Cost-Benefit Analysis of Environmental Health Interventions

Carla Guerriero

• Publisher: Academic Press
• Year: 2019
• ISBN:
  9780128129364
• Topic: Business
• Subtopic: Industria farmaceutica, biotecnologica e sanitaria
• Index: Business

Cost-benefit Analysis of Environmental Health Interventions clearly articulates the core principles and fundamental methodologies underpinning the modern economic assessment of environmental intervention on human health. Taking a practical approach, the book provides a step-by-step approach to assigning a monetary value to the health benefits and disbenefits arising from interventions, using environmental information and epidemiological evidence. It summarizes environmental risk factors and explores how to interpret and understand epidemiological data using concentration-response, exposure-response or dose-response techniques, explaining the environmental interventions available for each environmental risk factor. It evaluates in detail two of the most challenging stages of Cost-Benefit Analysis in 'discounting' and 'accounting for uncertainty'. Further chapters describe how to analyze and critique results, evaluate potential alternatives to Cost-Benefit Analysis, and on how to engage with stakeholders to communicate the results of Cost-Benefit Analysis. The book includes a detailed case study how to conduct a Cost-Benefit Analysis. It is supported by an online website providing solution files and detailing the design of models using Excel.

• Provides a clear understanding of the core theory of cost-benefit analysis in environmental health interventions
• Provides practical guidance using real-world case studies to motivate and expand understanding
• Describes the challenging 'discounting' and 'accounting for uncertainty' problems at chapter length
• Supported by a practical case study, online solution files, and a practical guide to the design of CBA models using Excel

Chapter 1

The key steps in cost–benefit analysis of environmental health interventions

Carla Guerriero, Department of Economics and Statistics, University of Naples Federico II, Naples, Italy; Centre for Studies in Economics and Finance (CSEF), Naples, Italy

Abstract

The objective of this chapter is to provide an overview of the different steps involved in the cost–benefit analysis of environmental health interventions. This chapter helps making the process of conducting a cost–benefit analysis more manageable by dividing the analysis into seven main consecutive steps: (1) specifying the decision problem, (2) quantifying the benefits, (3) assigning monetary values to each benefit, (4) quantifying the costs of the intervention, (5) including considerations of the life span for costs and benefits and reexpressing these as present values, (6) comparing the estimated costs with the benefits, and (7) performing uncertainty analysis to assess the robustness of the study results. The remaining part of this chapter will focus on a brief overview of each step with a special focus on Step 1, which is not covered in the remaining chapters of this book.

Keywords

Steps in CBA; checklist; CBA appraisal; decision problem

Contents

Outline

• 1.1. Introduction 1
• 1.2. Step 1: Identifying the decision problem to be addressed and the alternatives to include 2
• 1.3. Step 2: Benefits analysis 5
• 1.4. Step 3: Assigning a monetary value to (nonmonetary) benefits 7
• 1.5. Step 4: Cost analysis 10
• 1.6. Step 5: Time adjustment for cost and benefits 11
• 1.7. Step 6: Cost–benefit analysis evaluation 13
• 1.8. Step 7: Risk and uncertainty 14
• 1.9. Conclusion 16
• References 17
• Further reading 18

1.1 Introduction

The main principle behind cost–benefit analysis (CBA) is simple: if the total costs are outweighed by the total benefits, the intervention can be implemented. Nevertheless, CBA may appear complex and intimidating given the many types of possible interventions. A common problem in CBA of Environmental Health Intervention (EHI) is its timing: policy makers require fast responses, their power is limited to their political mandate, and during emergencies a CBA approach is considered time consuming. This chapter helps making the process of conducting a CBA more manageable by dividing the analysis into seven main consecutive steps: (1) specifying the decision problem, (2) quantifying the benefits, (3) assigning monetary values to each benefit, (4) quantifying the costs of the intervention, (5) including considerations of the life span for costs and benefits and reexpressing these as present values, (6) comparing the estimated costs with the benefits, and (7) performing uncertainty analysis to assess the robustness of the study results (OECD, 2006a, 2006b). The remaining part of this chapter will focus on a brief overview of each step with special focus on Step 1 which is not covered in the remaining chapters of this book (Fig. 1.1).

Figure 1.1 The key steps in cost–benefits analysis of EHIs.

1.2 Step 1: Identifying the decision problem to be addressed and the alternatives to include

The first step in CBA requires the analyst to make key decisions about the objective and the main components of the economic evaluation. The most important decision is to identify the question(s) being answered and more specifically: (1) specifying the problem and (2) the policy alternatives, including nonaction, considered in the analysis. Answer to these questions requires an assessment of the pollutants/hazards that are causing the problem and (3) the medium (e.g., air, soil, water) through which the exposure is taking place.

Once the environmental data have been gathered and assessed, it is possible to select the range of alternatives. The selection of the policy(ies) or intervention(s) included in the economic evaluation depends on their availability and feasibility but is also based on political factors (OECD, 2006a). The rationale for choosing the alternatives (and excluding others) should be clearly provided in the analysis. All alternatives included should be described in sufficient detail to assess the relevance of the analysis. In general, it is advisable not to include more than six possible alternatives. It has been shown that the advantages of a larger set would be offset by the cognitive and analytical burden of considering a larger number of options.

The form of evaluation (CBA) should be clearly stated with a clear justification of the chosen evaluation approach in relation to the question being addressed.

Another important preliminary decision for the first stage of CBA is the selection of the relevant viewpoint (OECD, 2016; HM Treasury, 2018). According to the selected perspective, different costs/benefits (e.g., health service, societal, employer) may or may not be considered in the analysis. For example, if the Minister of Health perspective is adopted, the benefits in terms of visibility improvements associated with air pollution interventions will go unaccounted. According to Hutton (2008), given the broad range of possible benefits, the best approach is to estimate the costs and benefits for all relevant perspectives and to present them separately in the results to leave the most relevant perspective decision to politicians. However, this approach is both challenging and time consuming, and in practice, the perspective is likely to change according to the type of selected intervention. A societal perspective, for instance, is useful if the intervention has a wide range of benefits/stakeholders (OECD, 2016). Alternatively, a narrower perspective (e.g., employer) is commonly adopted where the application of the intervention is sector-specific, such as improving ventilation and thermal control in an office building.

In general, three are the possible perspectives to adopt when conducting a CBA: private/business, institutional, and societal perspective.

These perspectives correspond to three types of CBA:

1. 1. Financial: This type of CBA meets the criteria of private assessment regardless of the subject involved. The objective is to chime with the maximization of profit according to the criteria of financial efficiency.
2. 2. Economic: This CBA meets public evaluation criteria that vary according to the nature of the subject involved (e.g., Minister of Health or Education or Transport). In this case the objective is the maximization of the social well-being according to the criteria of economic efficiency. This CBA considers all possible determinant effects of the intervention beyond “market prices.”
3. 3. Societal: This CBA meets public evaluation criteria but also takes into account the effects of the investments on equity and income distribution. The reference parameters for this analysis are social prices, that is, those established on the basis of the references of public decision makers with the aim of improving temporal and spatial distributions of income. This is the most comprehensive but also the most challenging type of CBA.

The first stage of CBA should also set out which benefits and costs will be included in the analysis. This issue “standing” will be discussed later and in further detail in Sections 1.3 and 1.5 of this chapter and in Chapter 5, Health benefit analysis: monetization of health impacts and its use in environment and health, and Chapter 7, Discounting benefits and costs.

Once the perspective for the analysis has been selected, it is essential to identify the target population, namely, the population affected by the range of interventions. The final beneficiaries of EHIs may include specific subgroups of individuals, for example, motorways users, a population located in a geographical area, for example, individuals living close to an industrial site, or an entire nation, for example, a new regulation on national air quality sta...

Table of contents

• Cover image
• Title page
• Table of Contents
• Copyright
• Dedication
• List of contributors
• Acknowledgments
• Introduction
• Chapter 1. The key steps in cost–benefit analysis of environmental health interventions
• Chapter 2. Environmental health interventions for the treatment of waters, solids, and soils
• Chapter 3. Health impact assessment: quantifying the health benefits and costs
• Chapter 4. Monetary analysis of health outcomes
• Chapter 5. Health benefit analysis: monetization of health impacts and its use in environment and health
• Chapter 6. Costing environmental health intervention
• Chapter 7. Discounting benefits and costs
• Chapter 8. Quantifying uncertainty in environmental health models
• Chapter 9. Alternatives to cost–benefit analysis for economic evaluation
• Chapter 10. Climate change and ecological public health: an integrated framework
• Chapter 11. Case study: a realistic contaminated site remediation and different scenarios of intervention
• Chapter 12. Conclusion
• Index