Download - Session 10B From Diye to Value of Statistical Life: A Case Study for the Islamic Republic of Iran
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GEF
Session 10B
From Diye to Value of Statistical Life: A Case Study for the
Islamic Republic of Iran
Morteza Rahmatian
California State University, Fullerton
Ashgabad, November, 2005
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
This paper present VSL obtained in several approaches:
1. Diye
2. Human Capital Approach
3. Contingent Valuation Method
4. Quality of Well Being (QWB)
5. Income Elasticity Approach
6. Miller Approach
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
Diye is referred to a form of financial compensation to be paid by the perpetrator to the victim’s family.
Diye would seem to fall somewhere
between the modern-day valuation
frameworks set up by the human capital
approach and the theoretically more
complete WTP approach.
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
Diye
Since the monetary value of most of the products designated in Diye fluctuates, we choose to focus on the one item whose value is easy to determine - the Dinar, whose value is based on gold. With 2003 gold prices set at $363.38 per ounce, the value of 1,000 Dinars thus becomes:
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
Diye
(3,515 grams)(0.035274 oz/g)($363.38/oz) = $45,055.
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
Human Capital Approach (HCA)
Considering a worker of average age in Tehran (37 years, which is based on our sample), a retirement age of 62, and a yearly real wage of $1800, an estimate of $ 45,000 results.
HCA VSL = $45,000
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
VSL Using CVM
Contingent Valuation Method (CVM)
was utilized to estimate monetary
values for the avoidance of certain
health symptoms (including the
reduction in the probability of dying
prematurely) in the Greater Tehran Area.
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
VSL using CVM
Respondents were asked:
“If you were placed in a hypothetical market and
were able to purchase avoidance of any of the
listed symptoms, given your budget constraint,
please identify your willingness to pay for
avoiding one day of these symptoms.”
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
VSL Using CVM
Respondents were further asked
to place a dollar value on the
possibility of reduction in death rate by one in one thousand.
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
Characteristics of the respondents
Number of observation 3000
Smokers 25.5%
Male 47.3%
Female 52.7%
Age 37Years
Married 71.2%
Education 9.9 Years
Household size 4.7
Head of household 36.6%
Hours per day out door 5.19
Average monthly income 2,082,068 Rials
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
VSL Using CVM
The mean and median bids for a one in
1,000 reduction in the probability of dying
prematurely are 35,000 and 15,000 Toman,
respectively.
Using the median survey responses results
in a VSL of $66,750.
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
Quality of Well Being (QWB)
Drawing on work by French and Mauskopf (1992) and by Johnson et al. (1997), we make use of a health-status index to link morbidity WTP values to mortality WTP numbers.
Specifically, we perform the following steps to arrive at our VSL estimates:
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
Quality of Well Being (QWB)
1. Convert our WTP survey results into PPP-adjusted U.S. dollars.
2. For each health effect, determine the number of Quality-Adjusted Life-Days lost, using health index numbers developed by Johnson et al.
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
Quality of Well Being (QWB)
3. Calculate a range of estimates
for the Value of a Quality-Adjusted Life-Year (QALY).
4. Combine the value of a QALY with life-years remaining to derive the VSL.
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
Mean and Median Bids for Symptom Avoidance (in Rials)
Symptoms Mean Median Median in $
Cough per day 8,999 4,000 $ 1.78
Shortness of Breath 13,413 7,000 $ 3.12
Chest Pain 10,327 5,000 $ 2.23
Irregular Heart Beat 14,113 8,000 $ 3.56
Vomiting 7,236 4,000 $ 1.78
Headache per day 12,085 5,000 $ 2.23
Sore Throat per day 6,743 3,000 $ 1.33
Eye irritation per day 9,124 5,000 $ 2.23
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GEF
Quality of Well Being (QWB)
First, the WTPs (expressed in Rials) are expressed into US dollars, using the exchange rate of 8000 Rials = $1.
Using the purchasing power parity (PPP) the symptom avoidance are valued from $1.33 (to avoid a day of sore throat) to $3.56 (to avoid a day with Irregular Heartbeat).
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
Quality of Well Being (QWB)
French and Mauskopf (1992) developed an approach for using health-status indexes to derive WTPs for specific symptoms (such as cough, headache, and asthma) from the value of a statistical life. Here, we "reverse the process" to derive an estimate of the VSL from our reported WTP values for specific symptoms.
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
Quality of Well Being (QWB)
Quality of Well-Being index provides a quantitative measure of the perceived severity of specific health conditions, on a scale ranging from 0 (death) to 1 (perfect health). By subtracting a symptom's QWB from one, the portion of the "day lost" due to the symptom is inferred.
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
Quality of Well Being (QWB)
Combining the WTP for avoiding a day with a particular symptom with its QWB index number, it becomes a simple matter to infer the value of a Quality-Adjusted Life-Year (QALY).
Value of 1 Life -Year = (WTP for Avoiding 1 day with symptom * 365)/ (Days Lost)
For instance, using mild cough value of a QALY to be [($1.78)*365 / 0.257] = $2,528.
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
Life Days Lost and Value of Life (in US $)
Symptoms Days Lost Value of 1 Year
$ VSL
Cough per day 0.257 $ 2,528 $ 80,896Shortness of breath 0257 $ 4,424 $141,569Chest Pain 0.299 $ 2,716 $ 86,916Irregular Heart Beat 0.359 $ 3,620 $115,824Vomiting 0.357 $ 1,820 $ 58,236Headache per day 0.244 $ 3,328 $106,508Sore Throat per day 0.170 $ 2,866 $91,722Eye irritation per day 0.230 $ 3,531 $112,991
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
Quality of Well Being (QWB)
• $VSL = ($QALY) x (Life-Years Remaining)
Based on average age of our survey respondents (37), and the Iranian life expectancy of 69 years, 32 years of life remaining for an "average" survey respondent
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
Quality of Well Being (QWB)
The VSL ranges from $58,236 to $141,569, with an average value of $ 99,333.
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
Income Elasticity Approach
Bowland and Beghin (2001) is an attempt to estimate VSL for developing countries by using information from the industrialized nations. This equation accounts for differences in risk, human capital levels, and income. Their work also led to the estimation of an income elasticity of WTP for reductions in the probability of premature mortality.
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
Income Elasticity ApproachThe elasticity, which Bowland and Beghin estimated ranges from 1.52 to 2.27:
WTPA = WTPB (INCA / INCB )ε
Where the A and B subscripts denote two different countries, WTP is the willingness to pay for a particular health effect (value of avoiding premature death), and INC denotes the per capita income in each nation. The ε is the income elasticity of WTP.
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
Income Elasticity Approach
To estimate ε for Iran, we use the Bowland-Beghin equation, along with our Iranian VSL. Assuming a US VSL of $6 million, PPP-adjusted per capita income for the 2 countries, and the range of VSL estimates derived from our study,
ε = 2.44
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
Income Elasticity Approach
This values is compatible with Bowland and
Beghin's predicted range for ε.
This values falls slightly outside Bowland and
Beghin's predicted range for ε, giving further
support to the validity of our morbidity-based
VSL estimation procedure.
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
VSL using the Miller approach.
• Ted R. Miller evaluated the value of statistical life from 68 studies spread over 13 countries.
• Miller concluded that the value of statistical life for any country is typically about 120 times GDP per capita.
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
Conclusions
Diye is very close to the value obtained using thehuman capital approach. (Lower Bound)
CVM on mortality valuation, results in a VSLwhich is about 50 percent higher thanDiye/human capital number.
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Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL
GEF
ConclusionsCVM on morbidity results in VSL of nearly $100,000 with an income elasticity of 2.44. Theseestimates are consistent with values reported inother recent valuation studies for developingcountries.
We speculate that peoples’ attitudes toward the value ofavoiding premature death, as captured by our WTPmortality survey, are strongly influenced by the long-heldDiye tradition.