Why the value of reducing health risks in China is rising

This post is a collaboration with Yana Jin

Since 2013, the Chinese government has changed its approach to regulating pollution, including providing the public greater access to information about their own exposure. This increased visibility into pollution exposure can affect citizens’ perceptions of how pollution affects their own health, and their desire to avoid these negative health outcomes. Understanding this shift in perception can tell us not only about what’s happening in China today, but also how developing countries may react to greater information about pollution.

Yana Jin, EDF’s new High-Meadows Economics Fellow, recently published a study in the Journal of Environmental Economics and Management, in which she and coauthors estimate Chinese citizens’ willingness to pay (WTP) to reduce mortality and morbidity risk associated with air pollution exposure. Specifically, the authors estimate a Value of a Statistical Life (VSL) and a Value of a Statistical Illness (VSI) of RMB 5.54 million ($1.58 million) and RMB 0.82 million ($0.23 million), which are higher than earlier estimates in China.

EDF’s Beia Spiller recently chatted with Yana about her paper and discussed the importance of the findings for policy making.

Beia: What does Value of a Statistical Life (or Value of a Statistical Illness) imply? Why do we need to put a value on human health?

Yana: The Value of a Statistical Life, VSL (or Value of a Statistical Illness, VSI) describes how much individuals are willing to pay to reduce the risk of premature death (or illnesses). Obviously, there is no market value for human health; VSL and VSI provide policymakers a common metric for valuing improvements in health outcomes.

Beia: How can VSL and VSI be used in policy making? What is the implication for environmental policy?

Yana: VSL and VSI provide a basis for conducting regulatory impact analyses and benefit cost analyses. For most environmental policies, the co-benefits of improved health outcomes dominate the total regulatory benefits (or the social cost of inactions). For example, in 2020 the total annual benefit of the Clean Air Act in the United States was estimated to be $2 trillion (in 2006 prices), more than 30 times the law’s total compliance costs; 90% of these benefits are due to reductions in mortality and morbidity attributable to ambient air pollution. This conclusion is based on an analysis using US-specific VSL and VSI estimates as part of the key parameters.

Extra attention is needed for VSI. Unlike premature mortality, which already receives lots of empirical attention, WTP for morbidity risk reductions is poorly understood in developing and developed countries. Solid VSI estimates can overcome the shortcomings of current alternative proxies in policymaking, such as the medical cost of illness and work day losses, which often undervalue the true social cost of non-fatal illnesses.

Beia: As you mention, estimates of the Value of a Statistical Life in the US (approx. $8-10 million) already exist. Why is it important from a policy perspective for this sort of analysis to be conducted for the Chinese population separately?

Yana: There is no one-size-fits-all VSL. Various factors influence VSL, including income and risk context of the affected population. Given that 92% of all pollution-related mortalities occur in developing countries, trying to draw conclusions for these populations from valuations in developed countries will involve substantial uncertainty.

Because the VSL is affected by both underlying air pollution levels and income, the VSLs will be different across China and the US. Furthermore, there are likely significant differences in the two populations’ understanding and awareness of the significance of air pollution’s impacts on health. For these reasons, we need studies based on the Chinese population and their specific setting to understand how they value risk reductions associated with improvements in air quality.

Beia: You find a much (almost 10x) smaller VSL in China than what has been estimated in the US. Does this mean that the Chinese morally value improvements in health less than populations in the US?

Yana: Not at all. Because the Chinese population currently has a much lower income than those in the US, their smaller household budgets constrain them from allocating the same amount of money to improvements in health. Though the difference in VSLs across countries seems huge right now, the VSL is highly elastic to per-capita income. This implies that as Chinese populations become richer, one can expect to see a sharp increase in Chinese VSL. Indeed, the VSL in the current study is already more than 10 times higher than early studies in the 1990s-2000s reported in China.

Beia: You test whether people have different willingness to pay to avoid specific illnesses (heart disease, stroke, or obstructive pulmonary disease) due to air pollution exposure, but find no significant differences across illness. Why is this an important policy question, and what would have been the implication for environmental policy had the opposite been true?

Yana: Whether the values across illnesses are different is of high policy relevance. For example, the risk of heart disease and stroke during extreme haze episodes is disproportionately higher than for other illnesses. If their associated VSI and VSL are also higher, this would imply that short-term policies that aim to curtail pollution spikes could be exceedingly beneficial, even though the transient effects do not reduce other more chronic, cumulative, long-term risks, which would only be affected by a steady decrease in annual average air pollution.

However, we find that the estimates are the same across illnesses. Therefore, policymakers can focus on the risk levels, and do not need to set illness-specific resource allocation priorities from the economic valuation perspective when managing air quality.

Beia: How could your VSL and VSI findings be used now?

Yana: Since 2013, the Chinese central government implemented its Air Pollution Prevention and Control Action Plan, investing 1.84 trillion RMB to improve air quality. This led to a significant drop in air pollution levels over the years in historically polluted Northern China, thereby generating marked health improvements. Our updated VSL and VSI can help to quantify and compare the observed health benefits with the costs of the policy that enabled these air quality improvements.

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