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| Massachusetts Institute of Technology |
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Integrated Program on Molina Center for Energy and the Environment Voice: (858) 657 Fax: (858) 657- E-mail: info@mce2.org |
Estimating the economic value of reducing health risks by improving air quality in Mexico CityJames Hammitt and Maria E. IbarraránEnvironmental regulations aim at reducing mortality and morbidity risks for the population. To determine if the benefits of regulations exceed the costs, it is necessary to estimate the level of expenditure society is willing to pay to prevent an expected fatality within a time period, the so-called “value per statistical life.” We report preliminary estimates of the value of reducing several health effects (mortality, chronic bronchitis, cold) in the Mexico City Metropolitan Area. Estimates were obtained using both contingent valuation and hedonic wage methods. Data were collected by personal interview of 1000 respondents in the metropolitan area, 40% in households and 60% at the work place. The estimated value of a statistical life in Mexico City ranges from US$150–500,000. These results are consistent with the small number of estimates for developing countries found in the literature. This note is divided into three sections. The first one shows preliminary results of using the contingent valuation method to determine the value of a statistical life (VSL) for adults, the value of a statistical case of chronic bronchitis, and the VSL for children1. The second part shows preliminary results for the VSL and the value of a statistical injury using the hedonic wage approach. In both sections an econometric analysis is performed to determine what individual characteristics help to explain willingness to pay to reduce health risks. The final section offers some concluding remarks. 1. Results from the Contingent Valuation StudyThe main objective is to estimate the value of reducing health risks by improving air quality in the Mexico City Metropolitan Area. We use the contingent valuation (CV) method to find the willingness to pay (WTP) of the individuals for risk reductions. WTP is the amount of money that an average inhabitant will pay to reduce his or her chance of dying in the next year by a specified amount. Dividing the mean WTP by the average risk reduction gives the value per statistical life (VSL), which is the total amount that the inhabitants would be willing to pay to prevent one unidentified, random fatality in the next year. A risk-risk trade-off is also used to test for consistency between the estimated VSL and value per statistical case of bronchitis (Viscusi, 1991). This question asks respondents the maximum risk of an allergic fatal reaction to medicine they are willing to accept to reduce the risk of getting chronic bronchitis. The mean WTP to prevent a minor illness (cold) is US$28, the value of a statistical case of chronic bronchitis is US$30,000 with a WTP to reduce the risk of getting chronic bronchitis of US$106. The mean WTP to reduce mortality risk for one year is US$181; dividing this by the risk reduction, we obtained that the VSL in Mexico City is US$500,000. This value is in the range of values estimated by extrapolating from US estimates of VSL to Mexico by adjusting for the average difference in income (Evans et al., 2002). We analyze the main factors that help explain WTP to reduce cold, chronic bronchitis, and adult and child mortality using separate regressions in each case. The general model used for the econometric analyses was: LnWTP= ß0 + ß1 C + ß2 S + ß3 CP + e where C are the control variables, S the perceived health variables and CP the personal and economic characteristics of individuals. e is the error term We find that WTP to reduce health risk varies with individual characteristics. To prevent mortality, results suggest WTP increases with family income and is larger for males and younger respondents. WTP to prevent a cold also increases with family income and youth, and is larger for people with a chronic illness and high expenditures on medicines and medical visits. WTP to prevent chronic bronchitis increases with age for young people and decreases for older people. VSL for children (both infants and teenagers) was higher than that for adults. The VSL for children does not seem to differ between younger and older children, and is estimated as about US$1 million. WTP to reduce child mortality risk increases with the education of the parents and decreases with parents’ age. It is larger for single parents. 2. Results from the Hedonic Wage Study We examine the relationship between wages and perceived occupational
health risks for blue-collar workers in Mexico. We estimate hedonic
wage functions to compare workers’ wages to their perceived
risks for fatal and non-fatal accidents. lnHWAGE= f(RISK, H, W, P) + u where lnHWAGE is the natural logarithm of the ith worker´s wage rate, RISK are the perceived risk variables, H describes human capital variables, W are the work environment variables, P includes personal characteristics variables, and u is a random error term assumed to be independently and identically distributed across workers. Results indicate that workers in relatively risky jobs receive a compensating wage differential, after controlling for human capital, work environment, and personal characteristics. The estimated coefficients on the perceived fatal- and non-fatal-injury risk variables are not statistically significant when both are included in the regression model, because the two risks are highly correlated across workers. To estimate the VSL and value per statistical injury, we use the results of regression models using only the corresponding risk variable. The estimated VSL is US$150,000 and value per non-fatal injury is US$7,300. These estimates are likely to be biased upward, because the additional wages compensate workers for both fatal and non-fatal risks. The estimated VSL is toward the lower end of the range extrapolated by Evans et al. (2002) and the value per non-fatal injury is consistent with estimates for other countries and with the cost of treatment estimated by Instituto Mexicano del Seguro Social. 3. Final RemarksTo compare the health benefits of programs to reduce air pollution
in Mexico City with the costs of implementing these programs, it
is useful to have estimates of the monetary value of reductions
in health risk. By surveying Mexico City residents, we can obtain
direct estimates of the values they place on reduced health risk.
Such direct estimates may be more useful than estimates obtained
by extrapolation from other countries, because they account for
economic conditions, cultural factors, and preferences of the Mexican
people themselves. In future work, we hope to refine the preliminary
estimates presented here by critical evaluation and improvement
of the econometric models used. References
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