1. 1 Civil Systems Planning Benefit/Cost Analysis Scott Matthews Courses: 12-706 / 73-359 / 19-702 Lecture 22 - 11/14/2005

2. 12-706 and 73-3592 Administrivia  PS 6 due Monday  How are projects coming along?  Office Hours this week:  Thursday - 11am  Friday - 2pm

3. 12-706 and 73-3593 Economic valuations of life  Miller (n=29) $3 M in 1999 USD, surveyed  Wage risk premium method  WTP for safety measures  Behavioral decisions (e.g. seat belt use)  Foregone future earnings  Contingent valuation  Note that we are not finding value of a specific life, but instead of a statistical life

4. 12-706 and 73-3594 Another CEA Example  Automated defribillators in community  http://www.early-defib.org/03_06_09.html http://www.early-defib.org/03_06_09.html  What would costs be?  What is effectiveness?

5. 12-706 and 73-3595 Risk Analysis  Study of the interactions between decision making, judgment, and nature  Evidence : cost-effectiveness of risk reduction opportunities varied widely - orders of magnitude  Economic efficiency problems

6. 12-706 and 73-3596 Example - MAIS scale  Abbreviated Injury Scale (AIS) is an anatomically based system that classifies individual injuries by body region on a six point ordinal scale of risk to life.  AIS does not assess the combined effects of multiple injuries.  The maximum AIS (MAIS) is the highest single AIS code for an occupant with multiple injuries.

7. 12-706 and 73-3597 MAIS Table - Used for QALY Conversions Comprehensive Fatality / Injury Values Injury Severity1994 Relative Value MAIS1.0038 MAIS2.0468 MAIS3.1655 MAIS4.4182 MAIS5.8791 Fatality1.0

8. 12-706 and 73-3598 Cost-Effectiveness of Life-Saving Interventions  From “500 Life-saving Interventions and Their Cost-Effectiveness”, Risk Analysis, Vol. 15, No. 3, 1995.  ‘References’ (eg #1127) are all other studies  Model:  Estimate costs of intervention vs. a baseline  Discount all costs  Estimate lives and life-years saved  Discount life years saved  CE = C I -C B /E I -E B

9. 12-706 and 73-3599 Specific (Sample) Example  From p.373 - Ref no. 1127  Intervention: Rear outboard lap/shoulder belts in all (100%) of cars  Baseline: 95.8% of cars already in compliance  Intervention: require all cars made after 9/1/90 to have belts  Thus costs only apply to remaining 4.2% (65,900) cars  Target population: occupants over age 4  Others would be in child safety seats  What would costs be?

10. 12-706 and 73-35910 Example (cont)  1986 Costs (from study): $6 cost per seat  Plus added fuel costs (due to increased weight) = total $791,000 over life of all cars produced  Effectiveness: expect 23 lives saved during 8.4 year lifetime of fleet of cars  But 95.8% already exist, thus only 0.966 lives saved  Or 0.115 lives per year (of use of car)  But these lives saved do not occur all in year 0 - they are spread out over 8.4 years.  Thus discount the effectiveness of lives saved per year into ‘year 0’ lives..

11. 12-706 and 73-35911 Cost per life saved  With a 5% discount rate, the ‘present value’ of 0.115 lives for 9 years = 0.817 (less than 0.966)  Discounted lives saved =  0.115)/(1.05) j ; j=1..9  This is basically an annuity factor  So cost/life saved = $791,000/0.817  Or $967,700 per life (in “$1986/1986 lives”)  Using CPI: 145.8/109.6 -> $1,287,326 in $1993  But this tells us only the cost per life saved  We realistically care more about quality of life, which suggests using a quality index, e.g. life- years saved.

12. 12-706 and 73-35912 Sample Life Expectancy Table 35-year old American expected to live 43.6 more years (newer data than our study) Source: National Center for Health Statistics, http://www.cdc.gov/nchs/fastats/lifexpec.htm

13. 12-706 and 73-35913 Cost per life-year saved  Assume average age of fatality in car accident was 35 years  Life expectancy tables suggest a 35 year old person would on average live to age 77  Thus ‘42’ life years saved per fatality avoided  1 life-year for 42 yrs @5%= 17.42 years (ann. factor)  $1993 cost/life-year = $1,287,326/17.42  With 2 sig. figures: ~$74,000 as in paper  Note $1,287,326 is already in cost/life units -> just need to further scale for life-years by 17.42

14. 12-706 and 73-35914 Example 2 - Incremental CE  Intervention: center (middle) lap/shoulder belts  Baseline: outboard only - (done above)  Same target population, etc.  Cost: $96,771,000  Incremental cost : $96,771,000 - $791,000  Effectiveness: 3 lives/yr, 21.32 discounted  Incremental Effectiveness: 21.32 - 0.817= 20.51  Cost/life saved = $95.98 million/20.51 = $4.7 million ($1986) => $6.22 million in $1993  Cost/life-year = $6.22 million/17.42 = $360,000

15. 12-706 and 73-35915 Overall Results in Paper  Some had $10B  Median $42k per life year saved  Some policies implemented, some only studied  Variation of 11 orders of magnitude!  Some maximums - $20 billion for benzene emissions control at tire factories  $100 billion for chloroform standards at paper mills

16. 12-706 and 73-35916 Comparisons

17. 12-706 and 73-35917 Agency Comparisons  $1993 Costs per life year saved for agencies:  FAA (Aviation): $23,000  CPSC (Consumer Products): $68,000  NHTSA (Highways):$78,000  OSHA (Worker Safety): $88,000  EPA (Environment): $7,600,000!  Are there underlying causes for range? Hint: are we comparing apples and oranges?