session 10b from diye to value of statistical life: a case study for the islamic republic of iran

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Session 10B

From Diye to Value of Statistical Life: A Case Study for the

Islamic Republic of Iran

Morteza Rahmatian

California State University, Fullerton

[email protected]

Ashgabad, November, 2005

Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL

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This paper present VSL obtained in several approaches:

1. Diye

2. Human Capital Approach

3. Contingent Valuation Method

4. Quality of Well Being (QWB)

5. Income Elasticity Approach

6. Miller Approach


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Diye is referred to a form of financial compensation to be paid by the perpetrator to the victim’s family.

Diye would seem to fall somewhere

between the modern-day valuation

frameworks set up by the human capital

approach and the theoretically more

complete WTP approach.


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Diye

Since the monetary value of most of the products designated in Diye fluctuates, we choose to focus on the one item whose value is easy to determine - the Dinar, whose value is based on gold. With 2003 gold prices set at $363.38 per ounce, the value of 1,000 Dinars thus becomes:


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Diye

(3,515 grams)(0.035274 oz/g)($363.38/oz) = $45,055.


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Human Capital Approach (HCA)

Considering a worker of average age in Tehran (37 years, which is based on our sample), a retirement age of 62, and a yearly real wage of $1800, an estimate of $ 45,000 results.

HCA VSL = $45,000


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VSL Using CVM

Contingent Valuation Method (CVM)

was utilized to estimate monetary

values for the avoidance of certain

health symptoms (including the

reduction in the probability of dying

prematurely) in the Greater Tehran Area.


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VSL using CVM

Respondents were asked:

“If you were placed in a hypothetical market and

were able to purchase avoidance of any of the

listed symptoms, given your budget constraint,

please identify your willingness to pay for

avoiding one day of these symptoms.”


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VSL Using CVM

Respondents were further asked

to place a dollar value on the

possibility of reduction in death rate by one in one thousand.


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Characteristics of the respondents

Number of observation 3000

Smokers 25.5%

Male 47.3%

Female 52.7%

Age 37Years

Married 71.2%

Education 9.9 Years

Household size 4.7

Head of household 36.6%

Hours per day out door 5.19

Average monthly income 2,082,068 Rials


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VSL Using CVM

The mean and median bids for a one in

1,000 reduction in the probability of dying

prematurely are 35,000 and 15,000 Toman,

respectively.

Using the median survey responses results

in a VSL of $66,750.


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Quality of Well Being (QWB)

Drawing on work by French and Mauskopf (1992) and by Johnson et al. (1997), we make use of a health-status index to link morbidity WTP values to mortality WTP numbers.

Specifically, we perform the following steps to arrive at our VSL estimates:


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1. Convert our WTP survey results into PPP-adjusted U.S. dollars.

2. For each health effect, determine the number of Quality-Adjusted Life-Days lost, using health index numbers developed by Johnson et al.


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3. Calculate a range of estimates

for the Value of a Quality-Adjusted Life-Year (QALY).

4. Combine the value of a QALY with life-years remaining to derive the VSL.


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Mean and Median Bids for Symptom Avoidance (in Rials)

Symptoms Mean Median Median in $

Cough per day 8,999 4,000 $ 1.78

Shortness of Breath 13,413 7,000 $ 3.12

Chest Pain 10,327 5,000 $ 2.23

Irregular Heart Beat 14,113 8,000 $ 3.56

Vomiting 7,236 4,000 $ 1.78

Headache per day 12,085 5,000 $ 2.23

Sore Throat per day 6,743 3,000 $ 1.33

Eye irritation per day 9,124 5,000 $ 2.23

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First, the WTPs (expressed in Rials) are expressed into US dollars, using the exchange rate of 8000 Rials = $1.

Using the purchasing power parity (PPP) the symptom avoidance are valued from $1.33 (to avoid a day of sore throat) to $3.56 (to avoid a day with Irregular Heartbeat).


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French and Mauskopf (1992) developed an approach for using health-status indexes to derive WTPs for specific symptoms (such as cough, headache, and asthma) from the value of a statistical life. Here, we "reverse the process" to derive an estimate of the VSL from our reported WTP values for specific symptoms.


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Quality of Well-Being index provides a quantitative measure of the perceived severity of specific health conditions, on a scale ranging from 0 (death) to 1 (perfect health). By subtracting a symptom's QWB from one, the portion of the "day lost" due to the symptom is inferred.


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Combining the WTP for avoiding a day with a particular symptom with its QWB index number, it becomes a simple matter to infer the value of a Quality-Adjusted Life-Year (QALY).

Value of 1 Life -Year = (WTP for Avoiding 1 day with symptom * 365)/ (Days Lost)

For instance, using mild cough value of a QALY to be [($1.78)*365 / 0.257] = $2,528.


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Life Days Lost and Value of Life (in US $)

Symptoms Days Lost Value of 1 Year

$ VSL

Cough per day 0.257 $ 2,528 $ 80,896Shortness of breath 0257 $ 4,424 $141,569Chest Pain 0.299 $ 2,716 $ 86,916Irregular Heart Beat 0.359 $ 3,620 $115,824Vomiting 0.357 $ 1,820 $ 58,236Headache per day 0.244 $ 3,328 $106,508Sore Throat per day 0.170 $ 2,866 $91,722Eye irritation per day 0.230 $ 3,531 $112,991


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• $VSL = ($QALY) x (Life-Years Remaining)

Based on average age of our survey respondents (37), and the Iranian life expectancy of 69 years, 32 years of life remaining for an "average" survey respondent


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The VSL ranges from $58,236 to $141,569, with an average value of $ 99,333.


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Income Elasticity Approach

Bowland and Beghin (2001) is an attempt to estimate VSL for developing countries by using information from the industrialized nations. This equation accounts for differences in risk, human capital levels, and income. Their work also led to the estimation of an income elasticity of WTP for reductions in the probability of premature mortality.


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Income Elasticity ApproachThe elasticity, which Bowland and Beghin estimated ranges from 1.52 to 2.27:

WTPA = WTPB (INCA / INCB )ε

Where the A and B subscripts denote two different countries, WTP is the willingness to pay for a particular health effect (value of avoiding premature death), and INC denotes the per capita income in each nation. The ε is the income elasticity of WTP.


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To estimate ε for Iran, we use the Bowland-Beghin equation, along with our Iranian VSL. Assuming a US VSL of $6 million, PPP-adjusted per capita income for the 2 countries, and the range of VSL estimates derived from our study,

ε = 2.44


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This values is compatible with Bowland and

Beghin's predicted range for ε.

This values falls slightly outside Bowland and

Beghin's predicted range for ε, giving further

support to the validity of our morbidity-based

VSL estimation procedure.


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VSL using the Miller approach.

• Ted R. Miller evaluated the value of statistical life from 68 studies spread over 13 countries.

• Miller concluded that the value of statistical life for any country is typically about 120 times GDP per capita.


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Conclusions

Diye is very close to the value obtained using thehuman capital approach. (Lower Bound)

CVM on mortality valuation, results in a VSLwhich is about 50 percent higher thanDiye/human capital number.


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ConclusionsCVM on morbidity results in VSL of nearly $100,000 with an income elasticity of 2.44. Theseestimates are consistent with values reported inother recent valuation studies for developingcountries.

We speculate that peoples’ attitudes toward the value ofavoiding premature death, as captured by our WTPmortality survey, are strongly influenced by the long-heldDiye tradition.

session 10b from diye to value of statistical life: a case study for the islamic republic of iran

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