Cost of Illness Approach and its Application to Valuing the Damage Cost of Haze

1. Cost of Illness Approach and its Application to Valuing the Damage Cost of Haze

2. Cost of Illness (CoI) The Cost of Illness (CoI) is a cost-based valuation method that incorporates both the: • replacement cost and • opportunity cost methods in assessing health hazards. Haze has raised the incidences of aggravated respiratory diseases to high risk groups such as children, senior citizens and people who are suffering from asthma, bronchitis, pneumonia, chronic lung diseases, cardiovascular problems, and allergies, and those who work outdoors.

3. i) Replacement Cost • Costs on medication and hospitalisation to recuperate from health hazards of haze exposure. • Cause and effect relationships between haze exposure to the health hazards and expenditures on treatments for recuperation. =>dose response functions between the level of haze exposure to treatment costs are needed.

4. dose response function (DRF) • A dose response function (DRF) establishes the links between the levels of environmental quality on the human response level. • Dose response coefficient provides a predictive index to forecast what will happen to the human response when there is a change in the pollution level by one unit or percentage point. • This technique relies strongly on natural science information of the environmental quality and on the physical effects of pollution. • To establish the DRF requires data on the pollutant dose and human response in order to fit a function.

5. Limitations of the integrated approaches of the Replacement Cost and Dose Response Function Difficulties to obtaining the dose response functions since basic information of environmental quality, especially when required in numerical terms like statistics and indices over a time duration or spread over several sites may not be readily available in developing countries. DRFs often provide coefficients on the direct impact of environmental degradation. In the health impacts of haze, other indirect or side effects have to be assessed as well such as • loss of economic productivity of workers who receive medical leaves, who are admitted into the hospitals, and those who are cleared to work but not completely recovered. The valuation of these indirect impacts rely upon another approach such as the opportunity cost method.

6. Data Needs To assess the integrated replacement cost and dose response function requires the following information: • Air pollution index • number of outpatient treatments • number of hospitalized cases • Cost of medications • Cost of hospitalisation

7. ii) Opportunity Cost Method • The opportunity cost of an action is the value of the foregone alternative action. • Foregone yields (whether positive or negative) need to be reflected in the economic evaluation as part of the project-induced • change from the baseline. • When households are exposed to haze, apart from being sick they receive medical leaves or are admitted into hospitals => loss in economic activity. • Households who are not completely recovered, they suffer from reduced activity days.

8. Limitations of The Opportunity Cost Method • Although theoretically the application of this technique is simple, but extra care needed not to avoid inappropriate value for the change in environmental impact. • The opportunity cost is only the incremental foregone earnings arising from the increase in the number of days hospitalised.

9. Data Needs • To assess the opportunity cost requires the following information: • Number of days hospitalised • Number of days receiving medical leave • Foregone wages • the number of days population at risk are working at below capacity owing to the health impacts