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Letter to Administrator Browner on valuing children's health in economic assessments - EPA Response


November 22, 1999

Carol M. Browner
Administrator
Environmental Protection Agency
401 M Street, SW (1101)
Washington, DC 20460

Dear Administrator Browner,

The Children's Health Protection Advisory Committee has among its subsidiary groups the Economics and Assessment Work Group. Over the past 18 months, this Work Group has considered how EPA can better reflect the economic value of protecting children's health in economic assessments, mandated or otherwise, of certain proposed regulations and policies. This letter sets forth recommendations of the Work Group, as accepted by the Committee, in an effort to improve the ways in which EPA performs economic assessments and thus assist the Agency in protecting children's health. These comments include support for some current Agency practices as well as specific substantive and research recommendations for their improvement. The process used to develop these recommendations is attached to this letter.

Background

Our society's ideal is to protect all children from the array of environmental health threats. We recognize, however, that society's resources are limited, that priorities for actions to protect children's health must be set, and that evaluation of benefits plays a key role in that process. The Committee also notes that, particularly in the past two decades, there has been a growing emphasis on not only evaluating quantitatively the sources for the benefits people realize from improved quality, but also assigning a monetary value to them.

The Committee also recognizes that there are acknowledged limitations in available measurements (i.e., willingness to pay and value of statistical life) used to place dollar values on many of the sources for improvements to people's lives. The majority of Committee members believe that, despite their limitations, the methods described below are, at present, the most appropriate framework for conducting economic analyses and assigning monetary values to children's health benefits, and as such would improve the economic analyses that EPA undertakes. A minority, however, believes that current limitations are so acute that monetizing health benefits actually makes economic analyses less useful to decision-makers, and less transparent to the public, than analyses that simply describe health benefits (using quantitative measures whenever feasible), and that, therefore, public health decisions are not improved through use of monetization. In addition, a minority of the Committee opposes discounting of health benefits, as contrasted with simply providing narrative descriptions of benefits over the timeframe(s) during which they accrue. These concerns are generic and do not arise from the application of these valuation methods to effects on children. The objection is to assigning monetary values to health impacts, e.g., quality-of-life and premature death.

Despite this disparity of views, all members of the Committee agreed that, to the extent EPA does develop monetized analyses for children's health benefits, it is extremely important to implement the following recommendations as rapidly as feasible in order to avoid using monetary values that may incorrectly estimate children's health benefits. Such errors are likely to occur because there is very limited information about the monetary value of reducing many of the adverse effects that are (a) specific to children, or (b) occur more frequently in children. Effects that cannot be reliably quantified or monetized are not typically assigned a value in economic analyses. While we acknowledge that quantifying these values may be difficult and may still be off into the future, a description of the non-monetized effects including their magnitude and severity is usually part of the analysis and should be conveyed to decision-makers. Furthermore, past regulatory impact analyses generally did not identify children separately from adults because there was not yet a scientific basis for identifying the separate and sometimes more pronounced effects for children that are now becoming more well known. For all these reasons, current estimates of the value, monetized or not, of reducing adverse impacts on children are neither comprehensive nor accurate. The Committee believes that the following recommendations will improve such valuations, thus leading to better decisions by EPA and, ultimately, supporting EPA's efforts to better protect the health and safety of children.

Substantive Recommendations
  1. Agency economic analyses must clearly document all of the assumptions, implicit and explicit, that can affect the estimates of economic values.


  2. At present, valuation of children's health benefits by EPA typically reflects only avoided cost-of-illness, and these economic analyses often fail to give prominence to additional non-monetary benefits. The Committee recommends that, where monetized values are developed, estimates of monetized value for health/wellbeing benefits should be expressed in terms of willingness-to-pay, rather than solely as avoided cost-of-illness. (Some Committee members also believe that willingness-to-accept measures should also be considered.)


  3. The existing literature used in monetized benefit estimation often pertains specifically to adults, and few valuation studies on environmental risks to children are available. While research to estimate monetized benefits of children's health should be a priority, in the interim it will be necessary to consider transferring estimates of adult benefits to children. Benefit transfer is appropriate when three conditions are met: (1) generally accepted willingness-to-pay (WTP) estimates exist for adults; (2) the risk situation for which they would be transferred is substantially similar to the risk situation from which they were derived; and (3) the consequences of risks to health and well-being are similar in adults and children. Such estimates must be derived from risk situations closely related to the effect being valued. (Some Committee members question whether this condition can be met for children's health risks.) When any of these conditions is not met, cost-of-illness estimates may be used on an interim basis to represent a plausible lower bound, with a narrative description of the non-monetary benefits explicitly included. The process should also document how that measure of value is likely to vary as the size or character of the risk or benefit in question changes.


  4. In principle, any established method of non-market valuation could be used in children's applications. However, because every situation is different, and experience is limited, it would not be appropriate to specify a particular method or group of methods for use in valuing children's health. The key requirements are (a) that what is measured be appropriate for what is to be valued and (b) that the analysis be consistent with economic understanding of consumer behavior and market mechanisms.


  5. The lack of directly applicable values for many impacts on children means that omitted benefits are likely to have a greater influence on the results of economic analyses than is the case for impacts on adults, especially if adverse effects are severe, widespread, and unvalued. It is therefore especially important that non-monetized measures of changes in children's health and well-being, such as changes in risk, incidence or prevalence, and the estimated changes in numbers of children affected and the ways in which they are affected, be quantified and reported. After accounting for all monetized effects, the analyst should convey the minimum values of non-monetized effects necessary to affect conclusions about the efficiency of a proposed regulation or policy.


  6. We recommend that analysts recognize the wide potential range of socioeconomic characteristics when estimating both (1) relevant dose-response functions and (2) household willingness-to-pay functions, with effort devoted to including available socioeconomic or demographic variables that are indicators for income, minority, or immigrant status. We further recommend that the Agency report the available demographic characteristics (income, ethnicity, immigrant status, family structure, and so on) for any cohorts at risk.


  7. The usual challenges of coordination between risk assessors and economists are amplified in the case of children's health effects because of the paucity of information specific to children. To address this problem, we recommend that EPA structure the tasks associated with measuring the impacts of environmental policies and regulations using a "team" approach in which risk assessors and economists work collaboratively rather than sequentially, in order to clarify the impact of possible assumptions and to ensure that both risk and economic analyses are as comprehensive as feasible. We further recommend seeking input from public health professionals, child health experts, clinicians, industrial engineers etc., as appropriate.


  8. We recommend that estimates of economic benefits of improved children's health be based primarily on the value parents place on the health of their own children, rather than seeking to directly measure children's own willingness-to-pay to reduce environmental risks. Children usually lack the experience to make the informed choices economic analysis assumes will underlie a meaningful WTP, while parents often are uniquely positioned to know and to care about their children's health and well-being. We recognize, however, that parental values may be only one component of social benefits of children's health. (Other possible components, for example, might include the general social benefit derived from children growing up healthy and employed, or symbolic, cultural, or religious value that society might place on children's health.) Until we obtain better indicators of whether and by how much social benefits exceed parental values, the WTP of parents is probably the most defensible indicator of economic benefits of children's health, although we realize that there are a number of reasons to believe that it may be a lower bound.


  9. When EPA uses discounting in its economic analyses, the Agency should explicitly explain what rate or rates it uses, the basis for choosing the specific range of rates used, and the implications of those choices.


  10. Where an analysis places a monetary value on reducing risk to life (as contrasted with health/wellbeing), we consider the value of statistical life years (VSLY) to be a potentially superior valuation approach compared to the value of a statistical life (VSL), and that VSL values for adults are likely to be inappropriate for children. We recommend that the Agency develop appropriate VSLYs for children as soon as possible where monetized values are to be used. However, until appropriate estimates can be developed for children, the adult VSL should be reported as a plausible approximation, with the strong caveats and conditions noted above.

Referring to the recommendations above, the Committee requests an opportunity to review the draft Children's Health Valuation Handbook as well as any economic analysis undertaken for the four regulations that EPA has decided to reevaluate on the basis of children's health effects: 1) chloralkali National Emission Standard for Hazardous Air Pollutants; 2) organophosphate pesticides tolerances for methyl parathion, chlorpyrifos, and dimethoate; 3) atrazine tolerance and MCL; and 4) Farm Worker Protection Standards. The Committee is interested in seeing whether its recommendations can be applied in an effective manner.

Research Recommendations
  1. Research on the valuation (monetized or non-monetized) of children's health effects is underfunded. In FY-99, effectively $0 of the approximately $100,000,000 in research grants awarded by EPA's Office of Research and Development (ORD) were directly devoted to such research. Consequently, we recommend that ORD in consultation with the Office of Children's Health Protection and other groups, as appropriate, develop a detailed research agenda in this area and allocate resources to ensure that these research needs are met, to the extent feasible given competing priorities.


  2. In order to make better values for mortality and morbidity effects available to analysts, we recommend that research on parental willingness to pay to reduce risk to children receive priority attention. Since parental values may not completely reflect societal values, further research should also focus on societal willingness to pay and the magnitude and conditions under which divergence from parental values occurs. Some Committee members also recommended research on the applicability of willingness-to-accept measures for valuing environmental risks to children's health.


  3. Because valuation measures based on wage-risk trade-off studies are unlikely to apply to children, we recommend that the EPA develop an accepted value for the loss of a statistical life year (VSLY) suitable for use in connection with children's health impacts, where monetized values are developed.


  4. We recommend that the Agency promote research to increase the body of knowledge about how willingness to pay for reducing specific environmental health risks in children varies with health status and with environmental and economic factors of the children and their families. In doing so, EPA should take note of the possible effect of income constraints, as noted above, and the implications of reflecting such constraints in willingness to pay figures.


  5. We recommend that researchers in this area employ disaggregated household data, including detailed demographic variables, and attempt to control for the specific effects of the presence of children on household decision-making. It will be useful to other decision-makers involved in protecting children to understand how parents make economically relevant choices associated with their children, and what features of their children's well-being matter to parents and other adults in the household, even if these decisions are not directly associated with pollution or the environment.
  6. We recommend that the Agency promote research and public discussion on the appropriateness of discounting methods when undertaking economic valuations of children's environmental health benefits.


  7. To facilitate the implementation of these research recommendations, the Committee recommends that they be integrated into the Economic Research Strategy. In addition, we also recommend that they be shared with other Federal agencies, researchers, and institutions in the field.

The Children's Health Protection Advisory Committee looks forward to contributing to future thinking about the means by which the Agency may improve its ability to estimate values for children's health effects and incorporate appropriate values into its regulatory decision-making processes, as, for example, in ensuring that the Agency-wide Guidelines for Preparing Economic Analyses takes full account of children's special valuation issues and vulnerabilities. As always, the Committee remains committed to supporting EPA's efforts to better protect the health and safety of children.

Sincerely,

J. Routt Reigart, MD
Chair, Children's Health Protection
Advisory Committee

Attachment

cc. R. Trovato, P. Goode



How These Recommendations Were Developed

The Children's Health Protection Advisory Committee met most recently on September 15, 1999. At this meeting, the Advisory Committee reviewed the Work Group's evaluation of the information available to EPA to assess the economic efficiency, cost-effectiveness, and distributional consequences of measures intended to protect children's health as well as the methods used by the Agency.

The Committee and its Economics and Assessment Work Group greatly appreciate the briefings provided by EPA staff at several meetings of both bodies. In preparing these recommendations, the Economics and Assessment Work Group evaluated: a) specific analytical and methodological issues in the economic evaluation of children's health effects, b) practical approaches to valuing the benefits and costs of children's health effects, and c) data gaps and research needs as they pertain to current EPA practice and the state of the available valuation literature. In particular, the Work Group considered the following:

The Committee and the Economics and Assessment Work Group also heard presentations on various requirements for economic assessments in EPA decision making and on the role of the Environmental Economics Advisory Committee of the EPA Science Advisory Board and other experts in advising EPA on economic analysis. In addition, the Committee benefited from a panel discussion on the appropriateness of monetizing children's health benefits at its May 5-6, 1999 meeting.

Recognizing that there is a very limited literature on the value of reductions in environmental risks to children, the Economics and Assessment Work Group focused its attention on consideration of seven substantive questions that encompass the primary concerns of the Work Group members:

The Work Group compiled a series of substantive and research recommendations to address these questions. At its September 15 meeting and in follow-up correspondence, the Committee discussed these recommendations, modified them slightly, and approved them.



Commissioned Issues Papers Addressing Topics Germane To Valuing Children's Health

Benefits transfer of children's health values, prepared by Marla Markowski, Industrial Economics, Incorporated. March 1999.

Contingent valuation and valuing children's health, prepared by George Tolley, University of Chicago and Robert Fabian, University of Illinois at Chicago. March 1999

Data requirements for valuation of children's health effects and alternatives to valuation, prepared by Kimberly M. Thompson, Center for Risk Analysis, Harvard School of Public Health. March 1999.

Existing literature and recommended strategies for valuation of children's health effects, prepared by James Neumann and Harriet Greenwood, Industrial Economics, Incorporated. January 1999.

On techniques to value the impact of environmental hazards on children's health, prepared by Mark D. Agee, Pennsylvania State University and Thomas D. Crocker, University of Wyoming. December 1998.

Valuing children's health and life: what does economic theory say about including parental and societal willingness to pay? Prepared by William T. Harbaugh, University of Oregon. March 1999.

Valuing indirect effects from environmental hazards on a child's life chances, prepared by Jason F. Shogren, University of Wyoming. February 1999.

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