United Stales
Environmental Protection
Agency
Office of Health and
Ecological Effects
Washington DC 20460
EPA-600/5-79-001e
February 1979
Research and Development
&EPA
Methods Development
for Assessing Air Pollution
Control Benefits
Volume V,
Executive Summary
-------
OTHER VOLUMES CONTAINING DETAILED FINDINGS OF THIS STUDY
Volume I, Experiments In the Economics of Air Pollution Epidemiology,
EPA-600/5-79-001a.
This volume employs the analytical and empirical methods of economics to
develop hypotheses on disease etiologies and to value labor productivity and
consumer losses due to air pollution-induced mortality and morbidity.
In the mortality work, 1970 city-wide mortality rates for major disease
catagories have been statistically associated with aggregate data from sixty
U.S. cities on physicians per captia, per capita cigarette consumption,
dietary habits, air pollution and other factors. The estimated effect of air
pollution on mortality rates is about" an order of magnitude lower than some
other estimates. Nevertheless, rather small but important associations are
found between pneumonia and bronchitis and particulates in air and between
early infant disease and sulfur dioxide air pollution.
The morbidity work employed data on the generalized health states and the
time and budget allocations of a nationwide sample of individual heads of
household. For the bulk of the dose-response expressions estimated, air
pollution appears to be significantly associated with increased time being
spent acutely or chronically ill. Air pollution, in addition, appears to
influence labor productivity, where the reduction in productivity is measured
by the earnings lost due to reductions in work-time.
Volume II, Experiments in Valuing Non-Market Goods: A Case Study of
Alternative Benefit Measures of Air Pollution Control in the South
Coast Air Basin of Southern California, EPA-600/5-79-001b.
This volume includes the empirical results obtained from two experiments
to measure the health and aesthetic benefits of air pollution control in the
South Coast Air Basin of Southern California. Each experiment involved the
same six neighborhoood pairs, where the pairings were made on the basis of
similarities in housing characteristics, socio-economic factors, distances to
beaches and services, average temperatures, and subjective indicators of
housing quality. Data on actual market transactions, as registered in single-
family residential property transactions, and on stated preferences for air
quality, as revealed in neighborhood surveys, were collected.
Given various assumptions on income, location, aggregation by areas,
specific housing characteristics, and knowledge of the health effects of air
pollution, both the survey and the property value experiments yielded
estimates of willingness-to-pay in early 1978 dollars for an improvement from
(Continued on inside back cover)
This document is available to the public through the National Technical
Information Service, Springfield, Virginia 22161.
-------
EPA-600/5-79-001e
February 1979
METHODS DEVELOPMENT FOR ASSESSING
AIR POLLUTION CONTROL BENEFITS
Volume V
Executive Summary
by
David S. Brookshire, Thomas D. Crocker (Project Director),
Ralph C. d'Arge
University of Wyoming
Laramie, Wyoming 82071
Shaul Ben-David and Allen V. Kneese
University of Nev Mexico
Albuquerque, New Mexico 87131
William D. Schulze
University of Southern California
Los Angeles, California 90007
USEPA Grant //R805059010
Project Officer
Dr. Alan Carlin
Office of Health and Ecological Effects
Office of Research and Development
U.S. Environmental Protection Agency
Washington, D.C. 20460
OFFICE OF HEALTH AND ECOLOGICAL EFFECTS
OFFICE OF RESEARCH AND DEVELOPMENT
U.S. ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
-------
DISCLAIMER
This report has been reviewed by the Office of Health and Ecological
Effects, Office of Research and Development, U.S. Environmental Protection
Agency, and approved for publication. Approval does not signify that the
contents necessarily reflect the views and policies of the U.S. Environmen-
tal Protection Agency, nor does mention of trade names or commercial products
constitute endorsement or recommendation for use.
ii
-------
PREFACE
This project was initiated in the late fall of 1976, when Drs. Alan
Carlin and Roger Cortesi of the USEPA wished to consider the contributions
economic analysis might make to assessing the values of EPA's environmental
improvement programs. Both men made numerous useful suggestions in the
early stages of the project. Dr. Carlin has been a uniquely valuable
project officer. He has prodded when prodding (in retrospect) was neces-
sary, has offered encouragement at times when discouragement reigned, and
has been a useful technical critic. In short, he has been a highly valued
colleague.
In addition to the principal investigators, many individuals have con-
tributed research studies for this project. These include Dr. Richard M.
Adams of the University of Wyoming; Drs. Maureen L. Cropper and W. Russell
Porter of the University of California, Riverside; and Drs. Robert A. Jones
and John G. Riley of the University of California, Los Angeles. Mr. Narong-
sakdi Thanavibulchai of the University of Wyoming, Dr. Mark A. Thayer of the
University of New Mexico, and Mr. Berton J. Hansen of the University of
California, Riverside, have also made substantive written research contribu-
tions. Mr. Barry Ives and Ms. Kris Kirshner of the University of New Mexico;
Mr. Larry Eubanks and Dr. Robert L. Horst, Jr., of the University of Wyoming;
and Dr. Osman Bubik of the University of the Bosphorus (Turkey) have contribu-
ted their analytical and their organizing talents.
Many research assistants have put in almost countless hours in data
collection, preparation and collation. These are, from the University of
Wyoming, John Accai-do, Rex Adams, Curt Anderson, Julie Berglund, Tony Fest,
Steve Furtney, Clive Jones, David Livingston, Mike Miller, Stephanie Morrow,
Bulent Paker, Morteza Rahmathan, and Mohammed Saidi; and from the University
of New Mexico, David Boldt, Kay Meyer, Lex Tysseling, John Tysseling, and
Dolores Willett.
Drs. Dennis Aigner of the University of Southern California, Shelby
Gerking of the University of Wyoming, Leon Hurwitz of the Department of Phar-
macology at the University of New Mexico, Lester Lave of the Brookings Insti-
tution, Roland Phillips of the Department of Epidemiology at Loma Linda
University, and Eugene Seskin and V. Kerry Smith of Resources for the Future
have provided sound advice and cautions on various aspects of the epidemiological
effort. None, however, are responsible for the results obtained.
Finally, Ms. Stephanie Morrow, Ms. Susan Pynn, Mrs. Wendy Clements, and
Mrs. Levi Stephenson have provided efficient and timely administrative services.
iii
-------
ABSTRACT
The studies summarized by this volume represent original efforts to
construct both a conceptually consistent and empirically verifiable set
of methods for assessing environmental quality improvement benefits.
While the state-of-the-art does not at present allow us to provide highly
accurate estimates of the benefits of reduced human or plant exposure to
air ppllutants, these studies nevertheless provide a set of fundamental
benchmarks on which further efforts might be built. These are: (1) many
benefits traditionally viewed as intangible and therefore non-measurable
can, in fact, be measured and be made comparable to economic values as
expressed in markets; (2) aesthetic and morbidity effects may dominate the
measure of benefits as opposed to previous emphases on mortality health
effects; and (3) the likely economic benefits of air quality improvements
are perhaps as much as an order of magnitude greater than pevious studies
had hypothesized.
IV
-------
CONTENTS
Page
Abstract iv
Figures vi
Tables vii
Introduction 1
Benefit Analysis and the New Generation of Environmental
Problems 2
Epidemiology Experiments . 3
The South Coast Air Basin Urban Experiment 15
The South Coast Air Basin Agricultural Experiment 19
Related Studies 20
General Conclusions 20
Footnotes 22
References 23
-------
FIGURES
Number Page
1 A Representation of the Effect of Air Pollution Upon Labor
Productivity , . , ,...,,,.. 9.
VI
-------
TABLES
Number Page
1 Summary of Two-Stage Linear Estimates of Factors in Human
Mortality Hypotheses not Rejected at the 97,5% Confidence
Level (One-tailed t-test, t >_ 2.0) , , . . 5
2 Methodology for Health Benefits Assessment 6
3 Urban Benefits from Reduced Mortality: Value of Safety for
60 Percent Air Pollution Control 7
4 Major Assumptions Limiting Generality of Results . 10 & 11
5 Distinguishing Features that Enhance the Generality of Results . 12
6 Estimated Aggregate Gains in 1970 U.S. Urban Labor Productivity
Due to a 60 Percent Reduction in Air Pollution 14
7 Alternatives Estimates of Monthly Bids by Household, and
Aggregate Benefits for Air Quality Improvement in the South
Coast Air Basin 17
vii
-------
Introduction
Benefit-cost analysis is a well established mode of applied economics
extensively used for the evaluation of public investment projects. It is
now also being employed increasingly to evaluate new technologies, scientific
programs, and environmental policies. These applications present special
difficulties. Before turning to these more explicitly, it will be useful to
say a little about the history of benefit-cost analysis.
The technique was developed initially to evaluate water resources
investment made by the federal water agencies in the United States,
principally the United States Bureau of Reclamation and the United States
Army Corps of Engineers. The general objective of benefit-cost analysis
in this application was to provide a useful picture of the costs and gains
from making investments in water development. The intellectual "father"
of benefit-cost analysis is often said to be the 19th Century Frenchman,
Jules Dupuit, who in 1844 wrote a study "On the Measure of the Utility of
Public Works." In this remarkable article he recognized the concept of
consumers surplus and saw that consequently the benefits of public works are
not necessarily the same thing as the direct revenues that the public works
projects will generate.
Early contributions to development of benefit-cost analysis as a
practical technique generally did not come from the academic or research
communities but rather from government agencies. The agencies responsible
for water development in this country have for a long time been aware of the
need for economic evaluation of projects. In 1808 Albert Gallatin, Jefferson's
Secretary of the Treasury, produced a report on transportation programs for
the new nation. He stressed the need for comparing the benefits with the
costs of proposed waterway improvements. The Federal Reclamation Act of
1902 which created the Bureau of Reclamation and was aimed at opening
western lands to irrigation required economic analysis of projects. The
Flood Control Act of 1936 proposed a feasibility test based on classical
welfare economics which requires that the benefits to whomsoever they accrue
must exceed costs. In 1946 the Federal Interagency River Basin Committee
appointed a subcommittee on benefits and costs to reconcile the practices of
federal agencies in making benefit-cost analyses. In 1950 the subcommittee
issued a landmark report entitled "Proposed Practices for Economic Analysis
of River Basin Projects." While never fully accepted either by the parent
committee or the federal agencies, this report was remarkably sophisticated
in its use of economic analysis and laid an intellectual foundation for
research and debate which set it apart from other major reports in the realm
of public expenditures. This document also provided general guidance for
the routine development of benefit-cost analysis of water projects which
1
-------
persists to the present day.
Even while the benefit-cost technique was limited largely to the
relatively straightforward problem of evaluating water resources investments
there was much technical debate among academic economists about the proper
way of handling both empirical and conceptual difficulties with the
technique. Some of the discussion surrounded primarily technical issues,
e.g. ways of computing consumer surplus and how best to estimate demand
functions for various outputs. Others were more clearly value and equity
issues, e.g., whether the distribution of benefits and costs among
individuals needed to be accounted for or whether it was adequate to
consider only aggregates, and what is the appropriate rate of time discount
to use on water projects.
Benefit Analysis and the New Generation of Environmental Problems
The next large task of environmental regulation in this country is to
manage the flow of toxic and hazardous materials into our environment in some
socially optimum manner. To the extent that this effort is to be aided
by explicit benefit-cost analyses, the capabilities of the technique will be
stretched to its limits. Both the empirical and value issues which have
existed in the traditional water resource applications are aggravated.
While water resource applications often involve the evaluation of public
goods (in the technical economic sense of goods exhibiting jointness in
supply) the bulk of outputs pertain to such things as irrigation, navigation,
flood control and municipal and industrial water supplies which usually
could be reasonably evaluated on the basis of some type of market information.
In the newer applications we are dealing almost entirely with public goods
where market surrogates are much more difficult to establish. The problem of
finding justifiable monetary values on outcomes of the projects or regulatory
decisions is a very difficult one.— in most instances there will be two
central questions: How does one obtain a dose-response function, and what
value does one place on risks to life, health, and aesthetic phenomena?
The research efforts reported in the four volumes synthesized in this
executive summary represent a variety of attempts to elevate the state-of-
the-art in assessing the benefits of environmental quality enhancement.
There are two primary areas of emphasis. First, new experimental techniques
for measuring the value of air quality improvements and other environmental
amenities are developed and tested for a specific area, the South Coast Air
Basin of southern California. However, the study of the South Coast Air
Basin is not holistic in that some types of effects such as oxidant damage
to materials and forests have not been evaluated. Second, the analytical
and empirical methods of economics are used to develop hypotheses on disease
etiologies and to value labor productivity and consumer losses due to air
pollution-induced mortality and morbidity. Since the major focus for
each area of emphasis has been on methodological development and experiment-
ation, all the reported empirical results are only properly regarded as
tentative and ongoing rather than definitive and final. For policy
applications, these results require further refinement. Nevertheless, these
results do suggest that previous commentaries may have substantially
underestimated the economic losses caused by the aesthetic and the morbidity
impacts of air pollution, and, by implication, benefits of improvements in
2
-------
air quality. We turn first to what we call the epidemiology experiments.
Epidemiology Experiments
Volume I focuses on developing methodology for valuing the benefits
to human health associated with air pollution control. Air pollution may
affect human health in three ways: (1) by increasing mortality rates;
(2) by increasing the incidence and severity of chronic illness (morbidity);
and (3) by increasing the incidence and severity of acute illness (morbidity)
A number of approaches for determining health effects and valuing them
in economic terms are developed within the study. First, if a dose-
response relationship is known between mortality rates and air pollution
or between days lost from work due to illness (productivity loss) and air
pollution, economic losses can be approximated. In the former case, one
must know how consumers value increased safety. Thus, if air pollution
control reduces risk of death from air pollution related disease, studies
of the value consumers place on safety in other situations -- on the job,
in transportation, etc. — can be applied to measuring the benefits of
pollution control programs. Note, however, that valuing safety for small
changes in risk is very different from the alternative of valuing human life
through lost earnings. The latter approach is rejected in this study.
Rather, the focus is on examining the value of safety to individuals. That
is, how much are consumers willing to pay for the reduced risks to health
obtained through pollution control? For morbidity losses, lost time from
work and lost productivity during hours of work can be relatively easily
valued by using observed wage rates.
A second approach for valuing the effects of air pollution on human
health is to attempt to observe the direct effect of air pollution on
economic factors, thus avoiding the necessity of developing dose-response
relationships. If one can develop relationships employing data on wages,
wealth, and socioeconomic and health status characteristics as well as
pollution exposures, consumer willingness to pay to avoid illness can be
derived. We term this second methodology the willingness to pay approach.
It is based on traditional microeconomic theory.
In regard to these approaches two experiments were conducted. First,
a data set on sixty U.S. cities was explored to determine if some of the
problems of aggregate epidemiology — epidemiology using aggregate data on
groups of individuals as opposed to data on individuals — can be overcome.
The study attempted to estimate a human dose-response expression in which
1970 city-wide mortality rates for major disease categories are statistically
associated with population characteristics such as doctors per capita,
cigarettes per capita, information on dietary patterns, race, age, and air
pollution. The study is unusual in two respects. First, it is the first
aggregate epidemiological study of the effect of air pollution on mortality
to include dietary variables, which along with smoking and medical care,
prove to be highly significant statistically. Second, the study accounts
for the fact that human beings will attempt to adjust to disease by seeking
out more medical care. Thus, cities with higher mortality rates are likely
to have more physicians per capita. This adjustment process has in the
-------
past prevented an estimate of the direct effect of physicians on the
prevention of disease. An estimation technique capable of accounting for the
actual contribution medical care makes to reducing mortality rates is
employed. The impact upon the analysis of including these new variables
and employing the heretofore epidemiologically unused estimation technique
is striking. In fact, the total effect of air quality on mortality is about
an order of magnitude smaller than other estimates.— Rather small but
important associations are found between pneumonia and bronchitis and
particulates in air and between early infant disease and sulfur dioxide
air pollution. The direction of the associations which were found among
all the variables are shown in Table 1.
The sixty city study does, however, have a number of remaining
problems. These incluse biases introduced by using aggregate as opposed
to individual data, the exclusion of data on radiation, exercise, and
migration of individuals between cities, and the possibility that individuals
may die from combinations of causes.
Given these qualifications, it is possible to construct benefit
measures using the methodology briefly summarized in Table 2.
First, to obtain national estimates, it is necessary to know the
population at risk. Since the sixty city sample is entirely urban, and
since toxic air pollution is principally an urban problem, a population
at risk for 1970 of 150 million urban dwellers was used. As a range for
the value of safety, Thaler and Rosen's (1975) estimate of $340,000
(in 1978 dollars) was used as a lower bound and Smith's (1977) estimate of
$1,000,000 as an upper bound. Finally, to provide an estimate of reduced
risk from air pollution control, an average 60 percent reduction in
ambient urban concentrations was assumed for both SOo and particulates.
Then, using the mean concentration of these pollutants in the sixty city
sample as a basis for calculation, it was possible to derive the average
reduction in risk of pneumonia mortality for a 60 percent reduction in
particulates and the average reduction in risk of infant diseases for a
60 percent reduction in SC>2 from the estimated dose-response functions
for these diseases.
Multiplying the population at risk by the assumed value of safety
and then by the average reduction in risk given a crude approximation of
the benefits for a 60 percent reduction in national urban ambient concentra-
tions of particulates and SO^ respectively. National urban totals and the
value of the average individual risk reduction are shown in Table 3.
The second major experiment focused on morbidity rather than mortality.
It employed data on the health and the time and budget allocations of a
random sampling of the civilian population nationwide. The sample, which
was collected by the Survey Research Center of the University of Michigan,
consisted of approximately 5,000 heads of households for nine years starting
in 1967. Generalized measures of acute illness, stated in terms of annual
work-days ill, and chronic illness, stated in terms of years of illness
duration, were available. The measures of illness were substantially less
than ideal. For example, individuals who died between the reference year
A
-------
Table 1
Summary of Two-Stage Linear Estimates of Factors in Human Mortality
Hypotheses not Rejected at the 97.5% Confidence Level
(One-tailed t-test, t >_ 2.0)
Variable
(Sign of Hypothetical
Effect)
Doctors/Capita* (-)
Median Age (+)
% Nonwhite (+)
Cigarettes (+)
Room Density (+)
Cold (+)
Animal Fat (+)
Protein (+)
Carbohydrates (?)
N02 (+)
so2 (+)
Particulates (+)
2
R
Total
Mortality
Rate
_
+
+
+
+
+
+
.82
Vascular
Disease
+
+
Heart
Disease
_
~i-
+
+
+
i
i
i
.60 .77
Pneumonia
and
Inf luenze
+
-f
+
. 54
Emphysema
and
Bronchitis
_
+
-
.39
Cirrhosis
+
+
+
.64
,
Kidney
Disease
-
+
+
Congenital.
Birth
Defects
+ i
(
i
.54
.22
Early
Infant
Diseases
Cancer
—
+
+ +
+
.55
!
4-
+
.86
*Two-stage estimator employed.
-------
Table 2
Methodology for Health Benefits Assessment
Benefits = (Population at Risk) x (Value of Safety) x
(Reduction in Health Risk)
Value of Safety Based on Consumer's Willingness to Pay
Low estimate: $340,000
Source: Thaler & Rosen (1975)
High estimates: $1,000,000
Source: Robert Smith (1977)
-------
Table 3
Urban Benefits from Reduced Mortality:
Value of Safety for 60 Percent
Air Pollution Control
Disease
Pollutant
Average Individual
Safety Benefit
(1978 Dollars/Year)
National
Urban Benefits
(1978 Billion Dollars/Year)
Penumonia
Early Infant
Disease
Total
Particulates
SO,
29 - 92
5-14
34 - 106
4.4 - 13.7
.7 - 2.2
5.1 - 15.9
-------
of the interview and the time of the interview are not included, and years
of illness duration are defined in terms of dissimilar multiples of years
rather than the actual number of years.
For most of the dose-response expressions estimated in this part of
the study, air pollution appears to be significantly associated with
increased time being spent acutely or chronically ill. Air pollution,
in addition, appears to influence labor productivity, where the reduction
in productivity is measured by the earnings lost due to reductions in work
time and effort. The reduction in productivity due to air pollution-
induced chronic illness seems to be much larger than any reductions due to
air pollution-induced acute illness.
Figure 1 is a hueristic representation of the structure forming the
basis of our estimate of potential labor productivity gains from air
pollution control. Air pollution is viewed as increasing directly both
chronic and acute illness. In addition, it causes an indirect increase in
acute illness via its positive effect on chronic illness. Acute illness
reduces hours worked, but, because of its passing nature, it has no impact
upon the worker's long-term productivity that determines the level of his
wages. However, chronic illness, which does reduce long-term productivity,
exerts a direct negative influence on both wages and hours worked. It also
influences hours worked in an indirect manner through its effect upon wages.
Table 4 is a succinct list of the major assumptions underlying our
empirical implementation of the structure depicted in Figure 1 and its
extrapolation to a national aggregate. We divide these assumptions into
four classes: specification, measurement, estimation, and aggregation.
The table also indicates the probable direction of bias, if any, the
assumption introduces. However, we do not now know the sensitivity of
our estimates and calculations to any particular assumption or to the entire
set of assumptions. Upon reviewing Table 4, the judicious reader will
immediately become aware that our listing is sufficiently strenuous to
raise some questions about whether our estimates and calculations are yet
sufficiently compelling to warrant their serious use.
In spite of the lengthy listing of assumptions, we emphasize that our
treatment of the system in Figure 1 has several positive distinguishing
features. To balance any negative impressions established from Table 4, we
list these positive features in Table 5. Our estimates of the system
in Figure 1 are presented in Volume I, Table 6.3. As a result of a one-
unit (ug/m ) increase in air pollution utilizing the relationships in
Table 6.3, we estimate that the representative person will have his annual
work hours reduced by 0.547 hours. Of this reduction, only 0.046 hours will
be due to acute illness. The loss in labor productivity suffered by this
person can be calculated by (where A stands for change):
A(Work hours Wage) _ A(Work hours) A(Wage)
„',-,-, ,, : % — ~ . ,-n -, -> : r~ • Wage + — : • Work nours
A(Pollution) A(Pollution) A(Pollution)
Upon performing this calculation, we obtain:
= (0.547)($3.225) + ($0.071)(1560.895)
= $2.86.
8
-------
Figure 1
A Representation of the Effect of Air Pollution
Upon Labor Productivity
A i r
!'ol
Jut
ion
-------
Table A
Major Assumptions Limiting Generality of Results
Specification
1. Air pollution affects only the duration of chronic illness. Our in-
attention to the severity of chronic illness tends to reduce the estimated
impact of air pollution on labor productivity.
2. Occupational exposures to hazards and environmental pollutants other
than air pollution do not influence either acute or chronic illness. If
air pollution is moderately and positively associated with these hazards
and polutants, this assumption tends to increase the estimated impact of
air pollution on labor productivity.
3. Annual geometric mean ambient concentrations of total suspended
particulates serve as an adequate proxy for all forms of air pollution.
The effect of this assumption upon the estimated effect of air pollution on
labor productivity is unknown.
4. All relationships depicted in Figure 1 are linear. It is unknown
what effect this assumption has on the estimated effect of air pollution
on labor productivity.
5. Air pollution-induced health effects do not cause the voluntary
substitution of leisure for work. This assumption tneds to reduce the
estimated impact of air pollution on labor productivity.
Measurement
6. Air pollution exposures for each individual in the sample are
adequately represented by a single annual average of ambient concentrations
obtained at a single monitoring station within the individual's county of
residence. Since pollution monitoring stations in the early part of the
1970's were predominantly in downtown urban locations, individuals' air
pollution exposures probably tend to be exaggerated. This will reduce the
estimated health effects of air pollution.
7. The duration of any air pollution-induced chronic illness cannot
exceed ten years. This will reduce the estimated effect of air pollution
upon the duration of chronic illness.
8. Housewives, retirees, and students, who together constitute about
twenty percent of our samples, do not contract air pollution-induced acute
illnesses. This assumption will tend to reduce the estimated impact of air
pollution upon labor productivity.
9. Air pollution-induced chronic and acute illnesses are a constant pro-
portion of all illnesses. The effect of this assumption is unknown.
(continued)
10
-------
Table 4
(continued)
10. The quality of preventive and ameliorative medical care an individual
consumes is adequately measured by whether or not he has medical insurance.
This assumption has an unknown effect upon our estimates.
11. Relative air pollution concentrations across the U.S. have been
fairly constant. This assumption has an unknown effect upon our estimates
of air pollution-induced chronic illness.
12. When interviewed, the individuals in the sample had no incentive to
bias their answers nor did they have difficulty accurately recalling their
personal medical histories of the previous twelve to sixteen months. The
effect of this assumption upon our estimates is unknown.
13. No individual who would otherwise have been included in the sample
died between the time for which information was to be gathered and the time
of the interview. In fact, about five percent of the potential respondents
died each year. The effect of this assumption is to reduce the effects of
air pollution upon labor productivity.
Estimation
14. With the available data, classical linear regression procedures
provide consistent and unbiased estimates of the structure depicted in
Figure 6.1. The effect of this assumption upon our estimates is unknown.
Aggregation
15. The response of the health state of each individual in the U.S. to
any given change in ambient air pollution is a constant. The effect of
this assumption upon the calculation for the aggregate effect of air
pollution upon labor productivity is unknown.
16. The response of the health state of every individual in the U.S. to
ambient air pollution changes is identical. The effect of this assumption
upon the calculation for the aggregate effect of air pollution upon labor
productivity is unknown.
11
-------
Table 5
Distinguishing Features that Enhance
the Generality of Results
1. The acute illness and chronic illness dose-response estimates used
to calculate the aggregate impact of air pollution-induced morbidity upon
U.S. labor productivity are representative of estimates obtained from many
different independent samples drawn from the same data set. In effect,
substantial quasi-replication of the dose-response estimates has been
performed.
2. The system is estimated only for people who have always lived in one
state. We believe this restriction enhances the extent to which we capture
the effect of the history of air pollution exposures upon the chronic illness
dose-response function.
3. Our estimated expressions for wages and hours worked are very
similar to those obtained by other economists.
4. We include more information on life-styles and genetic and social
endowments than is usually included in dose-response expressions estimated
from epidemiological data.
12
-------
That is, a one-unit reduction in aijc pollution would have increased this
representative person's 197Q earnings by $2.86. Only $0.15 of this sum
represents the gain from a reduction in acute illness.
The above $2.86 sum represents our "best" estimate at this point of
the representative person's gain in 1970 earnings from a one-unit reduction
in air pollution. Lower and upper bounds for this estimate can be establish-
ed by making use of the confidence intervals for the effect of pollution
on chronic and acute illness; that is, we wish to calculate the gain in
earnings when the pollution coefficient in Table 6.3, equation 1 is
0.0028 ± 0.0011, and when the pollution coefficient in equation 2 is
0.623 ± 0.317. At least for the chronic illness expression, this confidence
interval captures nearly all the range of the values for the pollution
coefficients estimated in twelve different chronic illness expressions, each
of which was estimated from a separate sample. Upon performing this
calculation for the lower bound, we obtain $1.88, and for the upper bound,
we obtain $3.84.
Assume that the average exposure of the U.S. 1970 urban population to
annual geometric mean total suspended particulates was 10.0 ug/m^ and that
the standard deviation of these exposures was 30 pg/m^. Throughout this
study, total suspended particulate measures have been highly correlated
with other air pollutants so that total suspended particulates probably
serve as an adequate proxy for all air polution. Further assume that the
national urban population is approximately 150 x 106 people, of whom 75
percent, or 112.5 x 10^, are 16 years or older. At age 16, each of these
adults has a lifespan of 56 years and any air pollution induced chronic
illnesses he contracts are distributed rectangularly over the 56 years.
The annual earnings he loses due to the presence of an acute or chronic illness
do not vary over the 56 years.
If the medium household size is 2.0, there are then 56.25 x 10&
urban household heads. There is thus a $160.88 x 10& = ($2.86) (56.25 x 10&)
gain in the labor productivity for household heads from a one unit
reduction in air pollution.
If two-thirds of the household heads are married, if 35 percent of
these households have working wives, and if working wives earn 60 percent as
much as their male counterparts, there would then be a $22.58 x 10" =
($2.86) (0.6) (13.13 x 10^) gain in the labor productivity of working wives.
If the value of household services provided by all household members
in each urban household is 40 percent of the market earnings of the
household head, there would then be a $64.35 x 106 = ($2.86) (0.4) (56.25 x
106) gain in the household labor productivity of all urban households.
Adding the results for household heads, working wives, and household labor,
we obtain a $247.81 x 10^ gain in labor productivity for a one unit
reduction in air pollution. A 60 percent reduction in 1970 air pollution
would then, in August 1978 dollars, increase the value of 1970 urban labor
productivity by $25.28 x 10^ dollars. This "best" estimate and its upper
and lower bounds are presented in Table 6. Most of the gain would accrue
due to reductions in air pollution-induced chronic illness. If one performs
13
-------
Table 6
Estimated Aggregate Gains in 1970 U.S. Urban Labor Productivity Due to a
60 Percent Reduction in Air Pollution
(August 1978 Dollars)
Aggregate
Lower Bound 16 x 10
"Best" Estimate 25 x 109
Upper Bound 34 x 10
14
-------
these identical calculations in precisely the same fashion for a 1977
U.S. total population of 216.1 x 10^, one obtains a "best" estimate of
$36.4 x 10?.
It must be strongly emphasized that the magnitudes exhibited in
Table 6 are extremely sensitive to the assumptions we have made. Never-
theless, given any reasonable set of assumptions about air pollution
exposures, size of the population exposed, etc., the estimates of labor
productivity gains in Table 6 are much larger than previous estimates of
all types of annual gains- from air pollution control in the United States.
No gains in labor productivity, via reductions in air pollution-induced
health effects, have previously been developed. It thus appears that the
economic gains from the morbidity reduction effects of air pollution control
may have been greatly undervalued, perhaps because most prior research
efforts have concentrated upon mortality rather than morbidity.
The South Coast Air Basin Urban Experiment
The South Coast Air Basin of southern California was selected to
test some benefit measures of air pollution control. In this case both
health and aesthetic considerations were involved. For the household
sector, two rather distinct approaches to valuation of environmental
quality have emerged from recent research. The first involves the
analysis and observation of how some pertinent actual market prices, such
as real property prices, are influenced by environmental qualtiy attributes.
The second tries to induce individuals to reveal directly their actual
preferences, in monetary terms, for environmental attributes. Clearly,
there should be a well-defined relationship between what people do pay
through differences in property values and what they say they will pay,
provided there are no incentives for them to distort their bids. New
survey techniques include ways of testing whether there are distortions
in what people say they will bid.—
During the past few decades, in general, air quality in the Los
Angeles area has deteriorated substantially. However, in some neighborhoods
deterioration has been slight, e.g., communities adjacent to the Pacific
Ocean, while in others, the deterioration has been relatively severe as
measured by concentrations of N02 or total oxidants. The researchers
believed the Los Angeles are, therefore, would be a good location to make
test comparisons of the effects of air quality on housing prices and
individual stated preferences where the comparisons could be contained within
a single large metropolitan area.
The South Coast Air Basin urban experiment consisted of an attempt to
value air quality through examination of differences in property values and
through an interview survey instrument designed to elicit willingness to
pay for improved air quality.
Six pairs of neighborhoods were selected for comparison purposes. The
pairings were made on the basis of similarities of housing characteristics,
socioeconomic factors, distance to beach and services, average temperature,
and subjective indicators of the "quality" of housing. Thus, for each of
15
-------
the pairs, an attempt was made to exclude effects on property values other
than differences in air quality. A survey of randomly selected residents
of single-family dwellings was then conducted for each paired neighborhood
to discover attitudinal preferences and valuation responses.
A naive statistical comparison of these paired neighborhoods indicates
that property value differentials between poor and fair air quality locales
may be as high as $140 per month per household. Utilizing more advanced
economic models, which better take into account factors other than pollution
such as distance to ocean and differences in tastes which may influence
property values, willingness to pay inferred from the property value
differentials is about $40 per month. As a reasonably comparable estimate,
the survey results showed an average bid of slightly less than $30 per
month. Thus, there is comparability between the magnitudes obtained between
the survey and property value study estimates. Given various assumptions on
income, location, aggregation by areas, specific housing characteristics,
and knowledge on the health effects of air pollution, both the survey and
property value studies will yield estimates ranging from $20 to $150 per
month per household. These preliminary results indicate that air quality
deterioration in the Los Angeles area has had substantial effects on
housing prices and that these negative price effects on housing are comparable
in magnitude to what people say they are willing to pay for improved air
quality.
Crude estimates can be made to deduce willingness to pay for improved
air quality throughout the South Coast Air Basin. Difficulties are
encountered in making data sets or groups of diverse individuals exactly
comparable. Differences are observed between the survey and property
valuation groups in average income, age (the mean age in the survey exceeded
42 years) and other socioeconomic factors. These differences have not been
controlled for in the following estimates of the aggregate willingness to
pay for air quality improvement in the South Coast Air Basin.
In Table 7 are recorded estimates of monthly bids by households and,
by aggregation, estimates of the benefits for an approximate 30 percent
improvement in air quality within the South Coast Air Basin. It should be
noted that these experimental measures, while reflecting approximate
valuations, need further refinement before they can even cautiously be
applied to environmental policymaking. Nevertheless, they do suggest that
dollar benefits from an improvement in air quality in the South Coast Air
Basin are very large.
From the methodological standpoint it appears from these priliminary
results and comparisons that survey studies will tend to give a lower
valuation of air quality improvement than observations based on what happens
in an extremely volatile property market. However, only after substantial
further statistical examination and comparability checks between the two
methods will the researchers be able to state unequivocably how these
relationships may turn out. The results compiled in this study, however,
suggest that survey instruments, when compared to property value techniques,
provide a reasonable mechanism to obtain environmental quality benefit
estimates. The survey approach has the advantages that: (1) data can be
16
-------
Table 7
Alternatives Estimates of Monthly Bids by Household,
and Aggregate Benefits for Air Quality
Improvement in the South Coast
Air Basin
(Approximate 30 Percent Improvement in Ambient Air Quality)
Bid per household per month
(in dollars)
Annual benefits (in billions
of dollars) (selected areas
and groups of the South
Coast Air Basin)
1977 Dollars
Property Value Study
Survey Study
Paired
Communities
$135
$3.96
Calculated
Marginal
Willingness
to Pay*
$.95
Mean
Bid
$29***
$.65
*This benefit calculation is considered an improvement over the paired
sample approach since explicit account is made for a number of housing and
neighborhood variables not captured in the paired communities comparison.
•-"^Best estimate. The possible range is $26-63 per month.
***Based on maximum total bid with an adjustment for the number of years
to achieve improvements in air quality.
17
-------
collected at low cost on specific environmental problems (the investigator
is not tied to the availability of existing data sets); and (2) benefit
measures can be disaggregated across individuals and sources of benefits
from various characteristics such as aesthetic experiences and perceived
health can be obtained.
As a final caution, it should be kept in mind that the South Coast
Air Basin studies were conducted in an area where individuals have both an
exceptionally well-defined pollution situation that they have experienced
and a well-developed property value market for clean air. The effect of
clean air on property values, and in turn, on the degree to which people
are aware of increased housing prices in high air quality areas appears to
be exceptionally well specified at this time in the South Coast Air Basin.
Also worthy of note is that 19.70 property values on the basis of earlier
studies have shown a much weaker association with air quality than those
that were obtained utilizing the 1977-78 air quality data set used here.
We -feel that this change reflects a substantial shift in interest and
concern over air quality for this regional population. Therefore, it
should be recognized that the results of this experiment may well not
generalizable to other situations where the environmental commodity, i.e.,
air quality, is not so well specified, either through actual market prices
or human perception.
18
-------
The SouCh Coast Air Basin Agricultural Experiment
The fact that air pollution can damage vegetation has been well
documented. Procedures for the measurement of the economic costs associated
with these damages, however, have not been clearly defined. The primary
purpose of the agricultural assessment component of the research effort is
to address and remove some conceptual and empirical limitations of past
studies dealing with economic damages to agricultural crops arising from
air pollution. Specific objectives included: (1) the conceptualization of
an analytic framework for measuring economic damages to agricultural crops;
(2) application of this framework to an actual production region with poor
ambient air quality - namely southern California; and (3) measurement of
agricultural damages for a selected group of 14 annual crops within this
region.
A detailed review of the economic damage assessment literature for
agricultural crops revealed some conceptional weaknesses inherent in
previous studies. These weaknesses pertain to potential effects on both
production and consumption of agricultural commodities. From the stand-
point of consumption, a major issue is possible changes in prices of a
commodity due to the adverse effects of air pollution. That is, if air
pollution damages are widespread or if agricultural production of specific
commodities is concentrated in areas of high pollutant levels, as is the
case for many vegetable crops, then reductions in yield due to air pollution
may translate into changes in respective commodity prices at the local
and national retail level.
The analytical framework proposed in this study, while by no means
definitive, includes price effects directly in the measurement of damages.
Also, the "comparative advantage" nature of the analysis allows for a wider
range of potential producer strategies in the face of rising levels of
pollutants. The output provides an approximation of the net distributional
effects of changes in air pollution.
The research reported in Volume III provides a detailed discussion of
the analytical framework. Yield-response relationships measuring the
decrease in yield due to levels of pollutants and the price-forecasting
equations quantifying the increase in consumer prices accompanying a yield
decrease are evaluated. The fact that yield reductions within southern
California may increase retail prices at the national level is due to the
importance of southern California in the overall production of selected
crops, such as fresh vegetables on a seasonal basis.
The results of the assessment to date cover only the consumer effects
of southern California oxidant pollution, and then only for twelve
vegetable crops (beans, broccoli, cantalopes, carrots, cauliflower, celery,
lettuce, fresh and processed onions, potatoes and fresh and processed
tomatoes) and two field crops (cotton and sugar beets). Total annual
economic losses for each year in the period 1972 through 1975 averaged
$15 million. In 1976, the loss fell to $11 million. Ninety-nine percent
of the 1976 losses are attributable to four crops: celery (68%); fresh
tomatoes (12%); potatoes (10%); and cotton (9%). Similar proportions
were obtained for 1972-1975.
19
-------
From a policy standpoint, the results are perhaps most meaningful in
terms of distributional effects. These results represent damages or costs
borne by all consumers (nationwide), through the higher prices each must pay
for these crops. The effects of air pollution are therefore felt even by
those individuals not residing in areas of high pollution.
Related Studies
The research presented in Volume IV explores various facets of the two
central project objectives: the development of new experimental techniques
for measuring the value of improvements in environmental quality; and the use
of microeconomic methods to develop hypotheses on disease etiologies, and to
value labor productivity and consumer losses due to air pollution-induced
mortality and morbidity. The emphasis is on factors that are not completely
treated in previous volumes. The valuations developed in the previous volumes
were all based on a partial equilibrium framework; that is, economic events
are assumed to be isolated from each other. W.R. Porter considers the
adjustments and changes in underlying assumptions these values would require
if they were to be derived in a more general framework. In a second
theoretical paper, Robert Jones and John Riley examine the impact upon the
aforementioned partial equilibrium valuations of variations in consumer
uncertainty about the health hazards associated with various forms of
consumption.
Two empirical efforts conclude the volume. M.L. Cropper employs and
empirically tests a new model of the variations in wages for assorted
occupations across cities in order to establish an estimate of willingness to
pay for environmental amenities. The valuation she obtains for a 30%
reduction in air pollution concerntrations accords very closely with the
valuations reported in the earlier volumes.
The volume concludes with a report of a small experiment by W.R. Porter
and B.J. Hansen intended to test a particular way to remove certain biases
that bidding game respondents have available to distort their true valuations.
All of these studies tend to qualify the results of the experimental
procedures discussed in earlier volumes. In addition to assorted empirical
weaknesses, further research will require: (1) an adequate specification of
the mobility decision in response to degraded air quality; (2) consideration
of relative price changes not directly related to air pollution as set forth
in Volume II and discussed by Porter; and (3) the manner in which consumers
evaluate a multitude of risks simultaneously, both in eating habits and
pollution exposures where their economic and physical losses are uncertain.
General Conclusions
This compilation of studies represents original efforts to construct both
a conceptually consistent and empirically verifiable set of methods for
assessing benefits of environmental quality improvement. While the state-of-
the-art does not at present allow us to provide highly accurate estimates of
the benefits of reduced human or plant exposure to air pollutants, it is
20
-------
intended to provide a set of fundamental benchmarks. These are: (1) many
benefits traditionally viewed as intangible and thereby non-measurable can, in
fact, be measured and be made comparable to economic values as expressed in
markets; (2) aesthetic experiences and morbidity (illness) effects may
dominate the measure of benefits as opposed to previous emphases on mortality
health effects; and (3) the likely economic benefits of air quality
improvements are perhaps as much as an order of magnitude greater than
previous studies had hypothesized.
The researchers in this study have viewed man as a purposeful, if
imperfectly informed, individual who chooses to respond to both well-defined
market and non-market characteristics of his/her environment. In each
experiment we have discovered that he attempts to respond to the deleterious
effects of air pollution. These reponses have provided at least a partial
roadmap toward identifying how he values the environment in which he must
always live.
21
-------
EXECUTIVE SUMMARY
FOOTNOTES
_!/ Other major problem areas are as follows:
First, such matters as nuclear radiation and toxic materials relate
to exposure of the whole population or large sub-population to very subtle
influences of which they may be entirely unaware. It is difficult to know
what normative value individual preferences have under these circumstances.
Second, we are in some cases dealing with long lived effects which
could extend to hundreds of thousands of years and many, many human
generations. This raises the question of how the rights and preferences of
future generations can be represented in this decision process. Realistic-
ally, the preferences of the existing generation must govern. The question
is whether simple desires of existing persons are to rule or whether it is
necessary to persuade the present generation to adopt some ethical rule or
rules of a constitutional nature in considering questions of future
generations. Such a proposed rule is found in Rawls (1971). Another,
related, question of great importance is whether it is legitimate to discount
benefits and costs over these long periods thus effectively ruling out the
future beyond a relative few years, and if it is legitimate what the proper
rate is.
These issues are being studied by several members of the team that
produced the research sketched in this paper under a grant from the
National Science Foundations's Ethics and Values in Science and Technology
program.
2_l See, for example, Lave and Seskin (.1977).
_3/ For example one possible form of bias is known as "starting point
bias." This is the possibility that the final bid will be influenced by
the starting bid suggested by the interviewers — the higher the latter
the higher the former. A test for this is to start with several different
initial bids for different interviewees and then test to see whether the
final bids are different in a statistically significant sense. Such
tests indicated that starting point bias was not a large problem in the
research reported here.
22
-------
REFERENCES
Lave, L. and E. Seskin, Air Pollution and Human Health, Baltimore:
Johns Hopkins University Press (1977).
Rawls, J., A Theory of Justice, Cambridge: Harvard University Press
(1971).
Smith, R. , "The Feasibility of an 'injury Tax' Approach to Occupational.
Safety," Law and Contemporary Problems, (Summer-Autumn, 1974).
Thaler, R. and S. Rosen, "The Value of Saving a Life: Evidence from the
Labor Market," in N.E. Terlecky J., (ed) Household Production and
Consumption, Columbia University Press, New York (.1975), 265-297.
-------
TECHNICAL REPORT DATA
(Mease read Instructions on the reverse before completing)
1. REPORT NO.
4. TITLE AND SUBTITLE
Methods Development for Assessing Air Pollution Control
Benefits: Volume V, Executive Summary
6. PERFORMING ORGANIZATION CODE
3. RECIPIENT'S ACCESSI Or* NO.
5. REPORT DATE
February 1979
7. AUTHOR(S) Dav1d s_ Brookshire, Thomas D. Crocker,
Ralph C. d'Arge, Shaul Ben-David, Allen V. Kneese,
and William D. Schulze
8. PERFORMING ORGANIZATION REPORT NO.
9. PERFORMING ORGANIZATION NAME AND ADDRESS
University of Wyoming
Laramie, Wyoming 82071
10. PROGRAM ELEMENT NO.
1HA616 and 630
11. CONTRACT/GRANT NO.
R805059-01
12. SPONSORING AGENCY NAMfc" AND ADDRESS
Office of Health and Ecological Effects
Office of Research and Development
U.S. Environmental Protection Agency
Washington, DC 20460
13. TYPE OF REPORT AND PERIOD COVERED
Interim Final, 10/76-10/78
14. SPONSORING AGENCY CODE
EPA-600/18
15. SUPPLEMENTARY NOTES
16. ABSTRACT
The first four volumes summarized by this volume represent original efforts to
construct both a conceptually consistent and empirically verifiable set of methods
for assessing the economic benefits of air quality improvements. While the state-
of-the-art does not at present allow highly accurate estimtes of the benefits of
reduced human or plant exposure to air pollutants, these studies nevertheless
provide a set of fundamental benchmarks on which further efforts might be built.
These are: (1) many benefits traditionally viewed as intangible and therefore
non-measureable can, in fact, be measured and be made comparable to economic values
as expressed in markets; (2) aesthetic and morbidity effects may dominate the
measure of benefits as opposed to previous emphases on mortality health effects;
and (3) the likely economic benefits of air quality improvements are perhaps as
much as an order of magnitude greater than previous studies had hypothesized.
17.
KEY WORDS AND DOCUMENT ANALYSIS
DESCRIPTORS
Economic analysis
Air pollution
Epidemiology
Public health
Environmental surveys
b.IDENTIFIERS/OPEN ENDED TERMS C. COSATI Held/Group
Economic benefits of
environmental pollution
control
13B
18. DISTRIBUTION STATEMENT
Release unlimited
10. SECURITY QLASS (This Report
Unclassified
21. NO. OF PAGES
31
20. SECURITY CLASS /Tliis page)
Unclassified
22. PRICE
EPA Form 2220-t (9-73)
•v US COVfl«(M(N!PRInriNGOfFICM979 -620-007/3753
-------
ERRATA
Please make the change shown below in
METHODS DEVELOPMENT FOR ASSESSING AIR POLLUTION CONTROL BENEFITS,
Volume I, EPA-600/5-79-001a, February 1979, p. 154
Volume V, EPA-600/5-79-001e, February 1979, p. 8
Change $0.071 to 0.071 cents in the first arithmetic equation
on these two pages.
-------
(Continued from inside front cover)
"poor" to "fair" air quality of from $20 to $150 per month per household. The
results, therefore, indicate that air quality deterioration in the Los Angeles
area has had substantial negative effects on housing prices and that these
effects are comparable in magnitude to what people say they are willing to pay
for improved air quality.
Volume III, A Preliminary Assessment of Air Pollution Damages for
Selected Crops within Southern California, EPA-600/5-79-001c.
This volume investigates the economic benefits that would accrue from
reductions in oxidant/ozone air pollution-induced damages to 14 annual
vegetable and field crops in southern California. Southern California
production of many of these crops constitutes the bulk of national production.
Using the analytical perspective of economics, the study provides an up-
to-date review of the literature on the physical and economic damages to
agricultural crops from air pollution. In addition, methodologies are
developed permitting estimation of the impact of air pollution-induced price
effects, input and output substitution effects, and risk effects upon producer
and consumer losses. Estimates of the extent to which price effects
contribute to consumer losses are provided. These consumer losses are
estimated to have amounted to $14.8 million per year from 1972 to 1976. This
loss is about 1.48% of the total value of production for the included crops in
the area and 0.82% of the value of these crops produced in the State of
California. Celery, fresh tomatoes, and potatoes are the sources of most of
these losses.
Volume IV, Studies on Partial Equilibrium Approaches to Valuation of
Environmental Amenities, EPA-600/5-79-001d.
The research detailed in this volume explores various facets of the two
central project objectives that have not been given adequate attention in the
previous volumes. The valuations developed in these volumes have all been
based on a partial equilibrium framework. W.R. Porter considers the
adjustments and changes in underlying assumptions these values would require
if they were to be derived in a general equilibrium framework. In a second
purely theoretical paper, Robert Jones and John Riley examine the impact upon
the aformentioned partial equilibrium valuations under variation in consumer
uncertainty about the health hazards associated with various forms of
consumption.
Two empirical efforts conclude the volume. M.L. Cropper employes and
empirically tests a new model of the variations in wages for assorted
occupations across cities in order to establish an estimate of willingness to
pay for environmental amenities. The valuation she obtains for a 30 percent
reduction in air pollution concentrations accords very closely with the
valuations reported in earlier volumes. The volume concludes with a report of
a small experiment by W.R. Porter and B.J. Hansen intended to test a
particular way to remove any biases that bidding game respondents ahve to
distort their true valuations.
EPA-RTF LIBRARY
-------
United States
Environmental Protection
Agency
Washington DC 20460
RD-683
Postage and
Fees Paid
Environmental
Protection
Agencv
EPA 335
Official Business
Penalty for Private Use $300
Third Class
------- |