1. Valuing Mortality Risk Reductions in Homeland Security Regulatory Analyses Prepared for: Estimating the Benefits of Homeland Security Policies September 23-24, 2010 Lisa A. Robinson, Independent Consultant Lisa.A.Robinson@comcast.net www.regulatory-analysis.com 1

2. Previous Work Value per Statistical Life Robinson, L.A. Valuing Mortality Risk Reductions in Homeland Security Regulatory Analyses, prepared for U.S. Customs and Border Protection, Department of Homeland Security, under contract to Industrial Economics, Incorporated, June 2008. Robinson, L.A., J.K. Hammitt, J.E. Aldy, A. Krupnick, and J. Baxter. “Valuing the Risk of Death from Terrorist Attacks,” Journal of Homeland Security and Emergency Management, Vol. 7, No. 1, Article 14, 2010. Robinson, L.A. and J.K. Hammitt. “Valuing Health and Longevity in Regulatory Analysis: Current Issues and Challenges,” Jerusalem Papers in Regulation and Governance, Working Paper No. 4, 2010, forthcoming in Handbook on the Politics of Regulation (D. Levi-Faur, ed.), Cheltenham, UK and Northampton, MA: Edward Elgar. Value of Time Robinson, L.A. Valuing Travelers’ Time for Border Crossings and Related Activities, prepared for U.S. Customs and Border Protection, Department of Homeland Security, under contract to Industrial Economics, Incorporated, February 2007. 2

3. 2007-2008 VSL Project Goal Develop approach for valuing mortality risk reductions in homeland security regulatory analyses, that can be applied immediately based on available data. Problem Approaches currently used by other agencies may not be appropriate given risk differences and EPA expert panel advice on use of meta-analyses. 3

4. Current Practices: Base Estimates Agency Reported VSL Estimates (range, dollar year) Inflated to 2007 DollarsBasis OMB 2003 guidance $1 million-$10 million (no dollar year reported) Available research, allows agency flexibility EPA 2000 guidance $4.8 million ($0.6 million-$13.5 million, 1990 dollars) $7.6 million ($1.0 million-$21.4 million) Viscusi (1992, 1993) literature review DOT 2008 guidance $5.8 million (sensitivity analysis: $3.2 million, $8.4 million; probabilistic analysis: standard deviation of $2.6 million, 2007 dollars) Mrozek and Taylor (2002), Miller (2000), Kochi et al. (2006), Viscusi and Aldy (2003) meta-analyses; Viscusi (2004) wage-risk study FDA ~ $5 million (varies, no dollar year reported) No formal guidance, cites literature reviews and meta- analyses Other agencies Economically significant rules addressing mortality risks infrequent, approaches generally similar to the above 4

5. Current Practices: Adjustments Agency Real Income Growth over TimeAge Latency or Cessation Lag Medical/Other External Costs OMB YesMixed*If relevantYes EPA YesNoIf relevantYes DOT YesNoN/AYes FDA No If relevantYes 5  OMB: No VSL adjustments, report value per statistical life year (VSLY) estimates with larger values for older individuals, use estimates for children equal to or greater than adults. How VSL adjustments are implemented varies across agencies, but the types of adjustments are similar.

6. Homeland Security: Base Estimate Based on Viscusi (2004). –State-of-the-art wage-risk study by highly respected researcher. –Deaths from trauma among working age individuals. –Well-established approach reflecting revealed preferences. –Uses newer fatality risk data; census with more rigorous confirmation. –Model specification reflects lessons learned from prior research; better controls for confounding factors. Avoids problems with available meta-analyses. –Rely on studies that use older data and methods. –EPA expert panel criticized meta-analysis selection criteria and statistical methods (Cropper et al. 2007). Most significant limitation relates to risk attributes. –Homeland security risk reductions likely to be valued differently than job-related risks. 6

7. Homeland Security: Base Estimate Result VSL estimate adjusted for inflation and income growth (2007 dollars): $6.3 million (95% confidence interval: $4.9 million–$7.9 million) Very similar to values used by other agencies, but different basis. Used in recent USCG regulatory analyses. 7

8. Homeland Security: Adjustments Qualitative Attributes and Ambiguity Limited empirical research on effects on the VSL. –Available studies often address risks that may be less feared than terrorism. –Ambiguous risk information may increase values. –Suggests that the value of averting more uncontrollable, involuntary, dreaded, or ambiguous risks may be higher than the value of more commonplace risks, by perhaps as much as a factor of two. 8

9. Homeland Security: Adjustments 9 Study Population (responses) Findings Risk Attributes Magat et al. (1996) a N. Carolina (727) No difference between auto fatalities and fatal lymphoma Hammitt and Liu (2004)Taiwan (1,248)Cancers valued one-third more than noncancers; air pollution risks valued twice drinking water risks. Carlsson et al. (2004)Sweden (996)Risk reductions valued twice as high for air travel as for taxi travel. Chilton et al. (2006) a U.K. (145) Dread factor ranges from 0.8 to 1.9 (compared to pedestrian accidents) for: accidents to automobile drivers/passengers, pedestrians, and at home; fires at home; drowning, hazardous production plant accidents and murder. Factor increases for fires in public places (5.8) and rail accidents (8.7). Van Houtven et al. (2008) a U.S. (1,010)Cancers valued up to three times higher than auto accident risks. Hammitt and Haninger (2010) U.S. (2,018)Similar values for cancers and non-cancers (from pesticides on foods) and for auto accidents. Itaoka et al. (2006)Japan (1,513)Fatalities from nuclear power disasters valued 60 times higher than from routine fossil fuel generation. Jones-Lee and Loomes (1995) a U.K.(225)No differences due to scale. Rail-related risks valued 50 percent higher than road-related risks. Subramanian and Cropper (2000) a U.S. (1,013) 100 percent change in blame, ease of avoidance, seriousness, personal impact, program effectiveness, appropriateness of intervention, fairness of funding, or the time lag led to a 5 to 150 percent change in value Chilton et al. (2002) a U.K.(254)Value of preventing deaths from rail accidents and fires at most 20 percent higher than for road accidents. Adamowicz et al. (2009)Canada (1,219)Microbial risks valued one-third more than cancers (generally statistically insignificant). Viscusi (2009b) a U.S. (1,108)Traffic deaths valued similarly to terrorism, each valued at twice natural disaster deaths. Risk Ambiguity Viscusi et al. (1991) a N. Carolina (646) For risk of auto fatalities vs. fatal lymphoma or nonfatal nerve disease, greater ambiguity increases values by a small amount. Shogren (2005)NR For food-borne illness, ambiguity increases values by a factor of about 1.3 to 2 (generally not statistically significant). Riddel and Shaw (2006)Nevada (NR)For nuclear waste transport, increasing ambiguity by a factor of 2 increases values by about 75 percent. Notes: NR = not reported. a. Survey elicited rates of trade-off between different risk levels or number of deaths, not monetary values.

10. Broader Recommendations Problem: Federal agencies use different values, but based on similar research (wage-risk studies). Solution: Standardization If continue to rely on wage-risk studies, use same estimates. 10

11. Broader Recommendations Problem: Ignoring the extent to which the VSL varies depending on population and risk attributes leads to analytic results that do not fully reflect the preferences of those affected for spending on risk reductions rather than other goods or services. –In the US, adjustments for population characteristics (income, age) have been controversial. –Deficiencies in the research base lead to uncertainty about the effects of many attributes. Solution: Differentiation Use sensitivity or side analysis to test effects based on current research. Focus new research on better understanding the effects of risk attributes. 11