Mortality Risk Valuation for Environmental Policy

Most benefit-cost analyses of reductions in air pollutants and other pollutants carrying mortality risks rely on estimates of the value of reductions in such risks produced by compensating wage studies, or contingent valuation studies that value risk reductions in the context of transport or job-related accidents. As we argue below, these estimates are inappropriate when valuing risk changes produced by environmental programs. The objectives of this paper are to explain why these estimates are inappropriate and to describe an improved approach to valuing reductions in risk of death from environmental programs, especially programs to reduce air pollution. We have implemented this approach in a pilot study in Tokyo, Japan. The paper provides estimates of the value of a statistical life based on the pilot study and describes extensions of the approach based on test results. Our preliminary results from the Tokyo pilot indicate that individuals are able to distinguish between different magnitudes of small changes in mortality risks and between the same change in these risks occurring at different times (although the latter has not yet been subjected to an external scope test). Changes to the survey and a big increase in sample size may improve performance on the internal validity tests and the results of the scope tests. Although the current results can only be considered suggestive, if they were to remain after administration of the survey to a larger sample and subject to some other caveats, they would imply that the VSL's currently used in benefit-cost analyses of environmental policies are significant overestimates.