Linking Economics and Risk Assessment

Abstract

Benefit-cost analysis relies heavily upon risk assessment. The extent to which benefits can be quantitatively included in an economic analysis is frequently determined by risk assessment methods. Therefore, interdisciplinary collaboration between economists and experts in risk assessment-related disciplines is critical to further development of quantitative human health benefits analysis. To further lay the groundwork for such collaborations, this article reviews the economic foundations of benefit-cost analysis, identifies implications of incorporating this approach into risk assessment, and suggests future cooperation between economists and risk assessors.

The authors are all analysts in the National Center for Environmental Economics. Any opinions, findings, and conclusions or recommendations expressed in this publication are those of the authors and do not necessarily reflect the views of the U.S. Environmental Protection Agency.

Notes

*For example, health-related benefits accounted for over 99% of the quantified and monetized benefits of the Clean Air Act from 1970 to 1990, with reductions in mortality risk accounting for the lion's share of health benefits (U.S. EPA, 1997).

*WTP in this case is said to be an option price for the risk reduction.

^†Aside from the change in liver weight, this chain of events is consistent with conclusions about disruption of the normal thyroid–pituitary negative feedback loop and the concordance of human and animal effects expressed in the U.S. EPA Assessment of Thyroid Follicular Cell Tumors (U.S. EPA, 1998). A more detailed description of the process assumed here is available in Axelrad et al. (2001) and Dockins et al. (2001).

*The economic value may be negative in cases where the health endpoint is perceived to be a positive outcome or where the actions needed to arrive at the risk reduction are perceived to be difficult and undesirable. An example of the positive outcome for some people would be weight loss, whereas an example of a difficult and undesirable action would, for some people, be quitting smoking.

*The RfD is “an estimate (with uncertainty spanning perhaps an order of magnitude) of a daily oral exposure to the human population (including sensitive subgroups) that is likely to be without an appreciable risk of deleterious effects during a lifetime. It can be derived from a NOAEL, LOAEL, or benchmark dose, with uncertainty factors generally applied to reflect limitations of the data used. Generally used in EPA's noncancer health assessments” (U.S. EPA, 2003).

*The latency period is the time between initiation of exposure and the increase in risk, whereas a cessation lag is the period between cessation of exposure and the reduction in risk.

^†This discount only applies to the willingness to pay to avoid the illness itself. It does not necessarily apply to negative impacts that occur during the latency period, such as dread.