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Valuing Health Risk Changes Using a Life-Cycle Consumption Framework

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Paper Number: 2011-03

Document Date: 04/26/2011

Authors: Stephen C. Newbold

Subject Areas: Health; Benefit-Cost Analysis; Valuation

Keywords: VSL; life-cycle model; benefit-cost analysis; social welfare analysis; QALY; health-wealth tradeoff

Abstract: Government agencies routinely use the “value of a statistical life” (VSL) in benefit-cost analyses of proposed environmental and safety regulations. Here I review an alternative approach for valuing health risks using a “life-cycle consumption framework.” This framework is based on an explicit individual-level lifetime utility function over health and income at all ages, and so could be used to examine any pattern of health risk changes over a person’s lifespan. I discuss several potential advantages of this framework, both positive and normative. From a positive perspective, this framework can support a functional benefit transfer approach that is more flexible and potentially more accurate than the standard point-value benefit transfer approach based on the VSL, and it can be used to evaluate mortality and morbidity effects simultaneously in an internally consistent model. From a normative perspective, it provides a natural foundation for a social welfare function and therefore could facilitate a unified evaluation of efficiency and equity, as a supplement to traditional benefit-cost analysis.

Attachment: 2011-03.pdf 2011-03.pdf (304K, About PDF)

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