Abstract: We value climate amenities by estimating a discrete location choice model for households that changed metropolitan statistical areas (MSAs) between 1995 and 2000. The utility of each MSA depends on location-specific amenities, earnings opportunities, housing costs, and the cost of moving to the MSA from the household’s 1995 location. We use the estimated trade-off between wages and climate amenities to value changes in mean winter and summer temperatures. At median temperatures for 1970 to 2000, a 1°F increase in winter temperature is worth less than a 1° decrease in summer temperature; however, the reverse is true at winter temperatures below 25°F. These results imply an average welfare loss of 2.7 percent of household income in 2020 to 2050 under the B1 (climate-friendly) scenario from the special report on emissions scenarios (Intergovernmental Panel on Climate Change 2000), although some cities in the Northeast and Midwest benefit. Under the A2 (more extreme) scenario, households in 25 of 26 cities suffer an average welfare loss equal to 5 percent of income.

Abstract: In September 2011, the US Environmental Protection Agency asked 12 economists how the benefits and costs of regulations should be discounted for projects that affect future generations. This paper summarizes the views of the panel on three topics: the use of the Ramsey formula as an organizing principle for determining discount rates over long horizons, whether the discount rate should decline over time, and how intra- and intergenerational discounting practices can be made compatible.The panel members agree that the Ramsey formula provides a useful framework for thinking about intergenerational discounting. We also agree that theory provides compelling arguments for a declining certainty-equivalent discount rate. In the Ramsey formula, uncertainty about the future rate of growth in per capita consumption can lead to a declining consumption rate of discount, assuming that shocks to consumption are positively correlated. This uncertainty in future consumption growth rates may be estimated econometrically based on historic observations, or it can be derived from subjective uncertainty about the mean rate of growth in mean consumption or its volatility. Determining the remaining parameters of the Ramsey formula is, however, challenging.

Abstract: Should governments, in discounting the future benefits and costs of public projects, use a discount rate that declines over time? The argument for a declining discount rate is a simple one: if the discount rates that will be applied in the future are persistent, and if the analyst can assign probabilities to these discount rates, this will result in a declining schedule of certainty-equivalent discount rates. A growing empirical literature estimates models of long-term interest rates and uses them to forecast the declining discount rate schedule. I briefly review this literature, focusing on models for the United States. This literature has, however, been criticized for a lack of connection to the theory of project evaluation. In cost-benefit analysis, the net benefits of a project in year t (in consumption units) are to be discounted to the present at the rate at which society would trade consumption in year t for consumption in the present. With simplifying assumptions, this leads to the Ramsey discounting formula. The Ramsey formula results in a declining certainty-equivalent discount rate if the rate of growth in consumption is uncertain and if shocks to consumption are correlated over time. Using the extended Ramsey formula to estimate a numerical schedule of certainty-equivalent discount rates is, however, challenging.

Abstract: To help inform pollution control policies in the Indian electricity sector we estimate the health damages associated with particulate matter, sulfur dioxide (SO2), and nitrogen oxides (NOx) from individual coal-fired power plants. We calculate the damages per ton of pollutant for each of 89 plants and compute total damages in 2008, by pollutant, for 63 plants. We estimate health damages by combining data on power plant emissions of particulate matter, SO2 and NOx with reduced-form intake fraction models that link emissions to changes in population-weighted ambient concentrations of fine particles. Concentration-response functions for fine particles from Pope et al. (2002) are used to estimate premature cardiopulmonary deaths associated with air emissions for persons 30 and older. Our results suggest that 75 percent of premature deaths are associated with fine particles that result from SO2 emissions. After characterizing the distribution of premature mortality across plants we calculate the health benefits and cost-per-life saved of the flue-gas desulfurization unit installed at the Dahanu power plant in Maharashtra and the health benefits of coal washing at the Rihand power plant in Uttar Pradesh.

Abstract: This paper examines positive externalities and complementarities between countries in the use of antiviral pharmaceuticals to mitigate pandemic influenza. It demonstrates the presence of treatment externalities in simple SIR (susceptible-infectious-recovered) models and simulations of a Global Epidemiological Model. In these simulations, the pandemic spreads from city to city through the international airline network and from cities to rural areas through ground transport. While most treatment benefits are private, spillovers suggest that it is in the self-interest of high-income countries to pay for some antiviral treatment in low-income countries. The most cost-effective policy is to donate doses to the country where the outbreak originates; however, donating doses to low-income countries in proportion to their populations may also be cost-effective. These results depend on the transmissibility of the flu strain, its start date, the efficacy of antivirals in reducing transmissibility, and the proportion of infectious people who can be identified and treated.

Abstract: Concerns about nutrient pollution in the Chesapeake Bay have led to the establishment of pollution limits—total maximum daily loads (TMDLs)—which, by 2025, are expected to reduce nitrogen loadings to the Bay by 25 percent and phosphorous loadings by 24 percent from current levels. This paper outlines how the benefits associated with achieving the Chesapeake Bay TMDLs could be measured and monetized. We summarize studies that measure the benefits of improved water quality in the Bay and evaluate whether these studies could be used to value the water quality benefits associated with the TMDLs.In cases where studies conducted in the Bay watershed either do not exist or are out of date, we discuss whether results from studies conducted elsewhere could be transferred to the Chesapeake Bay. We also discuss original studies that would be useful to conduct in the future.

Abstract: To investigate how fuel economy is valued in the Indian car market, we compute the cost to Indian consumers of purchasing a more fuel-efficient vehicle and compare it to the benefit of lower fuel costs over the life of the vehicle. We use hedonic price functions for four market segments (petrol hatchbacks, diesel hatchbacks, petrol sedans, and diesel sedans) to compute 95 percent confidence intervals for the marginal cost to the consumer of an increase in fuel economy. We find that the associated present value of fuel savings falls within the 95 percent confidence interval for some specifications, in all market segments, for the years 2002 through 2006. Thus, we fail to consistently reject the hypothesis that consumers appropriately value fuel economy. When we reject the null hypothesis, the marginal cost of additional fuel economy exceeds the present value of fuel savings, suggesting that consumers may, in fact, be overvaluing fuel economy.

Abstract: The value of mortality risk reduction is an important component of the benefits of environmental policies. In recent years, the number, scope, and quality of valuation studies have increased dramatically. Revealed preference studies of wage compensation for occupational risks, on which analysts have primarily relied, have benefited from improved data and statistical methods. Stated preference research has improved methodologically and expanded dramatically. Studies are now available for several health conditions associated with environmental causes, and researchers have explored many issues concerning the validity of the estimates. With the growing numbers of both types of studies, several meta-analyses have become available that provide insight into the results of both methods. Challenges remain, including better understanding of the persistently smaller estimates from stated preference than from wage differential studies and of how valuation depends on the individual’s age, health status, and characteristics of the illnesses most frequently associated with environmental causes.

Abstract: We review the economics literature on energy efficiency in India, as a guide for further research in the area. The empirical literature has focused on four questions: How does energy efficiency in Indiacompare with energy efficiency in other countries? What would be the energy savings (and cost savings) from adopting certain energy-efficient technologies? Why are these technologies being—or not being—adopted? What policies should be implemented to encourage their adoption? Most of the literature focuses on answers to the first two questions. Studies are needed that quantify factors affecting the rate of diffusion of energy-efficient technologies and rigorously evaluate reforms implemented by the Government of India, beginning in the 1990s, that could affect energy efficiency.

Abstract: Ground-level ozone remains a serious problem in the United States. Because ozone nonattainment is a summer problem, episodic rather than continuous controls of ozone precursors are possible. We evaluate the costs and effectiveness of an episodic scheme that requires people to buy permits to drive on high-ozone days. We estimate the demand function for permits based on a survey of 1,300 households in the Washington, DC, metropolitan area. Assuming that all vehicle owners comply with the scheme, the permit program would reduce volatile organic compounds (VOCs) by 50 tons and nitrogen oxides (NOx) by 42 tons per Code Red day at a permit price of $75. Allowing for noncompliance by 15 percent of respondents reduces the effectiveness of the scheme to 39 tons of VOCs and 33 tons of NOx per day. The cost per ozone season of achieving these reductions is approximately $9million (2008 USD). This compares favorably with permanent methods of reducing VOCs that cost $645 per ton per year.

Abstract: A contingent valuation survey was conducted in Sizuoka, Japan, to estimate the willingness to pay (WTP) for reductions in the risk of dying and calculate the value of statistical life (VSL) for use in environmental policy in Japan. Special attention was devoted to the effects of age and health characteristics on WTP. We find that the VSLs are somewhat lower (103 to 344 million yen) than those found in the virtually identical survey applied in some developed countries. These values were subject to a variety of validity tests, which they generally passed. We find that the WTP for those over age 70 is lower than that for younger adults, but that this effect is eliminated in multiple regression. Rather, when accounting for other covariates, we find that WTP generally increases with age throughout the ages in our sample (age 40 and over). The effect of health status on WTP is mixed, with WTP of those with cancer being lower than that of healthy respondents while the WTP of those with heart disease is greater. The VSLs for future risk changes are lower than those for contemporaneous risk reductions. The implicit discount rates of 5.8–8.0% are relatively larger than the discount rate regularly used in environment policy analyses. This first-of-its-kind survey in Japan provides information directly useful for estimating the benefits of environmental and other policies that lower mortality risks to the general population and sub-groups with a variety of specific traits.

Abstract:

Much of the justification for environmental rulemaking rests on estimates of the benefits to society of reduced mortality rates. Yet the literature providing estimates of the willingness to pay (WTP) for mortality risk reductions measures the value that healthy, prime-aged adults place on reducing their risk of dying, whereas the majority of statistical lives saved by environmental programs, according to epidemiological studies, appear to be the lives of older people and people with chronically impaired health.

This paper provides an empirical assessment of the effects of age and baseline health on WTP for mortality risk reductions by reporting the results of two contingent valuation surveys designed to test the above hypotheses. One survey was administered in-person to residents of Hamilton, Ontario, and the other to a nationally representative sample of U.S. residents using the Internet. Both surveys elicited respondents’ WTP for reductions in mortality risk of different magnitudes. Respondents were limited to persons aged 40 years and older, including those older than 60, to examine the impact of age on WTP. Extensive information was collected about each respondent’s health status to see whether it systematically influenced WTP.

Our results provide weak support for the notion that WTP declines with age, but only after age 70. Specifically, in our Canadian sample, WTP declines by about 30% after age 70 compared with WTP at younger ages. There is no such statistically significant decline, however, in the U.S. sample. We similarly find no support for the idea that people who have cancer or chronic heart or lung disease are willing to pay less to reduce their risk of dying than people without these illnesses. If anything, people with these illnesses are willing to pay more.

Abstract:

Much of the justification for environmental rulemaking rests on estimates of the benefits to society of reduced mortality rates. This research aims to fill gaps in the literature that estimates the value of a statistical life (VSL) by designing and implementing a contingent valuation study for persons 40 to 75 years of age, and eliciting WTP for reductions in current and future risks of death. Targeting this age range also allows us to examine the impact of age on WTP and, by asking respondents to complete a detailed health questionnaire, to examine the impact of health status on WTP.

This survey was self-administered by computer to 930 persons in Hamilton, Ontario, in 1999. The survey uses audio and visual aids to communicate baseline risks of death and risk changes and are tested for comprehension of probabilities before being asked WTP questions. We credit these efforts at risk communication with the fact that mean WTP of respondents faced with larger risk reductions exceeds mean WTP of respondents faced with smaller risk reductions; that is, our respondents pass the external scope test.

Our mean WTP estimates for a contemporaneous risk reduction imply a VSL ranging approximately from $1.2 to $3.8 million (1999 C$), depending on the size of the risk change valued, which is at or below estimates commonly used in environmental cost-benefit analyses by the Canadian and the U.S. governments. Interestingly, we find that age has no effect on WTP until roughly age 70 and above (the VSL is about $0.6 million for this age group) and that physical health status, with the possible exception of having cancer, has no effect. We also find that being mentally healthy raises WTP substantially. In addition, compared with estimates of WTP for contemporaneous risk reductions, mean WTP estimates for risk reductions of the same magnitude but beginning at age 70 are more than 50% smaller.

Abstract:

Most benefit-cost analyses of reductions in air pollutants and other pollutants carrying mortality risks rely on estimates of the value of reductions in such risks produced by compensating wage studies, or contingent valuation studies that value risk reductions in the context of transport or job-related accidents. As the authors argue below, these estimates are inappropriate when valuing risk changes produced by environmental programs. The objectives of this paper are to explain why these estimates are inappropriate and to describe an improved approach to valuing reductions in risk of death from environmental programs, especially programs to reduce air pollution. The authors have implemented this approach in a pilot study in Tokyo, Japan. The paper provides estimates of the value of a statistical life based on the pilot study and describes extensions of the approach based on test results.

The preliminary results from the Tokyo pilot indicate that individuals are able to distinguish between different magnitudes of small changes in mortality risks and between the same change in these risks occurring at different times (although the latter has not yet been subjected to an external scope test). Changes to the survey and a big increase in sample size may improve performance on the internal validity tests and the results of the scope tests. Although the current results can only be considered suggestive, if they were to remain after administration of the survey to a larger sample, and subject to some other caveats, they would imply that the VSL's currently used in benefit-cost analyses of environmental policies are significant overestimates.

Abstract: Title IV of the 1990 Clean Air Act Amendments (CAAA) established a market for transferable sulfur dioxide (SO₂) emission allowances among electric utilities. This market offers firms facing high marginal abatement costs the opportunity to purchase the right to emit SO₂ from firms with lower costs, and is expected to yield cost savings compared to a command and control approach to environmental regulation. This paper uses econometrically estimated marginal abatement cost functions for power plants affected by Title IV of the CAAA to evaluate the performance of the SO₂ allowance market. Specifically, we investigate whether the much-heralded fall in the cost of abating SO₂, compared to original estimates, can be attributed to allowance trading. We demonstrate that, for plants using low-sulfur coal to reduce SO₂ emissions, technical changes and the fall in low-sulfur coal prices have lowered marginal abatement cost curves by over 50% since 1985. The flexibility to take advantage of these changes is the main source of cost reductions, rather than trading per se. In the long run, allowance trading may achieve cost savings of $700-$800 million per year compared to an "enlightened" command and control program characterized by a uniform emission rate standard. The cost savings would be twice as great if the alternative to trading were forced scrubbing. However, a comparison of potential cost savings in 1995 and 1996 with actual emissions costs suggests that most trading gains were unrealized in the first two years of the program.

Abstract:

There is concern in the United States that the public worries about trivial risks while ignoring larger ones. Even more troubling is the fact that large amounts of money are spent on programs that reduce trivial risks while programs that are more cost-effective and address more serious risks are ignored. An example that is often cited to substantiate this view is that many public health programs with a low cost-per-life saved are underfunded, while many environmental regulations with a high cost-per-life saved are issued each year. Analysts such as Chauncy Starr and Kip Viscusi conclude that resources are misallocated and that this misallocation exists because people are irrational in their desires for risk reduction.

In this paper, which presents the results of a survey of 1000 randomly-selected U.S. households asked to make the choice between environmental health and public health programs, the authors examine the qualitative and quantitative factors that appear to influence those choices, and report their findings regarding a number of questions: (1) When environmental and public health programs save the same number of lives for the same cost, does the public have a greater preference for environmental health programs? (2) Which qualitative risk and program characteristics are important in explaining people's choices among programs? (3) Do lives saved matter in choices among programs? (4) How important are the risk and program characteristics in relation to the number of lives saved by a program? Equivalently, what is the percentage change in lives saved corresponding to a given percentage change in each qualitative characteristic that will keep respondents equally happy? (5) Given a vector of qualitative characteristics describing each program, how many more lives would one program have to save compared to another to make the median respondent indifferent between them?