A social cost–benefit framework for COVID-19 policy decisions

Abstract

Important public sector decisions should be informed by cost–benefit analysis (CBA), according to the New Zealand Treasury. This paper explores whether policy decisions about COVID-19 responses are tractable and amenable to ex ante CBA. It does so with a worked example: a CBA of the decision to extend alert level 4 restrictions by a further 5 days on 20 April 2020, using the information that was known at the time. The paper concludes that such analysis is both tractable and a worthwhile input into COVID-19 decision making.

KEYWORDS:

• COVID-19
• cost-benefit analysis
• public health
• decision-making tools

Acknowledgements

The author gratefully acknowledges helpful additional research, peer review and comments from Judy Kavanagh, Joanne Leung, Dieter Katz, Gail Pacheco, Andrew Sweet, Murray Sherwin, Geoff Lewis, Jenesa Jeram, Bronwyn Howell, Martin Lally, Ian Harrison, and others who declined to be named. The views expressed in this paper are my own and not those of the Commission, and any errors or omissions are my own.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1 This description covers ex ante CBA, i.e. that undertaken to inform a future decision. CBA can also be used ex post, to better understand the consequences of past decisions. In that case the options considered are typically the ‘factual’ (the decision actually taken) and a ‘counter-factual’ (an alternative, not necessarily known at the time of the original decision). CBA can consider more than two options.

2 The original analysis, including peer review, was completed and submitted to Treasury on 30 April. A revised version was submitted on 2 May, in response to a request for clarification of some details. The Treasury publicly released the CBA on 31 July to satisfy a request under the Official Information Act. The Productivity Commission subsequently published it as Heatley (2020a). This paper presents a condensed version; see Heatley (2020a) for sources, further details and expanded reasoning.

3 Up to and including 11 September 2020.

4 Clearly, there were myriad other alternatives, including a longer extension of level 4 and an immediate drop to level 2. To be tractable, marginal analyses need to artificially restrict the option set.

5 See Heatley (2020a) for the sensitivity analysis. The overall results of the CBA proved fairly insensitive to reasonable alternatives for parameter values. The parameter values and results presented in this paper are those of the base case.

6 The Prime Minister reported it as 0.48. The source of that estimate is unclear. Heatley (2020b) calculated an R_eff of 0.14 for 20 April. That analysis, however, was neither publicly available nor widely communicated within government on 20 April.

7 With level 4 controls, and after an initial lag, the daily number of new cases had been decaying with a half-life of (very roughly) 5 days.

8 This is also the case if R_eff is below 1 at levels 1 or 2, and New Zealand dropped to those levels.

9 I used 18 months (i.e. 20 October 2021) as the forecast period, assuming that as an average projection of the development and deployment of an effective vaccine.

10 This assumption avoids having to assign probabilities to the three possibilities.

11 The stochastic model cited by Steyn et al. (2020) does not have the features that would be required to make this calculation.

12 Calculations available on request.

13 VoSL estimates depend on the cause of death and thus the distribution of ages of those dying (Colmer, 2020). Ministry of Transport (2020) suggested using $4.53m (June 2019 prices) for road deaths (while noting that this figure is based on a 1991 survey and thus outdated). People dying from COVID-19 are much older, on average, than those dying from road accidents. Lally (2020), adjusting for age distributions, calculated an implied value of a statistical life year (comparable to a QALY) of $146,000 from Ministry of Transport data. Applying this figure to the CBA base case adds $565,000 to the cost of a COVID-19 death, or $17m for 30 deaths. Applying VoSL in this manner does not affect the conclusions of the CBA.

14 Valuations could also differ by age at death (e.g. a preference for preserving a year of the life of an older person than of a younger one, or vice versa), or by cause of death (e.g. dying in a chosen recreational activity versus dying at the hands of a violent stranger). Such considerations are outside the scope of this paper. Conjoint-analysis surveys, such as those of Golan, Hansen, Kaplan, and Tal (2010), could be useful in exploring such questions.