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Value of Life Analysis

Value of Life Analysis. Scott Matthews Courses: 12-706 / 73-359 / 19-702. Administrivia. PS 5 due next wednesday Project 2 - same rules as last time, etc. “Value of Life”. Economists don’t like to say they put a value on life

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Value of Life Analysis

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  1. Value of Life Analysis Scott Matthews Courses: 12-706 / 73-359 / 19-702

  2. Administrivia • PS 5 due next wednesday • Project 2 - same rules as last time, etc. 12-706 and 73-359

  3. “Value of Life” • Economists don’t like to say they put a value on life • They say they “Study peoples’ willingness to pay to prevent premature mortality” • Translation: “how much is your life worth”? 12-706 and 73-359

  4. Economic valuations of life • Miller (n=29) $3 M in 1999 USD, surveyed • Wage risk premium method • WTP for safety measures • Behavioral decisions (e.g. seat belt use) • Foregone future earnings • Contingent valuation • Note that we are not finding value of a specific life, but instead of a statistical life 12-706 and 73-359

  5. DALY/QALY measures • Disability adjusted life years or quality-adjusted life years • These are measures used to normalize the quality-quantity tradeoff discussed last time. • E.g., product of life expectancy (in years) and the quality of life available in those years. 12-706 and 73-359

  6. Another CEA Example • Automated defribillators in community • http://www.early-defib.org/03_06_09.html • What would costs be? • What is effectiveness? 12-706 and 73-359

  7. Risk Analysis • Study of the interactions between decision making, judgment, and nature • Evidence : cost-effectiveness of risk reduction opportunities varied widely - orders of magnitude • Economic efficiency problems 12-706 and 73-359

  8. Example - MAIS scale • Abbreviated Injury Scale (AIS) is an anatomically based system that classifies individual injuries by body region on a six point ordinal scale of risk to life.   • AIS does not assess the combined effects of multiple injuries.  • The maximum AIS (MAIS) is the highest single AIS code for an occupant with multiple injuries.  12-706 and 73-359

  9. MAIS Table - Used for QALY Conversions 12-706 and 73-359

  10. Sample QALY comparison • A: 4 years in a health state of 0.5 • B: 2 years in a health state of 0.75 • QALYs: A=2 QALY; B=1.5 QALY • So A would be preferred to B. 12-706 and 73-359

  11. Cost-Effectiveness of Life-Saving Interventions • From “500 Life-saving Interventions and Their Cost-Effectiveness”, Risk Analysis, Vol. 15, No. 3, 1995. • ‘References’ (eg #1127) are all other studies • Model: • Estimate costs of intervention vs. a baseline • Discount all costs • Estimate lives and life-years saved • Discount life years saved • CE = CI-CB/EI-EB 12-706 and 73-359

  12. Specific (Sample) Example • From p.373 - Ref no. 1127 • Intervention: Rear outboard lap/shoulder belts in all (100%) of cars • Baseline: 95.8% of cars already in compliance • Intervention: require all cars made after 9/1/90 to have belts • Thus costs only apply to remaining 4.2% (65,900) cars • Target population: occupants over age 4 • Others would be in child safety seats • What would costs be? 12-706 and 73-359

  13. Example (cont) • 1986 Costs (from study): $6 cost per seat • Plus added fuel costs (due to increased weight) = total $791,000 over life of all cars produced • Effectiveness: expect 23 lives saved during 8.4 year lifetime of fleet of cars • But 95.8% already exist, thus only 0.966 lives saved • Or 0.115 lives per year (of use of car) • But these lives saved do not occur all in year 0 - they are spread out over 8.4 years. • Thus discount the effectiveness of lives saved per year into ‘year 0’ lives.. 12-706 and 73-359

  14. Cost per life saved • With a 5% discount rate, the ‘present value’ of 0.115 lives for 9 years = 0.817 (less than 0.966) • Discounted lives saved = • This is basically an annuity factor • So cost/life saved = $791,000/0.817 • Or $967,700 per life (in “$1986/1986 lives”) • Using CPI: 145.8/109.6 -> $1,287,326 in $1993 • But this tells us only the cost per life saved • We realistically care more about quality of life, which suggests using a quality index, e.g. life-years saved. 12-706 and 73-359

  15. Sample Life Expectancy Table 35-year old American expected to live 43.6 more years (newer data than our study) Source: National Center for Health Statistics, http://www.cdc.gov/nchs/fastats/lifexpec.htm 12-706 and 73-359

  16. Cost per life-year saved • Assume average age of fatality in car accident was 35 years • Life expectancy tables suggested a 35 year old person would on average live to age 77 • Thus ‘42’ life years saved per fatality avoided • 1 life-year for 42 yrs @5%= 17.42 years (ann. factor) • $1993 cost/life-year = $1,287,326/17.42 • With 2 sig. figures: ~$74,000 as in paper • Note $1,287,326 is already in cost/life units -> just need to further scale for life-years by 17.42 12-706 and 73-359

  17. Example 2 - Incremental CE • Intervention: center (middle) lap/shoulder belts • Baseline: outboard only - (done above) • Same target population, etc. • Cost: $96,771,000 • Incremental cost : $96,771,000 - $791,000 • Effectiveness: 3 lives/yr, 21.32 discounted • Incremental Effectiveness: 21.32 - 0.817= 20.51 • Cost/life saved = $95.98 million/20.51 = $4.7 million ($1986) => $6.22 million in $1993 • Cost/life-year = $6.22 million/17.42 = $360,000 12-706 and 73-359

  18. Overall Results in Paper • Some had < $0 cost, some cost > $10B • Median $42k per life year saved • Some policies implemented, some only studied • Variation of 11 orders of magnitude! • Some maximums - $20 billion for benzene emissions control at tire factories • $100 billion for chloroform standards at paper mills 12-706 and 73-359

  19. Comparisons 12-706 and 73-359

  20. Agency Comparisons • $1993 Costs per life year saved for agencies: • FAA (Aviation): $23,000 • CPSC (Consumer Products): $68,000 • NHTSA (Highways): $78,000 • OSHA (Worker Safety): $88,000 • EPA (Environment): $7,600,000! • Are there underlying causes for range? Hint: are we comparing apples and oranges? 12-706 and 73-359

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