded quantification of adverse health effects, and demonstrates the potential of such interdisciplinary approaches. Detailed implementation of the case study framework will be presented in future publications.

Linking economics and risk assessment.

Benefit-cost analysis relies heavily upon risk assessment. The extent to which benefits can be quantitatively included in an economic analysis is frequently determined by risk assessment methods. Therefore, interdisciplinary collaboration between economists and experts in risk assessment-related disciplines is critical to further development of quantitative human health benefits analysis. To further lay the groundwork for such collaborations, this article reviews the economic foundations of benefit-cost analysis, identifies implications of incorporating this approach into risk assessment, and suggests future cooperation between economists and risk assessors.

What to do at low doses: a bounding approach for economic analysis.

To quantify the health benefits of environmental policies, economists generally require estimates of the reduced probability of illness or death. For policies that reduce exposure to carcinogenic substances, these estimates traditionally have been obtained through the linear extrapolation of experimental dose-response data to low-exposure scenarios as described in the U.S. Environmental Protection Agency's Guidelines for Carcinogen Risk Assessment (1986). In response to evolving scientific knowledge, EPA proposed revisions to the guidelines in 1996. Under the proposed revisions, dose-response relationships would not be estimated for carcinogens thought to exhibit nonlinear modes of action. Such a change in cancer-risk assessment methods and outputs will likely have serious consequences for how benefit-cost analyses of policies aimed at reducing cancer risks are conducted. Any tendency for reduced quantification of effects in environmental risk assessments, such as those contemplated in the revisions to EPA's cancer-risk assessment guidelines, impedes the ability of economic analysts to respond to increasing calls for benefit-cost analysis. This article examines the implications for benefit-cost analysis of carcinogenic exposures of the proposed changes to the 1986 Guidelines and proposes an approach for bounding dose-response relationships when no biologically based models are available. In spite of the more limited quantitative information provided in a carcinogen risk assessment under the proposed revisions to the guidelines, we argue that reasonable bounds on dose-response relationships can be estimated for low-level exposures to nonlinear carcinogens. This approach yields estimates of reduced illness for use in a benefit-cost analysis while incorporating evidence of nonlinearities in the dose-response relationship. As an illustration, the bounding approach is applied to the case of chloroform exposure.

Valuation of childhood risk reduction: the importance of age, risk preferences, and perspective.

This article explores two problems analysts face in determining how to estimate values for children's health and safety risk reductions. The first addresses the question: Do willingness-to-pay estimates for health risk changes differ across children and adults and, if so, how? To answer this question, the article first examines the potential effects of age and risk preferences on willingness to pay. A summary of the literature reporting empirical evidence of differences between willingness to pay for adult health and safety risk reductions and willingness to pay for health and safety risk reductions in children is also provided. The second dimension of the problem is a more fundamental issue: Whose perspective is relevant when valuing children's health effects-society's, children's, adults-as-children, or parents'? Each perspective is considered, followed ultimately by the conclusion that adopting a parental perspective through an intrahousehold allocation model seems closest to meeting the needs of the estimation problem at hand. A policy example in which the choice of perspective affects the outcome of a regulatory benefit-cost analysis rounds out the article and emphasizes the importance of perspective.