Baseline risk and marginal willingness to pay for health risk reduction

Shelby Gerking,Wiktor Adamowicz,Mark Dickie,Marcella Veronesi

doi:10.1007/s11166-017-9267-x

Abstract

Empirical results presented in this paper suggest that parents’ marginal willingness to pay (MWTP) for a reduction in morbidity risk from heart disease is inversely related to baseline risk (i.e., the amount of risk initially faced) both for themselves and for their children. For instance, a 40% reduction from the mean of baseline risk results in an increase in MWTP by 70% or more. Thus, estimates of monetary benefits of public programs to reduce heart disease risk would be understated if the standard practice is followed of evaluating MWTP at initial risk levels and then multiplying this value by the number of cases avoided. Estimates are supported by: (1) unique quantitative information on perceptions of the risk of getting heart disease that allow baseline risk to be defined at an individual level and (2) improved econometric procedures to control for well-known difficulties associated with stated preference data.

Highlights

Estimation of monetary benefits of reductions in risk to human health is central to analysis of policies affecting the environment, transportation, and workplace safety because: (1) protection of human health is emphasized in both the statutory and regulatory framework of the U.S and other countries and (2) benefit-cost analysis is commonly used as an evaluation tool when considering policy changes
This approach rests on the assumption that the marginal willingness to pay (MWTP) for health risk reduction is independent of baseline risk
This paper examines the relationship between MWTP to reduce an aspect of health risk—morbidity risk from heart disease—and baseline risk of this disease

Summary

Introduction

Estimation of monetary benefits of reductions in risk to human health is central to analysis of policies affecting the environment, transportation, and workplace safety because: (1) protection of human health is emphasized in both the statutory and regulatory framework of the U.S and other countries and (2) benefit-cost analysis is commonly used as an evaluation tool when considering policy changes. As illustrated in recent analyses of more stringent diesel fuel standards (U.S Environmental Protection Agency 2000) and air quality regulations (U.S Environmental Protection Agency 2011), estimates of total health benefits generally are obtained by multiplying a marginal willingness to pay (MWTP) measure by the number of illnesses or deaths avoided. This approach rests on the assumption that the MWTP for health risk reduction is independent of baseline risk (i.e., the amount of risk initially faced). Prior empirical studies provide a weak basis for making more refined calculations of total health benefits in light of their conflicting evidence on the relationship between MWTP for health risk reduction and baseline risk. Smith and Desvousges (1987), Lillard and Weiss (1997), Viscusi and Aldy (2003), and Edwards (2008), for instance, find evidence indicating that MWTP to reduce health risk declines as baseline risk rises, but results in Viscusi and Evans (1990), Sloan et al (1998), and Finkelstein et al (2013) support the opposite relationship. Hammitt and Haninger (2010) and Alberini and Scasny (2013) find that MWTP for a unit of health risk reduction is insensitive to changes in baseline risk

Methods

Findings

Discussion

Conclusion