Estimating Health Benefits when Behaviors are Endogenous: A Case of Indoor Air Pollution in Rural Nepal

A majority of rural households in developing countries still use solid fuels for cooking. Many studies show linkages between the indoor air pollution from solid fuels with respiratory health problems. These estimates, however, suffer from an endogeneity bias arising from the effects of health conditions on fuel choice. This study estimates the effects of indoor air pollution on respiratory health after adjusting for endogenous health behaviors. Our study, which includes measurements on indoor air pollution, is based on a detailed survey of 600 rural households from Syangja and Chitwan districts of Nepal. We employ instrumental variable probit regressions to find the effects of pollution-reducing interventions on chronic bronchitis, asthma and acute respiratory infections. The estimates with the instrumental variable approach are found to be larger than those that do not correct for endogeneity. Improved cook stoves and biogas are found to reduce respiratory diseases. We also estimate household shadow values for chronic bronchitis, asthma and acute respiratory infections using the cost of illness method. We estimate the annual reduction in health costs per intervention of stove to be Rs 1,217 and that of biogas to be Rs 647. The health benefits from improved stoves are many times higher than the cost while the health benefits from biogas plant are nearly equal to its cost. We, however, do not include other benefits of the interventions like energy efficiency, forest conservation and reduction in carbon emissions. The comparison between annual health benefits and costs shows that there is no clear reason for not buying the interventions.