Environmental Economics

A comment on Balmford et al. "The Value of Statistical Life for Adults and Children ..."

Bamford et al. (2019), in the context of estimating the value of a statistical life (VSL), say (emphasis added):

Concerns regarding responsiveness to scope in CV studies are not novel; indeed, instances of scope insensitivity are widespread within the literature (Ojea and Loureiro, 2011). However, investigations into the causes of such problems remain an active area of research (Borzykowki et al., 2018). Despite this, and the crucial importance of scope sensitivity to CV based estimates of VSL, implausibly small sensitivity to scope often appears to be considered acceptable in the field literature (Amrian [sic] and Hagen, 2010; Whitehead, 2016) ...

That's not really what my paper or Amiran and Hagan say. I pointed out that Arrow et al. considered the magnitude of the scope effect (i.e., more is better in contingent valuation method estimates of willingness to pay) to be a matter of plausibility (is it reasonable or believable?) and not adequacy (is it satisfactory or acceptable). These are subtle differences but one might consider adequacy a more stringent (strident?) subjective threshold imposed by CVM critics (i.e., researchers funded by Exxon or BP or both). Note that Bamford et al. assert that we equate "implausibly small" with adequate (i.e., acceptable) in our papers. I find that an odd interpretation of the two citations. 

I'm curious to know what scope test estimates Bamford et al. find to be implausibly small. Note that the scope test in the VSL literature is different than in the environmental literature, being complicated by proportionality. I think that the authors might be mixing apples (scope elasticity) and oranges (proportionality) when thinking about how to assess plausible scope effects. 

And, I wonder where in my paper they find a statement that suggests I think that we should find "implausibly small" scope effects to be acceptable. When thinking about plausible scope effects I suggested that scope elasticity be measured. Typically, scope elasticity will range from 0 to 1. In the paper I re-estimated some scope effects with previously published data. At least one of these elasticities is about 0.10. In other words a 100% increase in scope leads to a 10% increase in willingness to pay. I really fail to see why a scope elasticity of 0.10 should be considered unbelievable. 

References

Balmford, Ben, Ian J. Bateman, Katherine Bolt, Brett Day, and Silvia Ferrini. "The Value of Statistical Life for Adults and Children: Comparisons of the contingent valuation and chained approaches." Resource and Energy Economics(2019).

The value of life as revealed by the media

From FiveThirtyEight.com:

On Tuesday, two things happened: A New England Journal of Medicine article by Harvard researchers argued that the death toll from Hurricane Maria in Puerto Rico was most likely thousands higher than the official number of 64; and Roseanne Barr, the sitcom star, was fired for a racist Twitter rant. According to the watchdog group Media Matters, CNN devoted nearly five hours to discussing Roseanne, and just over 12 minutes to discussing Puerto Rico. The other cable news networks, Fox News and MSNBC, were similarly lopsided, with Fox spending just 48 seconds on the Puerto Rico study.

Apparently if John wants to make it in this profession he should stop researching hurricanes and start researching Roseanne.

Raise your hand if you want to work with me...

The Department of Agricultural, Environmental, and Development Economics (my department) in the College of Food, Agricultural and Environmental Sciences (my college) at The Ohio State University (my university) is hiring for four new faculty positions--and I am not ashamed of taking advantage of this blog to promote the positions.  If you have (or are close to earning) a PhD with interests in agricultural economics, environmental economics, regional economics, development economics or some combination of those fields along with other interests, then we can probably align your interests with one of our four positions. 

Come join me in a top rated department (according to the National Research Council at least) in a top 20 public university (according to US News at least) in the Best Opportunity City in the U.S. (according to Forbes at least).

Our open positions are:

• Assistant or Associate Professor in Global Economic Modeling: a tenure-track assistant/associate professor position in the area of global economic modeling and integrated assessment. Economic modeling approaches of particular interest include dynamic optimization and computable general equilibrium modeling, as well as familiarity with approaches for handling decision making under uncertainty. Individuals with experience integrating economic models with physical/biological models are encouraged to apply.
• Assistant or Associate Professor in Sustainable Food and Farm Policy:  tenure-track assistant/associate professor position to conduct innovative research on policies related to food, farming and sustainability and to provide intellectual leadership to the Department and to the University’s Discovery Theme Initiatives in the area of sustainable food and farm policy. 
• Assistant Professor in Agribusiness: a tenure-track assistant professor with teaching and research responsibilities in agribusiness.  Applicants with interests in agricultural markets and marketing, finance, supply and demand analysis, industrial organization, international trade or agricultural and food policy, that complement a primary interest in agribusiness are encouraged to apply.
• Assistant or Associate Professor in Sustainable Development and Economy: an assistant/associate professor, tenure-track position to develop an internationally recognized program of research and teaching focused on sustainable development and the trade-offs among economic development, social equity and environmental protection in international or regional contexts.  Areas of interest include, but are not limited to: economic growth; equity; resource use; technological change; socio-ecological systems; sustainable and resilient communities. 

Click on the links for full descriptions and application info.  

Two from Economic Inquiry (July 2015) on gas prices and saving lives

Paul J. Burke and Shuhei Nishitateno: 

This study utilizes data for 144 countries from 1991 to 2010 to present the first international estimates of the gasoline price elasticity of road fatalities. We instrument each country's gasoline price with that country's oil reserves and the yearly international crude oil price to address potential endogeneity concerns. Our findings suggest that the average reduction in road fatalities resulting from a 10% increase in the gasoline pump price is in the order of 3%–6%. Around 35,000 road deaths per year could be avoided by the removal of global fuel subsidies. (JEL R41, H23, O18, Q43)

via onlinelibrary.wiley.com

At a value of statistical life of $9 million (that was the number Kip Viscusi was using a the SBCA meetings in March, removing global fuel subsidies would generate a life saving benefit of $315 billion. 

Damien Sheehan-Connor:

Policies to reduce carbon emissions by vehicles, such as fuel economy standards and gasoline taxes, have impacts on vehicle weight and thus on safety. This paper develops a model that separately identifies the impact of vehicle weight on mortality and selection effects that impact accident propensity. The main results are that (1) the safety externalities associated with heavy vehicles are greater than the environmental ones; (2) under fuel economy standards, vehicle weights have recently decreased with little likely effect on accident deaths; and (3) similar environmental benefits could be combined with substantial reductions in deaths by implementing higher gasoline taxes. (JEL H23, D62)

via onlinelibrary.wiley.com

A higher gas tax would generate substantial life saving benefits too. 

While I was away, the Buckeye Lake Dam story stayed

I was able to get away last week for a week of rest and relaxation (field research?).  On the flight back, I sat next to a nice dude who had recently finished building a house on family land on Buckeye Lake in Ohio.  Needless to say, he had some strong opinions on the Army Corp of Engineers' report that the Buckeye Lake Dam is in imminent danger of collapse and the subsequent decisions to leave the lake at winter pool levels (unboatable) until a solution is found (likely 3-5 years) and the Governor's decision to commit the state to build a new dam.  Unsurprisingly, the story is receiving a lot of local coverage:

The story is so compelling because we can all relate to what these folks are going through — on both sides.

From the lake side, it’s about the economy, property values and recreation.

If your livelihood were invested in a marina or restaurant on the lake, your world would be upside down with the prospect of the water being permanently drained. If you worked at one of the lake-dependent businesses, you’d be worried sick about your financial future.

If you had a home on the lake and had invested your life savings in the place, this news would have you pulling your hair out (unless you have a hairline like mine, and nature’s already done it for you).

From below the dam, it’s about public safety: protecting life and property.

If your home were in harm’s way should the dam fail, you really wouldn’t care about someone else’s home value or whether some people wouldn’t get to use their Jet Skis over the summer. You’d want to know that your family was safe, that you could sleep at night without worrying about the dam giving way.

And if you’re the government official responsible for the dam, your obligation is to protect life, period.

via www.dispatch.com

A Dam Mess

“It’s the end of life as we know it at Buckeye Lake.”

That was the cut-to-the-chase verdict that general manager Deb Sturm delivered to her boss, Tracy Higginbotham, owner of the Buckeye Lake Winery, after returning Wednesday night from a hastily called meeting with a handful of area civic leaders. They had gathered to discuss the sobering Army Corps of Engineers’ report on the 177-year-old Buckeye Lake dam that was released on Wednesday.

Because of the dam’s poor condition, compromised by more than 370 homes built directly into the 4.1-mile earthen structure, the “likelihood of dam failure is high,” said the report, and it “poses a significant risk to the public.”

Among the options to prevent “catastrophic failure,” as recommended by the Corps to the Ohio Department of Natural Resources, which owns the dam and lake and paid for the study: Build a new dam or turn the lake into a 3,000-acre mud puddle by emptying it.

“The safest solution for eliminating the risk of flooding due to dam failure is to drain the lake permanently,” the report says.

...

The risk of dam failure, however, is significantly higher when the lake is at summer’s depth. Should the dam fail, approximately 3,000 people live within the projected flood zone.

“The resulting flooding would most probably occur without sufficient warning or evacuation time,” the report said. It goes on to say that those homes and businesses, and people, within the flood zone would “face the potential of being hit by up to an 8-foot wave of water, mud and debris.”

“The economic impact to the area doesn’t outweigh the possible loss of life,” said [Ohio Department of Natural Resources spokeswoman Bethany McCorkle]. “Public safety is the top priority. It’s a very serious situation. The dam could go at any minute according to the report.”

When asked whether the current earthen dam is salvageable, Mike Spoor, engineer with the Huntington District of the Corps, which assessed Buckeye Lake, flatly said, “No.”

via www.dispatch.com

Ohio isn't know for its natural lakes (besides Lake Erie the largest natural lake in the state is 345 acres and it is called Aurora Pond).  But, Ohio does have its share of unnatural lakes (reservoirs) of which Buckeye Lake is in the top 10 in size at 3100 acres.  Because of its proximity to the second largest combined statistical area in the state, the Columbus CSA--yes the Columbus CSA is bigger than Cincinnati CSA--and 25th largest in the country, Buckeye Lake is a popular recreational and vacation home destination.  For now.

But the state is faced with some difficult economic decisions.  As the Army Corp of Engineers report summarizes:

Considering the immediate proximity of the downstream population, a catastrophic breach of Buckeye Lake Dam could pose unacceptable life loss and economic consequences. Therefore, immediate interim risk reduction measures are recommended to reduce risk of catastrophic dam failure as a result of breaching during normal pool retention. The District recommends that interim risk reduction measures be implemented immediately. The District further recommends that comprehensive risk reduction alternatives be evaluated, selected, and implemented by ODNR. Selection of remediation alternatives should be based on the potential for proposed actions to reduce risk to a tolerable level.

hmmm...time to call in the economists to assess the 'tolerable' level of risk? (our number is in the book)

Tim Harford: How much is a (micro)life worth?

If you haven't had time yet to read Banzhaf (2014) and Cameron (2010): 

... Edwin Paxson, one of its top mathematicians, had been asked by the Air Force to think about the problem of an optimal first strike against the Soviet Union. How could the United States annihilate the Soviet Union for the smallest possible expenditure?

Paxson’s research was technically impressive, using cutting-edge analytical techniques. (The project is described in histories by David Jardini and by Fred Kaplan, and in a new article in the Journal of Economic Perspectives by Spencer Banzhaf.) His conclusion, published in 1950, was that rather than commissioning expensive turbojet bombers, the US should build large numbers of cheap propeller aircraft, most of which would carry no nuclear payload and would be little more than decoys. Not knowing which planes held atomic weapons, the Soviet defences would be overwhelmed by sheer numbers.

This conclusion infuriated the Air Force. No doubt this was partly because they viewed old-fashioned propeller aircraft as beneath their dignity. But the key offence was this: Paxson’s cost-benefit analysis gave no weight to the lives of air crew. Ten thousand pilots could be wiped out and it would make no difference to Paxson’s arithmetic. Under fire from senior officers, who had been wartime pilots themselves, Rand quickly adopted a more humble tone. It also diversified its funding by researching non-military topics. ...

One possible approach to the problem is to value people according to some economic proxy — for example, the Air Force might value the cost of training new pilots. Courts have assigned damages after fatal accidents by looking at the economic output the dead person would otherwise have produced. But this suggests that the life of a retired person has no value. It captures the loss of livelihood, not the loss of life.

In the 1960s, a new approach emerged, most famously in Thomas Schelling’s 1968 essay “The Life You Save May Be Your Own”. Schelling, who much later won the Nobel Memorial Prize in Economic Sciences, had spent some productive time working at Rand. His student Jack Carlson was a former Air Force pilot. Carlson and Schelling found a way to finesse the treacherous question. As Schelling wrote: “It is not the worth of human life that I shall discuss but of ‘life-saving’, of preventing death. And it is not a particular death, but a statistical death.”

Rather than asking “What is the value of human life?” Schelling and Carlson asked what we are willing to pay to reduce the risk of premature death by spending money on road safety or hospitals. The value of a life was replaced with the value of a statistical life. 

There is good sense in this bait-and-switch. The life of a named individual defies monetary valuation. It is special. Yet the prospect of spending money to widen and straighten a road and therefore fractionally reduce the chance that any one of thousands of road users will die — that feels like a more legitimate field for economic exploration.

For those who have not read Schelling’s elegant essay, simply inserting a qualifier into the phrase “the value of a [statistical] life” will not persuade. This presents a serious public-relations problem. From time to time it emerges that government bureaucrats have been valuing human life — outrageous! (The going rate for an individual life in the US is about $7m.)

As Trudy Ann Cameron, a professor of economics at the University of Oregon, comments, it would be helpful for economists to be able to report their research on the benefits of environmental or health policies “in a way that neither confuses nor offends non-economists”.

Here’s a possible solution: use microlives. A microlife is one millionth of an adult lifespan — about half an hour — and a micromort is a one-in-a-million chance of dying. 

via timharford.com

The VSL is equal to WTP for dr divided by dr, where WTP is willingness to pay and dr is the small change in risk. Call me dim but I sometimes still have a problem with the logic of scaling up to the VSL from the small WTP. Why would the WTP remain constant as the risk goes from small to large. And why does the VSL exceed lifetime earnings? Isn't that one of the criticisms of Costanza et al. (1997)?