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Environmental Economics Research at EPA

The damage function approach can be used to evaluate mortality risks as well as morbidity effects. As described earlier, the damage function approach generally involves three steps. First, estimate a physical damage coefficient that links environmental quality to fatal human health effects. Second, estimate the number of health effects by examining the population exposed and the physical change in environmental quality. Third, multiply the number of fatalities by a unit value. The number of adverse effects is calculated making no allowance for the admittedly difficult to assess behavioral changes due to pollution (e.g., staying indoors less as pollution levels are reduced). The unit cost of adverse effects is obtained using the present value of lost wages or other estimates for the value of a statistical life obtained through hedonic wage analysis.

The damage function approach for valuing morbidity has at least one conceptual problem. Averting behavior is not modeled explicitly, so the costs of averting behavior tend to be overlooked or beyond the scope of the damage function approach. Consider a situation where individuals stay indoors and avoid exercise on days when the pollution levels are high. By doing so, suppose they reduce the risk of dying prematurely that day by one in 100,000. Since there is averting behavior but no damage in the current situation, what would be the benefit to these individuals of cleaning the air so that they could venture outside safely on any day they chose? The damage function approach does not say.

The recent Section 812 study incorporates this approach in part.

You can see the full list of reports corresponding to this section in the benefits analysis - valuation - cost of damages avoided -mortality subview of the subject view of the Environmental Economics Report Inventory (EERI) database..

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