Valuing Health-Risk Reductions: Sick-Years, Lost Life-Years, and Latency

PWP-CCPR-2005-053

Abstract

Many ex ante benefit-cost analyses of environmental, health, or safety interventions hinge upon  the  estimate  used  for  the  benefits  of  human  health  risk  reductions.   The  standard approach to estimating these benefits is based on a single-period single-risk model, typically used to produce a single-valued estimate for the Value of a Statistical Life (V SL). We develop instead a utility-theoretic model in which individuals choose among alternative programs to reduce their risk of experiencing future years of illness and/or lost life-years. Our model is able to produce separate estimates of the marginal utilities of both avoided sick-years and avoided lost life-years as well as estimates of the willingness to pay to avoid wide range of arbitrary adverse health profiles over an individual’s future life.  Such benefits estimates are particularly where costs must be incurred now to reduce health risks that will not fully materialize until much later. We evaluate our model using data from an extensive nationally representative survey that contains a set of randomized choice experiments.