GREQAM Groupement de Recherche en Economie Quantitative d'Aix-Marseille - UMR-CNRS 6579 Ecole des Hautes Etudes en Sciences Sociales Universités d'Aix-Marseille II et III Document de Travail n°2008-05 MONETARY VALUES FOR AIR POLLUTION RISK OF DEATH: A CONTINGENT VALUATION SURVEY Olivier CHANEL Stéphane LUCHINI February 2008 halshs-00272776, version 1 - 11 Apr 2008 Mo n e ta r y Valu e s for A ir Pollu tio n Ris k of Death: A Contingen t Valuation Survey ∗† Olivier Chanel Stéphane Luc hini Greqam-Idep Greqam-Idep CNRS CNRS Fe bruary 2008 Abstract In this paper, we extend the individual dynamic model of life-time resource allocation to assess the monetary value given to the increase in survival prob- abilities of every mem ber of a household induced by improved air quality. We then interpret this monetary value as a flo w of Value of Life Years Lost (VOLY), and estimate the corresponding Value of a Prevented Fatality (VPF) for differ- ent ages and differen t household members. Using French contingent valuation data on air pollution, we estimate a mean VOLY of C150,000 and a mean VP F of C2. 15 million. In addition, we find an inverse U-shaped relationship betwe en age and VPF. Keywor ds: Va lue of statistical life, Air pollution, Familial Altruism, Contin g ent Valuation . JEL Classificatio n : D6 , C9 ∗ Financial support from the French En vironment Ministry (Primequal grant n ◦ 36/98) and tech- nical support from the Provence-Alpes-Côte-d’Azur Regional Council are gratefully acknowledged. We thank Marjorie Sweetko and Miriam Teschl for helpful suggestions. † Corresponding author: Olivier Chanel. GREQAM, 2 rue d e la Charité, F-13002 Marseilles, France, e-mail: olivier.chanel@univmed.fr. 1 halshs-00272776, version 1 - 11 Apr 2008 A A halshs-00272776, version 1 - 11 Apr 2008 A A ¯n n n = 1, , ¯n j n T t u t (.) j µ j t S t S t = e −  t 0 µ(s)ds halshs-00272776, version 1 - 11 Apr 2008 t j S t /S j = S t,j n = 1 j n max c j n +t E [u(c j n )] =  T −j 1 0 e −δ t t ¯n  n=1 S j n +t,j n u(c j n +t )dt E[.] u(.) c T c j n +t j n + t δ j 1 +t y t t = j, . . . , T  T −j 1 0 e −rt ¯n  n=1 S j n +t,j n (y j n +t − c j n +t )dt = 0 y j n +t j n +t t  0 r c ∗ j n +t halshs-00272776, version 1 - 11 Apr 2008 c j n +t n c ∗ j n +t λ ∗ H t =  T −j 1 0 e −δ t t ¯n  n=1 S j n +t,j n u(c j n +t )dt + λ ∗  T −j 1 0 e −rt ¯n  n=1 S j n +t,j n (y j n +t − c j n +t )dt λ ∗ V j 1 /λ ∗ (j 1 ) V j 1 λ ∗ (j 1 ) = 1 λ ∗ (j 1 )  T −j 1 0  ¯n  n=1 S j n +t,j n  e −δ t t u(c ∗ j n +t )  + λ ∗ e −rt (y j n +t − c ∗ j n +t )  dt λ ∗ (j 1 ) j 1 j n µ j n D dµ dS j n +t,j n j n + t t  0 W T P dS j n +t,j n W T P  T −j 1 0  ¯n  n=1 dS j n +t,j n  e −δ j 1 +t t u(c ∗ j n +t )  + λ ∗ e −rt (y j n +t − c ∗ j n +t )  dt−λ ∗ (j 1 )W T P = 0 V j 1 /λ ∗ (j 1 ) V j 1 λ ∗ (j 1 ) = W T P  T −j 1 0  ¯n  n=1 S j n +t,j n  e −δ t t u(c ∗ j n +t )  + λ ∗ e −rt (y j n +t − c ∗ j n +t )  dt  T −j 1 0  ¯n  n=1 dS j n +t,j n  e −δ t t u(c ∗ j n +t )  + λ ∗ e −rt (y j n +t − c ∗ j n +t )  dt halshs-00272776, version 1 - 11 Apr 2008 D S j n +t,j n ˜ S j n +t,j n n j n dµ ˜ S j n +t,j n = e −  j n +D j n [µ(s)−dµ]ds e −  t j n +D µ(s)ds = e Ddµ S j n +t,j n n = 1, , ¯n Ddµ dS j n +t,j n = ˜ S j n +t,j n − S j n +t,j n = S j n +t,j n  e Ddµ − 1  ≈ S j n +t,j n Ddµ V j 1 λ ∗ (j 1 ) = (Ddµ) −1 W T P ¯n j n n = 1, , ¯n dµ j j V j 1 /λ ∗ (j 1 ) V j 1 λ ∗ (j 1 ) = ¯n  n=1 V P F n W T P W T P halshs-00272776, version 1 - 11 Apr 2008 j V P F j =  T j e −δ(t−j) S t,j V OLY dt V j 1 λ ∗ (j 1 ) = (Ddµ) −1 W T P = V OLY ¯n  n=1  ¯ T n j n e −δ(t n −j n ) S t n ,j n dt n ¯ T n n δ i i  ii iii halshs-00272776, version 1 - 11 Apr 2008 halshs-00272776, version 1 - 11 Apr 2008 dµ D halshs-00272776, version 1 - 11 Apr 2008 [...]... nicely match the relationship between age and VPF found in the original data Second, we assess a VOLY associated with air pollution risk of death of A1 50,000, which translates into a VPF with a maximum of A2 .5 million at age C C 42 with a mean of A2 .15 million This is in line with the monetary values already C available in the literature 16 References Alberini A and A. Chiabai (2006) Discount Rates in Risk. .. S and S Matsuoka (2005), Risk Perceptions and Value of a Statistical Life for Air Pollution and Trac Accidents: Evidence from Bangkok, Thailand, The Journal of Risk and Uncertainty, 30(3), 261287 Viscusi, K., J., Hakes and A Carlin (1997), Measure of Mortality Risks, The Journal of Risk and Uncertainty 14(3), 213-233 Viscusi W.K., Magat W .A and Forrest A (1988), Altruistic and private valuations... (1999), Health Costs due to Road Trac-related Air pollution, an Impact Assessment Project of Austria, France and Switzerland, Economic valuation WHO Technical Report TEH07, Bern UK DH (1999), Economic Appraisal of the Health Eects of Air Pollution, AdHoc Group on the Economic Appraisal of the Health Eects of Air Pollution London: The Stationary Oce halshs-00272776, version 1 - 11 Apr 2008 Vassanadumrongdee... Nguyen and Y Vailakis (2007), Equilibrium dynamics in an aggregative model of capital accumulation with heterogeneous agents and elastic labor, Journal of Mathematical Economics 43, 287-317 Leksell, I and Rabl, A (2001), Air Pollution and Mortality: Quantication and Valuation of Years of Life Lost, Risk Analysis 21(5), 843-857 halshs-00272776, version 1 - 11 Apr 2008 Manski, C F (2004), Measuring... for familial altruism ( a and αk ) clearly dier from 1 In a scenario eliciting health risks associated with air pollution, Chilton et al (2004) obtained an average VOLY of A4 5,000, with a decreasing trend with age, in C a sample of UK residents Vassanadumrongdee and Matsuoka (2005) found a VPF that ranges from A0 .74 to 1.32 million when measuring Bangkok residents' WTP to C reduce mortality risk arising... scenario dealing with a mortality risk of the same magnitude as that of air pollution, without any mention of 16 Their hypothetical scenario species that the risk reduction is obtained by a medical health check-up only and is thus not fully contextual 15 air pollution itself They found a VOLY of A5 2,000 (median) and A1 18,000 (mean) C C when pooling the CV data of three European countries (France, Italy... from air pollution. 16 Alberini and Chiabai (2006) estimated the WTP of an average 40-year old Italian male to reduce his risk of dying for cardiovascular and respiratory causes The corresponding VPF is about A2 million and can be used to estimate the benets C of environmental policies that reduce air pollution (p 11) Finally, NewExt (2004) present to 40- to 75-year- old respondents a hypothetical... version 1 - 11 Apr 2008 Johannesson, M., and P.-O Johansson (199 7a) , Is the valuation of a QALY gained independent of age? Some empirical evidence, Journal of Health Economics 16(5), 589-599 Johannesson, M and P.-O Johansson (1997b), Quality of life and the WTP for an increased life expectancy at an advanced age, Journal of Public Economics 65,219-28 Johannesson M., Johansson P.-O and Lofgren K.-G... Money and Money v Money Tradeos, NOTA DI LAVORO 8.2006, Fondazione Eni Enrico Mattei halshs-00272776, version 1 - 11 Apr 2008 Alberini A. , Cropper M., Krupnick A and N Simon (2004), Does the value of a statistical life vary with age and health status? Evidence from the US and Canada, Journal of Environmental Economics and Management 48(1), 769792 Alberini A. , Tonin, S., Turvani, M and Aline Chiabai... Denition and Age-Dependency of the Value of a Statistical Life, The Journal of Risk and Uncertainty 25(3), 251-263 Krupnick A (2007), Mortality -risk Valuation and Age: Stated Preference Evidence, Review of Environmental Economics and Policy, 1(2), 261-282 Krupnick, A. , A Alberini, M Cropper, N Simon, B O'Brien, R Goeree and M Heintzelman (2002),Age, Health and the Willingness to Pay for Mortality Risk . Document de Travail n°2008-05 MONETARY VALUES FOR AIR POLLUTION RISK OF DEATH: A CONTINGENT VALUATION SURVEY Olivier CHANEL Stéphane LUCHINI February 2008 . ber of a household induced by improved air quality. We then interpret this monetary value as a flo w of Value of Life Years Lost (VOLY), and estimate the corresponding Value of a Prevented Fatality. (VPF) for differ- ent ages and differen t household members. Using French contingent valuation data on air pollution, we estimate a mean VOLY of C150,000 and a mean VP F of C2. 15 million. In addition,