2017 Conference - Session 6

Session 6 - Friday, March 17, 10:45 - 12:15pm

A.6: Developing a Reference Case for BCA in Low- and Middle-Income Countries (Roundtable/ “Listening Session”)

Chair: James K. Hammitt, Harvard University

In 2014, the International Decision Support Initiative (iDSI) completed work on a reference case for the conduct of economic evaluation of investments in health in low- and middle-income settings, funded by the Gates Foundation (http://www.idsihealth.org/knowledge_base/the-reference-case-for-economic-evaluation/). That reference case focused on cost effectiveness analysis; the Foundation is now funding a project to expand it to address benefit-cost analysis of investments in global health and development (https://sites.sph.harvard.edu/bcaguidelines/). The reference case provides guidance on best practices, including principles, methodological specifications, and reporting standards. This session will begin with a summary of the cost-effectiveness analysis reference case by a member of the iDSI project team. A second presentation will summarize the results of the scoping phase of the project to extend the reference case to address benefit-cost analysis. This scoping includes identifying existing guidance and current practices, barriers to the conduct of benefit-cost analysis, and key challenges to be addressed. We will then ask the audience to provide feedback on the results of the scoping phase and suggestions for future work.

Panelists:

Lisa A. Robinson, Harvard University
Thomas Wilkinson, iDSI
David Wilson, Bill & Melinda Gates Foundation

B.6: Issues in Risk, Uncertainty, and Information

Chair: Glenn Blomquist, University of Kentucky

Discussant: Randall Lutter, University of Virginia / Resources for the Future

Presentations:

1. Applying VSL When Persons Choose Risk or Care about Risks to Others: The Case of Commercial Space Exploration; Timothy Brennan*, Resources for the Future

Manned space flight has been risky to the persons involved. The U.S. space program has had to cope with one ground fire killing three astronauts, (Apollo 1) and two shuttle explosions (the Challenger launch in 1986 and the Columbia reentry in 2003, each killing a crew of 7). The events with fatalities each led to significant delays in the space program. As NASA increases its use of commercial enterprises to support manned missions, with transport or even missions themselves contracted out and private businesses undertaking their own space endeavors (tourism, mining), understanding how to think about these risks will continue to be important, particularly regarding risks to life. The "value of statistical life" (VSL) is the standard tool to assess whether the benefit of actions to reduce the probability of mortality exceed the cost of those actions. While useful in assessing some aspects of space risk and liability awards, its use may be qualified first by whether those taking the risk signed on to the prospect, astronauts being the leading example. Another qualification is the extent to which the public at large bears the cost of this risk by being averse to witnessing losses of those exploring space. We assess the relevance of VSL in settings where participants choose to take on the risk and where the policy question involves willingness to pay to reduce risks to others rather than reducing risks to oneself. A relevant question to consider is whether the public's aversion to mortality should be the standard for determining whether expansion of space activity is worth the risks borne by participants in the commercial space sector. (This work was funded by a grant from NASA to Resources for the Future; Molly Macauley, Principle Investigator.)

2. Behavioral Responses to Health Information and Warnings; Rosemarie Lavaty* and Carolyn Wolff*, U.S. Food and Drug Administration

One of the most common risk-reduction strategies used by the Food and Drug Administration (FDA) to achieve its public health mission is to ensure that relevant health information and warnings about FDA-regulated products be disclosed to consumers and healthcare providers. Informational approaches, such as warning labels and nutrition labeling, are often used as a more flexible regulatory alternative to “command-and-control” approaches for addressing risks. From a social welfare perspective, informational strategies may be more efficient than “command-and-control” approaches in reducing risk because they reduce information asymmetry and allow individuals to decide for themselves how to best proceed. While informational approaches have the potential to be effective in promoting public health goals, compared with bans and other more restrictive types of regulatory approaches, their effects on actual behavior and consumption decisions are inherently more difficult to predict and to quantify ex-ante. We develop and apply a theoretical model of consumer response to predict the behavioral change brought about by health information and warnings. In this model, we first estimate the effect of new health information about a product on consumers’ willingness to pay for that product. We then estimate the change in the equilibrium price and quantity demanded for the product. The model takes into account consumers’ absorption of new risk information, the change in perceived health cost or benefit of consuming a product, and spillovers to consumers who are not the target of the health information treatment.

3. The Value of a Statistical Life: Economics and Politics; Ryan Bosworth*, Utah State University

The value of a statistical life (VSL) is the marginal rate of substitution between income (or wealth) and mortality risk. The VSL indicates how much individuals are willing to pay (WTP) to reduce the risk of death. There is a growing consensus in the academic literature that the population average VSL is in the range of $4 to $10 million (U.S. dollars). This consensus reflects stated VSL estimates used by various government agencies. Ideally, an estimate of how much individuals are willing to pay for safety improvements would enable governments to efficiently allocate resources to safety improvements in a wide variety of areas: road safety, environmental pollution regulations, food safety regulations, etc. However, achieving this ideal may be problematic. In this paper we identify and discuss some problems associated with government policy regarding risks to life and health. In particular, we discuss methodological problems associated with estimating the VSL, cognitive biases that may distort risk perceptions, the possibility of publication bias, and the political economy of the VSL in practice. Public choice theory indicates that agencies have the incentive to maximize budgets by inflating or misapplying estimates of risk and WTP for risk reductions to increase benefits estimates and improve the likelihood that proposed policy programs are adopted. Academic researchers and publishers may also face incentives that lead to publication bias in this area. We investigate whether there are reasons to suspect that the VSL may be overestimated in the academic literature and or inflated due to political considerations in government policy.

C.6: Consequences of Environmental Policies for Employment and Education

Chair: George Parsons, University of Delaware

Presentations:

1. Employment and Pollution Abatement: A Nonparametric Cost Function Analysis; Carl Pasurka*, U.S. Environmental Protection Agency

Morgenstern et al. (2002) investigated the employment effects of environmental regulations using a cost function that relied on survey data of the cost of inputs assigned to pollution abatement. In contrast, Färe et al. (2013 and 2016) investigated the link between pollution abatement and employment by specifying regulated and unregulated production technologies that model the joint production of good and bad outputs, where the regulated technology exhibits weak output disposability and null-jointness while the unregulated technology exhibits outputs that are strongly disposable. Färe et al. (2016) specified input distance functions to model the regulated and unregulated production technologies and decompose changes in employment, while our decomposition employs a nonparametric cost function (Ball et al 2005) that models the joint production of good and bad outputs.

Like Färe et al. (2016) we measure the relative importance of factors associated with changes in employment without pollution abatement cost data. Here, we will decompose changes in employment into the following components: (1) the cost effect - reflecting employment changes associated with differences in the regulated and unregulated isoquants, (2) the scale (output) effect – reflecting employment changes associated with changes in output levels due to a change in factor prices, (3) the substitution effect – reflecting employment changes associated with changes in factor prices holding output constant, (4) changes in overall (technical and allocative) efficiency – reflecting employment changes associated with increases or decreases in efficiency, and (5) technical change – reflecting employment changes associated with shifts in the regulated isoquant.

We operationalize our model using panel dataset of coal-fired electric power plants with net electricity generation as the good output, SO2 emissions as the bad output, and five inputs - capital stock (a quasi-fixed factor), employment, and fuel consumption (coal, oil, and natural gas). 

2. Air Quality and College Attendance; John Voorheis*, U.S. Census Bureau

A growing body of literature suggests that pollution exposure early in life can have substantial long term effects on an individual's economic well-being as an adult. I contribute to this literature by linking responses to the American Community Survey to SSA administrative data on place and exact date of birth, allowing me to examine how exposure to ground level ozone, in utero and during the first year of life, affects college attendance among 18-24 year olds. Additionally, I link these individuals to the universe of IRS tax returns to obtain location and family resources during secondary school (at ages 14-17), allowing me to control for exposure later in a child's life. In both OLS and IV specifications, I find that ozone exposure early in life has a large, economically significant effect on college attendance. Using conventional estimates of the college wage premium, these effects imply that the air quality improvements due to the Clean Air Act Amendments of 1990 are associated with an $877 increase in annual wages, highlighting the importance of human capital accumulation in explaining the long term economic effects of pollution exposure.

3. Compensating Workers Who Lose Jobs Due to Carbon Taxes: Lessons from the Trade Adjustment Act; Craig Thornton*, Mathematica Policy Research

While the overall climate benefits of reducing carbon consumption seem likely to outweigh the total costs, those benefits and costs are distributed unevenly. In particular, workers currently engaged in sectors that produce a lot of carbon (for example, coal mining) are likely to face substantial losses and can therefore be expected to oppose carbon pricing policies that do not address their losses. To deal with this issue, it has been proposed that revenue from new carbon taxes be used to assist affected workers. Assistance could include job training, career assistance, and other community supports as well as direct income support. However, the 40 years of experience the United States has had with a similar program under the Trade Adjustment Act suggests that delivering effective assistance can be very difficult. In fact, results from a recent evaluation find that participation in TAA, as the program operated under the 2002 amendments, had a negative effect on total income during the four-years following their entry into the assistance program. The factors that led to that outcome provide some guidance to designing new programs that would target workers affected by carbon taxes.

D.6: Applications of BCA in International Trade and Economic Development

Chair: Glenn Jenkins, Queen’s University and Eastern Mediterranean University

Presentations:

1. Towards Meta Benefit-Cost Analysis: The Case of Brexit; Aurelien Portuese*, Leicester De Montfort University / King's College London

The referendum on the European Union (EU) which took place in June 2016 ended up in one of the most important decision of the recent history of the UK: to exit the EU - or "Brexit".

This decision will have major impacts on the economy of the United Kingdom and of the European Union. The debate preceding the referendum has been over political gains or losses of leaving the EU, not necessarily on the weighing out of the benefits and costs of such prospect of leaving the EU.

The kernel of the argument of this article is the following one: the Brexit is a fantastic opportunity to carry out a benefit-cost analysis of not only one policy but of an entire country's historical choice. Therefore, not so much is Brexit a phenomenon which has to be scrutinized in a benefit-cost analysis, but the Brexit has a lot to offer as an opportunity to enrich benefit-cost analysis with a meta and on-going case study.

Therefore, this Article shall discuss the fundamental elements of a Brexit's benefit-cost analysis (II) after having demonstrated the reasons why Brexit constitutes a chance for benefit-cost analysis to engage in more meta-analyses (I). We shall conclude by sketching out a framework for further refined benefit-costs analysis on Brexit and on meta-tools (III).

2. Fukushima: U.S. Response and the Short-Term Impact on U.S.-Japan Trade in Seafood; Aliya Sassi*, U.S. Food and Drug Administration

The U.S. response to the import of potentially contaminated food from Japan following the Fukushima Daiichi Nuclear Power Facility meltdown has not been closely examined in the economic literature. The incident caused global concern about the safety of foods imported from Japan. Several of Japan’s major trading partners introduced bans on imported foods. The U.S., which monitored information and data from foreign governments and international organizations, adopted an import alert and conducted extensive monitoring. The U.S. did not detect radionuclides and did not advise consumers to alter their consumption of foods from Japan. Using a modified Global Simulation Model (GSIM) of trade impacts, this paper assesses the impact of U.S. actions on U.S.-Japan trade in seafood commodities. We estimate that U.S. policy preserved approximately $150 million in annual consumer surplus from the continued import of Japanese seafood (at a cost of less than a million dollars for seafood import sampling), while finding no additional exposure to harmful radionuclides.

3. A Portfolio-Wide Assessment of MCC's Economic Rates of Return; Marissa Block* and Sandra Ospina, Millennium Challenge Corporation

The main purpose of this report is to concisely document facts on ERRs that have been updated upon compact closeouts as of end-2015. The report‘s first three sections describe coverage, characteristics of all closeout ERRs and characteristics of closeout ERRs that fall below MCC’s ten percent threshold. Section IV presents original ERRs for open compacts using data available as of end-2015.The data used to estimate these closeout ERRs reflects final cost data as available at closeout. As the benefits stream for most projects may only start after compact closeout, these closeout ERRs remain an ex-ante estimate of economic return.

4. Institutional Capacity on Health Regulation, Key for Development and Global Trade; Carlos Santos-Burgoa*, The George Washington University

Evidence on health risks management is translated in a limited manner into enforced regulations in many developing countries involved in trade agreements. We will present a framework for analysis of the impact of the level of institutional development to integrate, adapt, and establish health risks protection standards and regulations in developing nations that enter into trade agreements. Based on that, we will present an initial modeling of selected countries on the impact on the effective reduction of health impacts adjusting for level of country development, as a consequence of institutional development. We will address the risks in the health regulatory space such as the control of tobacco, alcohol, food, chemicals, or medical products. The expanded use of institutional economics and public health will then be considered for the future advancements in this area, key not only for sustainable development, but also for the increased commercial partnership between countries.

E.6: Issues in Valuing Costs and Benefits in Health Policy

Chair: Donald Kenkel, Cornell University

Presentations:

1. The PROMIS-Preference (PROPr) Score: A New Health Utility Measure; Barry Dewitt*, Carnegie Mellon University

Health utility measures place individuals’ health states on a common scale, allowing researchers and policy makers to aggregate individuals to summarize the effects of clinical trials and the results of population health studies. These measures attach values (i.e., utilities) to states of health. These values can be used to create outcomes, such as quality-adjusted life years (QALYs), that provide the estimates needed for regulatory analyses, such as cost-effectiveness analyses. The Patient-Reported Outcomes Measurement Information System (PROMIS) is an NIH-funded, open-source tool that provides unprecedented granularity for describing health (www.nihpromis.org). We have developed a utility function for PROMIS, the PROMIS Preference (PROPr) score, based on multi-attribute utility theory and using data from a nationally representative US sample. By building on PROMIS, the PROPr score solves many of the problems of previous health utility measures: it has no ceiling or floor effects; it can be adapted to individual tracking and decision-making; it is grounded in psychometric item response testing theory; and it is free to use.

2. Economic Rents and Cost-Benefit Analysis - Issues and Application to Health and Energy Policy; Ken Acks*, Cost-Benefit Group, LLC and Environmental Valuation & Cost-Benefit News

Liberals and conservatives agree that the use of government power by special interests often produces suboptimal outcomes, market distortions, unfairness and inequality. Much of the influence results in the generation of economic rents. Economic rent is any payment to a factor of production in excess of the cost needed to bring that factor into production. In classical economics, economic rent is any payment made or benefit received for non-produced inputs such as location (land) and for assets formed by creating official privilege over natural opportunities (e.g., patents). In neoclassical economics rent also includes income gained by beneficiaries of other contrived exclusivity, such as corruption. Liberals often attribute rents to natural market dynamics whereas conservatives point to government policies.

Rents have been of interest to economists from Adam Smith, who noted that “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Anne Kruger coined the term in 1974. Mancur Olsen (in The Logic of Collective Action, Gordon Tullock and others revived and modernized the discussion. Nobel Prize winner Joseph Stiglitz recently emphasized the importance of rents. In “A Firm-Level Perspective on the Role of Rents in the Rise in Inequality” (2015) Jason Furman Chair of the CEA and Peter Orzag use firm-level data to argue that there has been a trend of increased dispersion of returns to capital across firms, with an increasingly large fraction of firms getting returns over 10-30% annually.

This paper will discuss how the generation of rents can affect Cost-Benefit Analysis in general and with respect to the energy, health care and finance industries. The Theory of the Second Best will also be applied and discussed.

3. Eliciting Individual Preferences for End-of-Life Treatments; Susan Chilton*, Newcastle University

In the UK, the National Institute for Health and Care Excellence (NICE) provides guidance to improve health and social care. In January 2009, they indicated that it may be appropriate to recommend treatments for terminal illness even if the costs of saving a quality-adjusted life-year exceed the range normally considered acceptable. There is, however, a very limited evidence base addressing whether prioritizing end-of-life treatments relative to other life-extending interventions accords with preferences of members of the general public.

The aim of this study is to elicit how, all other things equal, individuals make trade- offs between extensions to their life expectancy in normal health versus improvements in their health state if they were to become terminally ill. Our ex ante approach mimics the conditions under which NICE (or indeed international regulatory bodies) make decisions, rather than an ex post scenario in which respondents value extensions to life, given that they (or others) are terminally ill. Using risk-risk trade-offs, our approach elicits individual-based relative preferences over different interventions, contrasting with previous endeavors which have primarily focused on distributional concerns and/or whether groups of people with a terminal illness should be prioritized. Quantification is necessary for any national authorities using a benefit-cost approach to healthcare provision, as well as indicating whether NICE advice broadly reflects UK public opinion per se.

98 members of the public participated in the survey. The survey comprised of an incentivized, economic experiment, followed by risk-risk questions. Despite the relatively small sample size, clear results are found. Individuals do prefer end-of-life treatments. However, this comes with a caveat: the strength of these preferences vary with the quality of health at the end of life. Results suggest that more research would be useful to better deal with the quantity-quality trade-off in any regulatory decisions pertaining to end-of life interventions.

4. Advanced Data Integration for Epidemiologic Modeling in Benefit-Cost Analysis: A Case for Complex Behavioral Disorders; Xindi Hu*, Harvard University

Research on the economic impact of preventive interventions can support effective health policy and reduce disease burdens, yet economic studies applied to complex behavioral disorders such as substance use disorders and eating disorders have been scant. Evaluating policies supporting public health prevention requires accurate and up-to-date epidemiologic modeling of the complex disease course, which currently does not exist. We address these two challenges by developing and calibrating a decision analytic microsimulation model to conduct economic evaluations of disease prevention strategies. The method is presented using an illustrative example of a primary care based eating disorders screening program. We follow a virtual population of people under the intervention (i.e., screening) and control (i.e., no screening) scenarios. Each individual in the model is followed over a 25-year period as they transition among several health states annually: eating disorder-free, anorexia nervosa, bulimia nervosa, binge eating disorder, other specified feeding or eating disorder, and dead. Data on diagnoses, outpatient, and inpatient charges were obtained from 10,782 patients and 67,119 patient visits provided by six U.S. pediatric hospitals in the PEDSnet research collaborative, one of the largest in the nation. We model duration and expense of outpatient treatment, risk for hospitalization by treatment and patient characteristics, and transition between eating disorder types. We calibrate the model to gold-standard data such as the Global Burden of Disease 2015, the National Comorbidity Study-Adolescent Supplement and the Healthcare Cost and Utilization Project Nationwide Inpatient Sample. After calibration, cumulative 25-year incidence and prevalence projections were similar between the microsimulation model and the most recent epidemiologic evidence. The calibrated model is then applied to assess the cost-effectiveness of a screening program where primary care provider screens adolescents for eating disorders. This presentation has broad applicability to the development of epidemiologic models to evaluate the cost-effectiveness of prevention strategies for complex behavioral disorders. 

F.6: Issues and Applications in Benefit-Cost Analysis of Transportation Projects

Chair: Douglas Scheffler, U.S. Coast Guard

Discussant: Jack Wells, U.S. Department of Transportation (former)

Presentations:

1. The Criterion for Evaluating Transportation Projects: Social Welfare Analysis; Omid M. Rouhani*, McGill University

Public authorities often evaluate transportation projects using benefit/cost analysis or Value for Money (VfM) analysis. However, such analysis generally provides little information about the detailed impacts of a project. A more comprehensive evaluation criterion should determine the impact on overall social welfare. Apart from several theoretical studies, a detailed methodology to determine social welfare change of transportation projects has not been developed in detail. In this paper, we offer a social welfare framework that estimates the benefits and costs of using alternative projects/scenarios on major stakeholders of the process. Using these alternatives, we provide an empirical study detailing major components required for the analysis. From a social welfare perspective, we should search for a Pareto-improvement where all stakeholders are better off (possibly using a redistribution policy), a win-win situation. Our estimates indicate that a mixed profit making and congestion management scheme can offer such a solution.

2. Ex-Post Studies of Transport Investments in France; Emile Quinet*, Ecole des Ponts-ParisTech, on behalf of David Meunier, MINES ParisTech

Ex-post studies of investment projects are usually considered as being of major interest. Nevertheless, not many countries have formal obligations requiring the realisation of such studies.

In France, the « LOTI » law adopted in 1982 made compulsory ex-post analyses of very big transport infrastructure projects. These analyses are to be made 5 to 10 years after the infrastructure came into operation.

The paper will present the main results from these ex-post studies made on French transport infrastructures and discuss the roles that could be given to such studies. A qualitative analysis of some mechanisms which led to important differences between ex-ante estimates and ex-post observations will be performed, together with quantitative international comparisons and estimates of the order of magnitude of the consequences on aggregate assessment indicators. The distinction between optimism biases and technical biases is discussed, using the information available on ex-ante assumptions and delays. A special focus will be given to the question of risks and uncertainties associated with the project’s ex-ante assessment, which is usually performed for a central scenario, sometimes with sensitivity analyses testing several scenarios or using simple methods, and more rarely with more sophisticated methods incorporating risk issues.

The paper will give practical advice on risk analysis and its technical representations in CBA, examining the possibilities for further use of ex-post analyses in the treatment of risks and uncertainties at the stage of ex-ante assessment. 

3. A Tale of Two Cities and Five Benefit-Cost Analyses: Australia’s Inland Rail between Melbourne and Brisbane; David Luskin*, U.S. Department of Transportation

The proposed inland rail link would run for 1,072 miles between Melbourne and Brisbane, Australia’s second and third largest cities. For freight services between these cities, the distance would be much shorter than on the existing costal route that runs through Sydney. The inland link would also avoid the coastal route’s drawbacks of track congestion in Sydney and of alignments that prevent double-stacked operations. Transit times would be significantly reduced and reliability significantly improved.  Intercity track in Australia is largely government owned, and proposals for the inland railway have included calls for large contributions from the federal government.  The initial BCA of the inland rail project was led by the SBCA conference presenter, David Luskin, and developed a simple revealed preference approach to ameliorate severe limitations of the available data. The presentation will compare methodology and findings between this 1996 analysis and three benefit-cost analyses of the same project conducted between 2000 and 2010.