|
FINAL
REPORT
Study
of Economic Aspects of
Ambient Air Pollution on Health Effects
Tender
ref. AS 97-079
Reference
: R0036-3.98
Client
: Environmental Protection Department
Air Services
Group Date : April 1998
For and
on behalf of EHS Consultants Limited : Prepared by :
Dr. Lai Wan Yee, Consultant
Checked
by : Dr. Sarah Liao, Managing Director
TABLE
OF CONTENTS
Executive
Summary
1.
INTRODUCTION
2.
OBJECTIVE OF THE STUDY
3.
METHODOLOGY
4.
DATA/STATISTICS USED FOR ESTIMATION OF ECONOMIC COST
5.
MODELS FOR HEALTH EVALUATION
6.
HEALTH EFFECTS USING COMPOSITE SCORE OF POLLUTANTS
7.
RESULTS DISCUSSION
8.
RECOMMENDATION
9.
CONCLUSION
LIST
OF TABLES
Table
1: Relative Risks (RRs) and 95% Confidence Interval (95% CI)
for 50 ug/m3 increase Air Pollutants
Table
2: Results Of Economic Valuation Of Morbidity Using COI Estimates:
Table
3: Summary Of WTP Estimates From The Contingent Valuation
On Morbidity
Table
4: Relative Risks (RRs) and 95% CI for 50 ug/m3
increase in the Concentration of Air Pollutants
Table
5: Results Of Economic Valuation Using COI And WTP Approaches:
Table
6: Results Of Economic Valuation Using COI And WTP Approaches:
Table
7: Relative Risks (With 95% CI for Composite Score) of 50
ug/m3 increase in Air Pollutants
Table
8: Summary Of Economic Cost Using Composite Score
Table
9: Summary Of Predicted Health Impacts For 1996
1.
Introduction
| 1.1 |
This
study is an economic valuation study to present the monetary
value estimates for the adverse human health effects resulted
from ambient air pollution. The relationships between
ambient air pollution and morbidity and mortality are
based on the study by the Chinese University (CUHK, 1997)
and a follow-up study by the University of Hong Kong (HKU,
1998), both commissioned by the Hong Kong Environmental
Protection Department (EPD). |
| |
|
| 1.2 |
Both
the studies on short-term effects of ambient air pollution
on public health revealed that, similar to other foreign
studies, there were significant correlation between the
concentrations of air pollutants and the mortality and
morbidity rates of certain types of respiratory and cardiovascular
diseases. It is assumed that the impacts of the four selected
criterion pollutants, namely nitrogen dioxide (NO2),
sulphur dioxide (SO2), respirable suspended
particulates (RSP), and ozone (O3), on diseases
under the broad categories of respiratory and circulatory
diseases have already been ascertained by the previous
studies. |
| |
|
| 1.3 |
This
report presents the economic costs of the effects of ambient
air pollution on health by the cost of illness (COI) and
willingness-to-pay (WTP) approaches. The available quantitative
data was fitted into a mathematical model constructed
to represent the economic impact of air pollution in Hong
Kong with respect to morbidity and mortality. For the
COI approach, data available on lost of earnings and medical
costs were used for the measurements of the value of morbidity
and mortality; while cost estimates from the contingent
valuation were used for the WTP approach. |
| |
|
| 1.4 |
The
concept of COI and WTP had been adopted in a number of
studies for the economic evaluation of health impacts
associated with ambient air pollution. For example, one
study showed that there is an association between the
US 1980 mortality rates and respirable particulates and/or
toxic fraction of the aerosols(Ozkaynak and Thurston,
1987). In another study, it was concluded that the measurable
costs of air pollution are high enough to justify substantial
expenditures to control vehicle emission rates (Small
and Kazimi, 1995). There are also several studies relating
to the cost of disease and premature death due to air
pollution using the concept of willingness to pay (WTP)
and actual cost calculation (Tolley et al., 1994; HMSO,
1996). |
2.
Objective of the study
| 2.1 |
The
objective of this study is to evaluate the monetary values
associated with the morbidity and mortality caused by
the rise of individual criteria ambient air pollutant
based on the relative risk factors provided by EPD. |
3.
Methodolgy
| 3.1
|
Disaggregated
data was used for estimating COI for the individuals (for
details on COI and WTP, see Appendix 1a). For this study,
hospital admission (morbidity) and mortality data provided
by the Hospital Authority, and out-patient data provided
by the Department of Health were used in the COI evaluation.
|
| |
|
| 3.2
|
The
estimates were then used to extrapolate the total amount
of illness caused by air pollution and here we shall assume
that the population is subject to the same exposure. The
data on relative risk which link individual health effects
to changes in air pollution were combined with the COT
estimates. |
| |
|
| 3.3 |
For
WTP valuation, the study team undertook questionnaire
design with the view of applying the focus group (FG)
technique to generate individual and group responses in
the survey (see Appendix 1b and 1c). This was to ensure
good responses as well as reliable data. The FG technique
has been regarded as a stand alone procedure for obtaining
data on any social context that is being studied in an
ethnographic manner (Morgan, 1993). Through group interaction,
the shared experiences can maximise exploration of different
perspectives within a group setting. Group and individual
responses can be obtained and the moderator can lead the
discussion on the issues before presenting the more formal
quantitative questions. |
4.
Data/statistics used for estimation of economic cost
| 4.1 |
Data
Obtained From Focus Group Survey:
4.1.1
Details containing the dataset obtained from the FG
Survey may be cross reference to the Report on Focus
Group Survey Data (R1921.97).
4.1.2
While the main focus of the questionnaire was to determine
individual?s willingness to pay (WTP) to avoid the disease
occurrence, WTA is used to determine how much compensation
is required by the respondent to give up the non market
good in question. The dataset obtained were compiled
(see Appendix 2 showing a summary of the FG Survey Data)
and cross reference may also be made to the Report on
Focus Group Survey Data, R1921.97, November, 1997.
|
| |
|
| 4.2 |
Non
Survey Data:
| 4.2.1 |
Apart
from the survey, data were also collected from other
sources, for example, the Hospital Authority (HA),
Department of Health, Census and Statistics Department
and Government Gazette. |
| |
|
| 4.2.2 |
The
dataset from HA is a similar set as that used by
CUHK in the statistical analysis for 1994 and 1995.
The dataset was made available to EHS through EPD.
The information includes both morbidity and mortality
by the diseases identified with breakdown by age
groups. |
| |
|
| 4.2.3 |
Since
the CUHK study, EPD has also commissioned a follow-up
study on the health impact of air pollution. The
relative risks estimated by the Department of Community
Medicine at the University of Hong Kong (HKU) are
made available to EHS by EPD. While the CUHK study
used data of 1994-95, the HKU study used data of
1995-96 and they included different ICD9 codes for
circulatory and respiratory diseases. As such, the
results of the CUHK study may not be comparable
to those from the HKU study (HKU, Jan., 1998, p.
5 & p.17) |
| |
|
| 4.2.4 |
The
data provided by the Department of Health show the
number of attendance at the general out-patient
clinics over a one-week period in August, 1995.
Breakdown by age groups and by diseases of first
diagnosis and cases referred to emergency were indicated
(see Appendix 3 for details). |
|
5.
Models For Health Evaluation
This mathematical
model for evaluation of the economic aspects of ambient air
pollution on public health comprises two main modules as follows:
i) COI
estimates
ii)
WTP estimates
| 5.1 |
Model
to Estimate Economic Cost of Morbidity
| 5.1.1 |
Using
COI Estimates
| 5.1.1.1 |
The
dollar value of morbidity is calculated from
the data collected. For COI estimates, they
are based on values associated with cost of
illness, i.e., direct and indirect cost, such
as, medical expenses (including self-medication
and doctor consultation) and productivity
loss, compensation schemes and awards. |
| |
|
| 5.1.1.2 |
For
this study, the economic costs of health effects
due to air pollution will be limited to hospital
treatment as in-patients and mortality (upon
which CUHK preformed the statistical analysis
of association between health effects and
air pollution). |
| |
|
| 5.1.1.3 |
The
models with specific air pollutants for hospital
admissions indicating the relative risks (RR)
with 95% confidence intervals (95% CI) (by
CUHK/HKU) is the basis for estimating the
monetary value of the health outcome. Since
the actual number of admission (as health
outcome) resulting from pollution effect is
known (from the available model), the cost
of illness can be estimated by considering
the factors concerned. |
| |
|
| 5.1.1.4 |
The
COI estimated is then used as an input for
estimating the economic cost as presented
in the following model:
E
= b(dj) * COI(dj)
* { RR(pi, dj) -1
}
where,
| E |
= |
economic
cost of morbidity by hospital admission |
| b(dj) |
= |
actual
hospital admission and out-patient doctor
consultation due to a particular disease
dj |
| dj |
= |
diseases
(e.g., respiratory or circulatory diseases) |
| COI |
= |
estimated
cost of illness related to hospital
admissions and out-patient treatment
due to dj |
| RR |
= |
Relative
risk for morbidity - pi,
dj (air pollutant & disease
specific in respective order) |
| pi |
= |
air
pollutants (e.g. NO2, SO2, RSP, and
O3) |
|
| |
|
| 5.1.1.5 |
In
practice, COI is first computed based on the
statistics on hospital admission and the result
obtained is subsequently applied in the model.
In this way, the economic cost associated
with hospital admission is the product of
the total cost of illness and the relative
risk (RR) of admission. RR has already been
estimated in a separate study on the short-term
health impact of air pollution in Hong Kong
(see CUHK, 1997; HKU, 1998). It is obtained
by multiplying the exponential of the regression
coefficient by the defined increase in the
pollutant. |
| |
|
| 5.1.1.6 |
For
the calculation of COI for morbidity (where
hospital admission is expected to be the
key cost component), we have identify the
cost components (direct and indirect cost
related to the illness) as follows:
Cost
components (COI estimates):
| Direct
cost |
Indirect
cost |
|
Self
medication:
Buying
medication over the counter
Defensive
expenditure e.g., special diet, equipment
|
Output
(earning) loss:
Off-work
day (not serious enough for admission)
|
|
Treated
as Out-patient:
Doctor
consultation - GOPC (12% of all cases)
GOPC
charges (registration fee at HK$34)
Subsidies
for GOPC cases (HK$141 per case)
Doctor
consultation - private (88% of all
cases)
|
Off-work
day (average no. of days hospitalised
for admission cases and 1 day off for
non hospitalised out-patient cases)
-
assume no accompanying cost
-
assume accompanying cost
|
|
Hospital
Admission:
Average
length of hospital stay
Room rate per day
Subsidies involved
|
|
|
| |
|
| 5.1.1.7 |
The
1995 dataset has been used instead of 1994
dataset. COI for respiratory diseases and
cardiovascular diseases are calculated separately.
For the statistics on the number of hospital
admissions in 1995, distribution by age groups
are used and together with the average length
of hospital stay, both direct and indirect
cost of illness are estimated. |
| |
|
| 5.1.1.8 |
The
use of the HA statistics is consistent with
the CUHK study. The overall employment earnings
at HK$10,000 per month has been used to estimate
indirect cost. This statistics is provided
by the Census and Statistics Department. This
is the latest figure available (1996 and 1997)
and it is compiled from the General Household
Survey by occupation of main employment. |
| |
|
| 5.1.1.9 |
Since
the very young and the elderly are more likely
to require someone else to assist them especially
when their symptoms are severe enough to warrant
hospital admission, estimates with accompanying
cost are more representative than those without
accompany cost. |
| |
|
| 5.1.1.10 |
Direct
cost is largely the inpatient charges which
include maintenance fee. According to the
Hong Kong Government's charge rate, the entitled
person is required to pay a sum of HK$68 as
the maintenance fee (includes charges for
clinical, biochemical and pathological investigations,
vaccines and general nursing but excludes
consultation, diagnostic imaging etc.). For
the same health care services, the non entitled
person will have to pay HK$3,130 (Special
Supplement No.4, 1996)8. We use
the difference between this amount (HK$3,130)
and the daily room charge of HK$68 as the
subsidy to the entitled person (i.e., HK$3,062).
The sum of HK$3,130 would therefore be the
public ward maintenance fee which includes
charges for clinical, biochemical and pathological
investigations (including consultation, diagnostic
imaging and other examinations), vaccines
and general nursing, where such examination
or treatment are necessary, and medicines
within the scale provided at the hospitals
(S. S. No.4 to Gazette No. 44/1996, Para.2.0). |
| |
|
| 5.1.1.11 |
Indirect
cost is made up of earnings loss. For the
calculation, we assume that the average length
of hospital admission is also the number of
days work has been affected due to sickness.
In this case, we assume employment outside
of the house is affected only when individual
is being admitted to hospital. In addition,
there is a subdivision for this particular
cost area. For some persons, we assume the
individuals do not require the assistance
of others, however, some categories, often
the young and old tend to require accompanying
cost. We treat those aged 14 and below and
those above 65 to be those where there will
be accompanying. The cost is estimated on
a per day basis from the known monthly overall
wage for Hong Kong (statistics obtained from
the Census and Statistics Department). |
| |
|
| 5.1.1.12 |
Medical
insurance payments can be treated as subsidies
on medical expenses. Even if the victim need
not pay the full medial bill, the payment
by insurance company constitutes a cost to
the society because resources are limited
and once it is applied in one area, other
area would have a lesser share. Since detailed
information on individuals'medical insurance
coverage is not readily available, and so
long as we avoid double counting of the cost
variables, we deem it acceptable to skip the
differences due to insurance payment by employing
companies. |
| |
|
| 5.1.1.13 |
The
key results of the COI estimates for respiratory
and cardiovascular diseases are presented
in Appendix 4a and 4b. As the economic evaluation
of morbidity based on hospital admission alone
is likely to underestimate the health impact
of air pollution, we have taken into account
the total number of out-patient attendances. |
| |
|
| 5.1.1.14 |
Doctor
consultation fee includes both public GOPCs
and General Practitioner (GP) categories.
The data for GOPC attendances are available
from the Department of Health Survey (DH,
1997). The information provided by the DH
also specified that the GOPC attendances at
public out-patient clinics only made up 12%
of the market share. Hence, we have used the
statistics given to estimate the remaining
88% GOPC attendances. |
| |
|
| 5.1.1.15 |
The
statistics on GOPC are the survey findings
on "Disease Surveillance at General Out-patient
Clinics" conducted by the Department of Health
over one week (18 - 24 August) in 1995. These
findings could be subject to seasonal effect
and hence might not represent the characteristics
of the patient attending GOPC in a longer
period. Also, the survey covered patients
attending public day GOPCs for doctor consultation
only. Patients attending non-public, evening,
Sunday and public holiday and mobile clinics
were not included in the survey. |
| |
|
| 5.1.1.16 |
The
economic evaluation of the GOPC attendances
offered only broad estimates since it is difficult
if not impossible to determine that the pre-disposing
factor of the ailment is an associated increase
in air pollution. The symptoms of illnesses
treated at GOPCs tend to be less severe. Had
the two previous statistical analysis also
considered the impact of the criterion air
pollutants on out-patient cases, we would
have a RR for the GOPCs. In this study, we
assume all the out-patient cases treated for
respiratory diseases and cardiovascular diseases
suffered the impact of air pollution. We also
assume that every clinic visit will incur
an average of one day of work loss (based
on the average wage (i.e., HK$120,000/365). |
| |
|
| 5.1.1.17 |
The
results of COI (Appendix 4) are applied to
the valuation of health impacts together with
the relative risks estimated previously by
CUHK (September, 1997) and HKU (Jan., 1998).
It is considered necessary to take into consideration
both hospital admissions and GOPCs attendances
in the broad category of morbidity. |
| |
|
| 5.1.1.18 |
Details
of the workings on economic valuation of morbidity
using the relative risks for 50ug/m3
increase in the levels of NO2,
SO2, RSP and O3 are
shown in Appendix 5a (by respiratory and cardiovascular
diseases) and Appendix 5b (combined respiratory
and cardiovascular diseases). |
| |
|
| 5.1.1.19 |
The
set of RR ( Table 1) is taken from the follow-up
study of health impacts by HKU (Jan., 1998).
| Table
1: |
Relative
risks (RR) and 95% confidence interval
(95% CI) for 50 ug/m3 increase
in the concentration of air pollutants
for hospital admissions of respiratory
and cardiovascular diseases: |
|
Diseases/Pollutants |
Respiratory |
Circulatory |
Respiratory & Circulatory |
|
NO2 |
1.08 |
1.08 |
1.07 |
|
SO2 |
1.03 |
1.05 |
1.04 |
|
RSP |
1.05 |
1.03 |
1.04 |
|
O3 |
1.10 |
1.07 |
1.07 |
Source:
HKU (Jan., 1998)
|
| |
|
| 5.1.1.20 |
The
results of the valuation on morbidity based
on respiratory and cardiovascular diseases
and combined respiratory and cardiovascular
diseases are summarised below (Table 2):
| Table
2: |
Results
of Economic Valuation of Morbidity Using
COI Estimates: |
| Economic
cost (in HK$ million) |
| Relative
Risk 50ug /m3 |
Respiratory
Diseases |
Cardiovascular
Diseases |
Combined
Respiratory & Cardiovascular
|
| NO2
|
522.20
|
451.90
|
852.34
|
| SO2 |
195.82
|
282.44
|
487.05
|
| RSP |
326.37
|
169.46
|
487.05
|
| O3 |
652.75
|
395.41
|
852.34
|
|
| |
|
| 5.1.1.21 |
In
comparing the economic cost of the impact
of air pollution on respiratory and cardiovascular
disease, RSP accounted for a higher economic
cost in respiratory diseases than in cardiovascular
diseases. This is probably the result of a
higher incidence of respiratory illnesses
caused by RSP. |
| |
|
| 5.1.1.22 |
Comparison
is also made between direct cost of COI estimated
and public expenditure on medical and health
services. |
| |
|
| 5.1.1.23 |
For
the purpose of comparing public expenditure
on health, especially health expenses incurred
by HA and the Department of Health, the direct
cost component of COI estimates is extracted
from this study. |
| |
|
| 5.1.1.24
|
We
shall present the economic valuation of
direct cost as follows:
| Category
I: |
|
Category
II: |
|
By
type of diseases:
- respiratory
diseases
- cardiovascular
diseases
|
|
By
combined respiratory and cardiovascular
diseases: |
| 1.
Hospital admissions |
|
1.
Hospital admissions |
| 2.
GOPC and private doctor consultation |
|
2.
GOPC and private doctor consultation |
|
| |
|
| 5.1.1.25 |
The
results of direct cost estimated are presented
in Appendix 5c(i) and 5c(ii).
The
direct cost estimated based on respiratory
and cardiovascular diseases in separate
categories (see Appendix 5c(i)) and as combined
diseases (Appendix 5c(ii)) were presented
but the estimates in the latter were used
for the purpose of comparison. The direct
cost on an annual basis ranged from HK$255.98
million to HK$447.97 million. The annual
expenditure of the Department of Health
(DH) and HA were HK$2,283 and HK$18,922
respectively for 1995/1996 (see Department
of Health, Annual Report 1995/96; Census
and Statistics Department, 1997). The direct
cost calculated is equivalent to almost
20% of DH's expenditure for 1995/1996 (at
the upper limit) whereas it is only equivalent
to 2.37% of HA's expenditure over the same
period. This can be explained by the relative
size of HA expenditure compared to that
of DH (an eight-fold increase). Details
are shown in Appendix 5d.
|
|
| |
|
| 5.1.2 |
Economic
Cost of Morbidity Calculated Using WTP Estimates
| 5.1.2.1 |
WTP
estimates go beyond the lost of earnings
and medical costs. However, WTP values are
mainly obtained from contingent valuation
and they are grouped as follows:
WTP
to avoid the symptoms of the diseases concerned:
Light
symptoms without the need for doctor consultation
One
symptom day suffered (descriptions of
symptoms provided)
Seven
symptom day suffered
WTP
to avoid hospitalisation specific to the
diseases:
One
day of hospitalisation
One
week of hospitalisation
|
| |
|
| 5.1.2.2 |
The
appropriate value from the FG data set is
summarised in Table 3 below:
| Table
3 |
Summary
of WTP Estimates From the Contingent
Valuation on Morbidity |
|
WTP |
1 week symptom but no hospital admission
|
1day hospitalisation |
| Respiratory
diseases |
Min |
30 |
20 |
|
Max |
10,000 |
20,000 |
|
SD |
1,825.19 |
3,664 |
|
Average |
735.52 |
1,137 |
| Cardiovascular
diseases |
Min |
150 |
50 |
|
Max |
15,000 |
20,000 |
|
SD |
3,170.09 |
3,981 |
|
Average |
1,517.59 |
1,736 |
|
| |
|
| 5.1.2.3 |
In
substituting the WTP values to estimate
the economic cost of morbidity, we use a
similar equation to the one used for COI
estimates for hospital admissions. COI input
is substituted with WTP. The model is shown
as follows:
E
= [ b(dj) * ( RR(pi,
dj) -1) ] * WTP(dj)
where,
| E |
= |
economic
cost of morbidity (by hospital admission
& out-patient attendances) |
| b |
= |
actual
hospital admission and out-patient doctor
consultation of a particular illness
dj |
| dj |
= |
illness
(e.g., respiratory, circulatory diseases) |
| RR |
= |
Relative
risk for morbidity due to (pi,
dj) (available from study
by HKU) |
| pi |
= |
air
pollutants (e.g. NO2, SO2, RSP, and
O3) |
| WTP |
= |
estimated
monetary value WTP to avoid dj |
|
| |
|
| 5.1.2.4 |
The
"average" WTP value to avoid a day of hospital
admission is taken into account. In addition,
the average willingness to pay by individuals'to
avoid the symptoms during the disease occurrence
(non hospitalised cases) is also considered
in the calculation. This average bid for 7-symptom
days for cases without hospital admission
is obtained from the FG survey. Details of
the calculations are presented in Appendix
6(i) and Appendix 6(ii). The former shows
estimates of the costs based on respiratory
diseases and the latter shows estimates for
cardiovascular diseases. According to Chestnut
(1995), subsidy may be considered under certain
circumstances 1. In this study,
we have estimated the economic cost with an
element of subsidy in the willingness to pay
estimates for morbidity. We considered WTP
values by the individuals in the FG group
understated and this is probably for reason
that they left out the subsidy by the public
sector. |
| |
|
| 5.1.2.5 |
The
results of the economic cost for total morbidity
(respiratory and cardiovascular diseases)
are presented in Appendix 7. |
| |
|
| 5.1.2.6 |
Appendix
7 presents the calculation of the total economic
cost with the relative risks available from
HKU study. The working is similar to the calculation
using the COI estimates. |
| |
|
| 5.1.2.7 |
The
results of monetary valuation by respiratory
diseases and cardiovascular diseases (as two
separate diseases and as combined respiratory
and cardiovascular diseases) are presented
in Appendix 7. |
1Chestnut
recommends that for a comprehensive measure of
WTP, the "share cost" should be added
to individual WTP. He argues that financial costs
of health effects not always borne by the individual
but are shared through health insurance and public
health care subsidies. In some instances therefore
empirical estimates of WTP to avoid or reduce
health effects may not fully reflect these shared
costs. The incidence Chestnut is referring to
is probably valid in the case of Hong Kong where
the room rate for hospital admission is relatively
low and a large proportion of the focus group
members indicated that they were willing to pay
round about the amount of this fee rather than
the subsidy which is as much as 40 times the fee
payment.
|
|
| |
|
| 5.2 |
Model
to Estimate Economic Cost of Mortality
| 5.2.1 |
Cost
of Illness (COI) Approach to Value Life (Mortality)
| 5.2.1.1 |
Cost
of illness approach has been the prevailing
method used to value life up until the recent
years although in practice, it is the economists
who tend to favour the WTP method whereas
non economists (e.g., engineers and health
professionals) may continue to use the human
capital calculations (using COI approach)
(Haight, 1994)9. |
| |
|
| 5.2.1.2 |
The
human capital approach is age-specific and
it measures the value of individual's life
to society, i.e., future production potential.
It is usually calculated as the present discounted
value of expected labour earnings. The standard
approach assumes a zero value for persons
without labour income. However, the choice
of an appropriate social discount rate to
convert future earnings into present values
is still unresolved. Different discount rates
will provide different present value of future
earnings. The value is significantly bigger
for low discount rate. The rate of discount
recommended by the US Office of Management
and Budget is 10% (Landefeld & Seskin,
1982)10. This represents an estimate
of the average rate of return on private investment
before taxes and after inflation. |
| |
|
| 5.2.1.3 |
In
order to calculate the value of a statistical
life (VSL), we need to know the life expectancy,
labour force participation and projected earnings.
The statistical value of a life year is the
aggregate of all the monthly earnings for
the year (monthly earnings multiply by 12).
The estimated capitalised lifetime earnings
is thus the VSL. For example, if a fresh graduate
were to enter the labour market at the age
of 23, his/her capitalised value would be
calculated based on the average earnings over
his paid employment period assuming the person
would work until his/her retirement age. For
example, a in the US, a 39-year period is
used. |
| |
|
| 5.2.1.4 |
We
shall use the net present value model for
calculating the capitalised earnings. We assume
the individual is healthy and earning an income
(here, income is derived from labour of the
individual before tax payments). For the calculation,
we are required to consider the net present
value of a stream of earnings received over
the employment period, assuming retirement
is at age 65, thus, a period of about 40 years
may be considered. The earnings takes into
account tax payment. The reported earnings
is generally made in constant or base year
dollars. It is necessary to convert the nominal
discount rate to a real rate by an adjustment
for inflation. |
| |
|
| 5.2.1.5 |
For
example, if we were to estimate the net present
value (NPV) of capitalised earnings for a
fresh graduate, we may use the real dollar
value (at constant price) instead of the nominal
value and apply a discount rate. |
|
| |
|
| 5.2.2 |
WTP
Approach to Value Loss of Life
| 5.2.2.1 |
For
this, we use a change in risk that will affect
loss of life. The revealed-preference through
the WTP method is an alternative to human
capital (COI) approach. It is used to measure
the private valuation individuals place on
small reductions in the risk (probability)
of death (i.e., m/^ p where,
m is the WTP for the benefit of living and
^ p is change in risk). The
result obtained indicates the value per statistical
life. |
| |
|
| 5.2.2.2 |
The
median value indicated by individuals' willingness
to pay (from the FG questionnaire survey)
will be retrieved from the dataset compiled
(see questionnaire which refers to a small
change in mortality - risk reduction). |
| |
|
| 5.2.2.3 |
The
results obtained for the VSL using COI and
WTP approaches will be discussed here. We
shall begin with the COI estimates of the
VSL. |
| |
|
| 5.2.2.4 |
The
overall earning for the Hong Kong population
is estimated at HK$10,000 (in 1997 prices)
(see Census & Statistics Department (C&SD),
correspondence where C&SD provided EHS
statistics from Household Survey by major
employment categories, 1998). |
| |
|
| 5.2.2.5 |
For
this purpose, we shall use a discount rate
which reflects the individual rate of time
preference. The "Yield of Exchange Fund
Bills and Notes" for a 10-year period
at around 7% is used (see HKMA, Monthly Statistical
Bulletin, July, 1997). |
| |
|
| 5.2.2.6 |
The
calculation performed is based on the overall
employment earnings for Hong Kong 1996/1997
at HK$10,000 per month or HK$120,000 per annum
(Census and Statistics Department, 1998).
The stream of earnings discounted over 40
years period is HK$1,597,579. This means that
the value of a statistical life is about HK$1.60
million. Details of the calculations performed
on the stream of income at a discount rate
of 7.0% are shown in Appendix 8a. |
| |
|
| 5.2.2.7 |
According
to the data by Department of Health, the total
number of deaths for all age groups due to
respiratory diseases and cardiovascular diseases
were 5,821 and 8,748 respectively for 1995/96. |
| |
|
| 5.2.2.8 |
The
total number of deaths (for 1995/96) is taken
into account in the calculation. The capitalised
earnings over a span of 40 years, based on
a 7.0% discount rate (as the opportunity cost
of capital) is used in the calculations. Estimation
of capitalised earnings are shown in Appendix
8(i) and Appendix 8(ii). |
| |
|
| 5.2.2.9 |
The
statistics show that the largest number of
deaths occurred in the age group "65
and above" and it is true for both respiratory
diseases and circulatory diseases and they
accounted for 86.75% and 83.04% respectively.
Had the calculations been limited to only
those from age groups within the categories
of working age population (inclusive of age
groups "15-24" and "55-64"),
the number of deaths accounted for about 13%
and 16% of deaths from respiratory and circulatory
diseases respectively. Details of the calculations
are presented in Appendix 8c(i) and Appendix
8c(ii) (which show the VSL estimated by deaths
from respiratory and cardiovascular diseases). |
| |
|
| 5.2.2.10 |
For
the WTP estimates, we use the dataset from
the focus group survey. For a risk reduction
of death from respiratory diseases by 0.01%,
the median value individuals were prepared
to pay is HK$500. Thus, the implied value
per statistical life (VSL) is HK$5 million. |
| |
|
| 5.2.2.11 |
The
median of individuals' WTP to reduce the risk
of cardiovascular diseases by the same amount
(i.e. 0.01%) is also HK$500. The VSL is therefore
the same as that for respiratory diseases
(i.e., HK$ 5 million). This median value is
then used to estimate VSL based on the actual
number of deaths. |
| |
|
| 5.2.2.12 |
In
the calculation of VSL using WTP estimates,
we take into account age factor. For working
purposes, we estimated the mean age of all
deaths by the diseases concerned. For simplicity,
the victims of air pollution are divided into
two broad categories (age below/ age above
76 and 75 for respiratory and cardiovascular
diseases respectively). For the group below
the mean age, we estimated the VSL of premature
deaths by discounting the values based on
WTP estimates over a 40-year period (similar
to the estimation applied to COI). However,
for age group beyond the mean age, their willingness
to pay to change the risk of death would not
be discounted to reflect that unlike the younger
population, they can realise the value in
the immediate future. Details of the estimations
are shown in Appendix 8b. |
|
|
| |
|
| 5.3 |
Substituting | |