Handbook of Environmental Economics

Chapter 20

QUANTIFYING AND VALUING ENVIRONMENTAL HEALTH

RISKS

W. KIP VISCUSI

Harvard University, USA

TED GAYER

Georgetown University, USA

Contents

Abstract 1030

Keywords 1030

1. Introduction 1031

2. Risk assessment methodology 1032

2.1. Historical background and current regulatory guidelines in the U.S. 1032

2.1.1. Hazard identification 1034

2.1.2. Dose–response assessment 1037

2.1.3. Exposure assessment 1039

2.1.4. Risk characterization 1041

2.2. Risk assessment in other countries 1041

3. Issues in risk assessment 1045

3.1. Conservative risk assessment practices 1045

3.2. Synthetic v. natural chemicals 1050

3.3. Actual v. perceived risk 1051

4. Valuing environmental health risks 1058

4.1. The value of a statistical life v. the human capital approach 1058

4.2. Valuing morbidity risks 1060

4.3. Using labor market data to estimate the value of a statistical life 1063

4.3.1. The hedonic wage model 1063

4.3.2. The empirical specification of the hedonic wage equation 1066

4.3.3. Accounting for the duration and quality of life 1068

4.3.4. Labor market evidence of risk tradeoffs 1070

4.3.5. Survey evidence of risk tradeoffs 1073

4.3.6. Risk tradeoffs in other countries 1076

4.4. Using housing market data to estimate the value of a statistical cancer case 1079

Handbook of Environmental Economics, Volume 2. Edited by K.-G. Mäler and J.R. Vincent

© 2005 Elsevier B.V. All rights reserved

DOI: 10.1016/S1574-0099(05)02020-6

1030 W.K. Viscusi and T. Gayer

5. Regulatory performance 1081

5.1. Legislative mandates, judicial review, and executive oversight in the U.S. 1088

5.2. Risk–risk analysis 1090

5.2.1. Moral hazard and forgone health benefits 1091

5.2.2. Occupational risks associated with risk-reduction regulations 1092

5.2.3. The opportunity costs of risk-reduction regulations 1092

6. Conclusion 1096

Acknowledgements 1097

References 1097

Abstract

This chapter provides an overview of the current methodology for assessing environ-

mental health risks. Our primary focus is on the practices that U.S. regulatory agencies

use for assessing cancer risk, although we also provide a brief comparison to the

methodology used in Western Europe. We then discuss the potential biases that may

be inherent in the various components of the assessment methodology, and we discuss

the implications of these biases towards regulatory policy. This chapter also provides

an overview of the current methodology for valuing risks of both mortality and morbid-

ity, placing particular emphasis on ex ante measurements of individuals’ willingness to

pay for risk reductions. We present the underlying theory, the estimation concerns, and

the policy implications of labor market, housing market, and survey studies of estimat-

ing the value of risk reductions. Once we have established the economic framework of

efficient regulatory policies, we then provide an overview of the extent to which U.S.

regulatory performance meets these efficiency goals and offer suggestions for better

achieving these goals.

Keywords

cost–benefit analysis, risk assessment, value of statistical life, hedonic models,

risk–risk analysis

JEL classification:Q2,J3,K2