UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D,C. 20480
March 5, 1993
OFFICE OF
EPA^SAB-EEAC-LTR-93-005 TMEADM.N.STMTQR
Honorable Carol M. Browner
Administrator
U.S. Environmental Protection Agency
401 M Street, S.W
Washington, DC 20460
Subject Science Advisory Board's Comments on the Office of Management and
Budget's "Health-Health" Concept,
Dear Ms, Browner:
On July 14-15, 1992, the Environmental Economics Advisory Committee (EEAC)
meet in Arlington, Virginia and discussed the central premises of the health-health
(sometimes referred to as risk-risk) concept, and the analyses and evidence supporting
the tradeoff suggested by the concept. In its simplest form, health-health postulates
that, under certain conditions, the cost of health and safety regulations reduce individual
income/wealth, and thus reduce resources available to individuals for expenditures on a
wide range of goods and services that contribute to the individual's health, including the
purchase of health care. If the postulated relationship is valid, it is conceivable that a
health/safety regulation could have a net negative effect on aggregate measures of the
nation's health by reducing the income available to people to meet other needs.
1. Background and Charge
On March 10, 1992, James B. MacRae, Jr., Acting Administrator and Deputy
Administrator of the Office of Information and Regulatory Affairs of the Office of
Management and Budget (OMB) wrote a tetter (McRae, 1992) to the Occupational
Safety and Health Administration (OSHA), returning their proposed rufe "Air Contami-
nants Standard In Construction, Maritime, Agriculture, and General Industries" for
further analysis to evaluate how compliance with the rule would affect workers' employ-
ment, wages, and therefore, access to health care. Citing an opinion by the U. S. Court
of Appeals for the District of Columbia, the MacRae letter noted that existing research
(Keeney, 1990) had calculated that each $7.5 million in additional regulatory expendi-
Printed on ftecyefed Paper
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tures may result in one additional death from the adverse health effects associated with
lower incomes (The figure calculated by Keeney was actually $7.25 million in 1984
dollars. It was incorrectly cited in the court decision and the MacRae letter as $7.5
million). Keeney (op- c/f.) was careful to suggest that his estimates were intended to
illustrate general issues not for specific policy uses, noting that; "...It is important to
stress that calculations in this paper are illustrative only (p. 155} [emphasis added]."
Since then, the OMB has raised the issue with regulatory agencies and suggest-
ed that they should recognize the effect of regulatory costs on individuals' expenditures
that affect their health. In particular, they have suggested that regulatory costs lower
individual wealth and consequently can lead to increased mortality rates. In the Charge
given to the EEAC, the EPA Office of Policy, Planning, and Evaluation posed four ques-
tions:
a) How should these issues be addressed to support reviews and reauthori-
zations of laws covering Superfund, other hazardous waste cleanups and
clean water?
b) Is the conceptual argument appropriate for decisions that require the
government to protect health, regardless of costs (e.g., Primary National
Ambient Air Quality Standards}?
c) Is research quantifying the health-health tradeoff worth pursuing? Which
aspects of this issue should receive priority?
d} Is the current research using the best methodology?
The Committee reviewed the literature cited in the OMB letter (op, c/f.) and in
subsequent testimony by MacRae (MacRae, 1992a) before the Senate Committee on
Governmental Affairs, It received a summary of the issue from EEAC Member Dr. W.
Kip Viscusi (who has served as a consultant to the Regulatory Information Service
Center of the Executive Office of the President on this topic} and was informed of the
GAO review of these analyses by Committee Co-Chair Dr. Allen Knesse, Both genera!
and specific problems with the conceptual framework underlying health-health analyses
and its implementation in policy were identified. These comments draw from the
reactions of Committee Members and report their consensus on the issue; they also
reflect as well the Committee's diversity in opinions about what would be necessary to
develop the existing evidence to a point where it could play a role in policy evaluations.
Each of these aspects is addressed below as the Committee seeks to respond to the
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questions given in EPA's charge that are relevant to the appropriate uses of economic
methods in environmental policy analyses,
2. Principal Conclusions
a) The first question posed is so all-encompassing as to be outside the
scope of this review. The further work implied in responses b), c) and d)
may have to be accomplished, at least in part, before the question can be
addressed. The EEAC would be pleased to review proposed analytic
approaches for addressing reauthorization of Superfund and other laws
when these methodologies are available.
b) The logic underlying a health-health analysis is sound,-although as cur-
rently envisioned it would only have narrow applications; furthermore,
there is not presently a sufficient basis, even for such narrow applications,
for determining whether the effect of income changes on health is signifi-
cant or for estimating its magnitude.
c) Additional exploration and analysis is warranted, ideally utilizing a longitu-
dinal data set so that changes in health status (morbidity and mortality)
could be measured and related to changes in income white controlling for
other important factors.
d) It would be inappropriate to describe the published efforts to date as
"research," hence this question can not really be answered. As noted
earlier in this letter, Keeney (op, tit.) described his calculations as "illustra-
tive," and did not recommend their use in decision-making or policy
formulation. Suggestions for appropriate research approaches are provid-
ed in the detailed review following.
3. Detailed Review of Health-Health Analyses
Comparing the mortality risk associated with regulatory costs with the mortality
risk reduction from the regulation makes some sense when the law mandates setting
regulations to protect human health without regard to economic costs, and when the
regulation's only effect is to reduce mortality risks. Given this objective function as
expressed in the law, the process of responding to those objectives requires examining
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net health risk effects. To the extent that lower income is associated with poorer
health, the adverse health effects go beyond increased mortality risk. If large popula-
tions experience both kinds of risk, it will be difficult to judge which risk would be of
greater concern.
If the circumstances do support using the health-health tradeoff to evaluate
policy, it must be made very clear that we do not presently have an adequate empirical
basis for predicting the morbidity and/or mortality consequences of imposing regulatory
costs on society. It is important for the Agency to develop a clear and concise explana-
tion of what is required to implement such a health-health comparison and why the
existing analyses are flawed. Such an exercise would be a much larger enterprise than
the EEAC can undertake without supplementary resources, but as a point of departure
we have summarized below a few of the questions raised about the research we
reviewed.
First, crucial data for implementing the constituent elements in a health-health
framework are about twenty years old and pertain to large groups of people rather then
the behavior of individuals. Life styles have changed considerably in that interval,
especially among the economically advantaged. Smoking and alcohol consumption
have declined among more affluent males, but not among lower income men. These life
style differences are prominent causes of differences in morbidity and mortality between
the two groups.
Second, all of the studies examined by the Committee (except that of Graham et.
a/., 1992) are based on a cross-section analysis of mortality rates (or some other
measure of adverse health status) and some measure of economic status. These
cross-section analyses do not always control for confounding variables. And even
when they do, problems of simultaneity exist, for example when poor health causes
both lower income and a shorter life expectancy.
But even if the cross-section studies were done well, they would not be appro-
priate for the task at hand. Regulations impose relatively small and essentially transito-
ry income losses on large numbers of people without changing other factors such as
education, health capital, genetic endowment, and basic life style, all of which we know
to be important determinants of mortality and other health status outcomes. The
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dynamics of imposing regulatory costs are simply quite different from the static cross
section relationships currently used in the articles by Keeney and Graham et al. (op.
cit),
It also seems plausible that the marginal impact of a decline in income is a
function of the victim's income level. In particular, It appears from the Keeney data (op.
cit) that a decline in income would have a larger effect on lower income groups than
higher income groups. Current research is not sufficient to uncover whether the
marginal and average health effects of a decline in income are the same. Assuming
they are the same (as current analysis does) could produce some seriously mistaken
policy conclusions.
It is possible, for example, that health effects would be greater when a small
number of people lost jobs rather than in situations where a larger number experience
small reductions in their incomes. Studies relating the unemployment rate over a
business cycle to mortality and other social problems are limited, however the paper by
Graham et al, (op, c/f.) suggests that the relationship is not robust. If there were a
positive relationship between unemployment and mortality, the problem would be to
establish the relationship between specific regulatory costs and the unemployment rate.
The Committee identified a variety of additional issues as well. For example,
one should not be concerned simply with the regulation's cost Analysts should be
concerned with its ultimate general equilibrium effects in terms of the costs generated.
If this technique is to be of general use, an effort should be made to deal with adverse
effects of income losses resulting from regulations on health impacts other than
mortality, such as morbidity. Finally, the Committee felt it was important to emphasize
that, although it will be sufficient to deal only with health attributes in some cases, most
regulations will involve other benefit components (such as ecological effects).
As economists, we would recommend the use of benefit-cost analyses that take
full account of alt the benefits and costs associated with any regulatory policy. To the
extent that policy analyses must take place in a constrained setting where statutes limit
the types of information that can be used to evaluate regulations, then in these cases,
health-health comparisons might be appropriate, but only if they are carefully and
correctly calculated. National Ambient Air Quality Standards most certainly involve
many other effects besides decreases in mortality risk and thus cannot be evaluated
solely with health-risk methodology.
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In summary, the Committee has responded to three of the four questions posed.
(The first question is so all encompassing as to be outside the scope of these com-
ments). On the second question, the logic underlying a health-health analysis is sound.
That is, higher levels of household income generally are associated with better health of
its members. However, acknowledging this simple connection does not deny the
complexity of these connections at a societal level. They reflect health care demand
and life style, as well as the demographic and genetic composition of the society being
represented. Although the first two are affected by income, relying on current statistical
analyses as direct inputs to policy analyses based on the existing research record
would be a mistake. There is not presently a sufficient empirical basis for determining
whether the effect of income changes on health is significant or for estimating its
magnitude.
Thus, the answer to the third question is yes, additional research is warranted.
ideally, this would utilize a longitudinal micro data set so that changes in health status
could be measured and related to changes in income while controlling for demographic,
and genetic, characteristics, as well as past life style and health related behavioral
decisions.
We look forward to receiving your response to our comments.
Sincerely,
/mtAuru/
Dr. Raymond C. Loehr, Chair
Science Advisory Board
Dr. Allen Kneese, Co-Chair
Environmental Economics
Advisory Committee
Co-Chair
Environmental Economics
Advisory Committee
ENCLOSURES
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REFERENCES
Graham, J.D., Hung-Chang, B. and Evans, J,S, 1992 Poorer Is riskier, Centers for Risk
Analysis and Injury Control, harvard School of Public Health. Unpublished,
Keeney, R.L, 1990. Mortality risks induced by economic expenditures. Risk Analysis
10:147-159.
(VlacRae, J. B., Jr. March 10, 1992. Letter to the Honorable Nancy Risque-Rohrbach,
Assistant Secretary for Policy, U.S. Department of Labor.
McRae, J.B,, Jr., 1992a. Statement of John B. McRae, Jr. before the Senate Committee
on Government Affairs, March 12, 1992.
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NOTICE
This report has been written as a part of the activities of the Science Advisory
Board, a public advisory group providing extramural scientific information and advice to
the Administrator and other officials of the Environmental Protection Agency, The
Board Is structured to provide balanced, expert assessment of scientific matters related
to problems facing the Agency. This report has not been reviewed for approval by the
Agency and, hence, the contents of this report do not necessarily represent the views
and policies of the Environmental Protection Agency, nor of other agencies in the
Executive Branch of the Federal government, nor does mention of trade names or
commercial products constitute a recommendation for use.
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
SCIENCE ADVISORY BOARD
ENVIRONMENTAL ECONOMICS ADVISORY COMMITTEE
CO-CHAIRS
Dr. Allen V, Kneese, Resources for the Future, Washington DC
Dr. V, Kerry Smith
Department of Economics, North Carolina State University, Raleigh NC
MEMBERS
Dr. Nancy E, Bockstael, Department of Agricultural and Resource Economics, University of
Maryland, College Park, MD
Dr, A. Myriek Freeman. Department of Economics, Bowdoin College, Brunswick, ME
Dr. Charles D. Kolstad, University of Illinois, Urbana, IL
Dr. William Nordhaus, Dept. of Economics, Yale University, New Haven CT
Dr. Bryan Norton. School of Public Policy, Georgia Institute of Technology, Atlanta GA
Dr. Wallace E. Oates, Department of Economics, University of Maryland, College Park, MD
Dr. Paul R. Portney, Resources for the Future, Washington, DC
Dr. Robert Repetto, World Resources Institute, Washington, DC
Dr. Richard Schmalensee, Massachusetts Institute of Technology, Cambridge MA
Dr. Robert N. Sfavins, Harvard University, Cambridge, MA
Dr. Thomas H. Tie ten berg, Dept, of Economics, Colby College, Waterville, ME
Dr. W. Kip Viscusi, Department of Economics, Duke University, Durham, NC
SAB COMMITTEE LIAISONS
Dr, William Cooper (EPEC), University of Michigan, Anne Arbor, Ml
Mr, Richard Conway (EEC), Union Carbide Corporation, Charleston, WV
Dr. Morton Lippmann (IAQC), N.Y. University, New York City, NY
Dr. Roger McClellan (CASAC), Chemical Industry Institute of Toxicology, Research Triangle
Park, NC
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