1. GEF Session 10B From Diye to Value of Statistical Life: A Case Study for the Islamic Republic of Iran Morteza Rahmatian California State University, Fullerton mrahmatian@fullerton.edu Ashgabad, November, 2005

2. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL This paper present VSL obtained in several approaches: 1.Diye 2.Human Capital Approach 3.Contingent Valuation Method 4.Quality of Well Being (QWB) 5.Income Elasticity Approach 6.Miller Approach

3. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL Diye is referred to a form of financial compensation to be paid by the perpetrator to the victim’s family. Diye would seem to fall somewhere between the modern-day valuation frameworks set up by the human capital approach and the theoretically more complete WTP approach.

4. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL Diye Since the monetary value of most of the products designated in Diye fluctuates, we choose to focus on the one item whose value is easy to determine - the Dinar, whose value is based on gold. With 2003 gold prices set at $363.38 per ounce, the value of 1,000 Dinars thus becomes:

5. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL Diye (3,515 grams)(0.035274 oz/g)($363.38/oz) = $45,055.

6. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL Human Capital Approach (HCA) Considering a worker of average age in Tehran (37 years, which is based on our sample), a retirement age of 62, and a yearly real wage of $1800, an estimate of $ 45,000 results. HCA VSL = $45,000

7. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL VSL Using CVM Contingent Valuation Method (CVM) was utilized to estimate monetary values for the avoidance of certain health symptoms (including the reduction in the probability of dying prematurely) in the Greater Tehran Area.

8. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL VSL using CVM Respondents were asked: “If you were placed in a hypothetical market and were able to purchase avoidance of any of the listed symptoms, given your budget constraint, please identify your willingness to pay for avoiding one day of these symptoms.”

9. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL VSL Using CVM Respondents were further asked to place a dollar value on the possibility of reduction in death rate by one in one thousand.

10. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL Characteristics of the respondents Number of observation3000 Smokers25.5% Male47.3% Female52.7% Age37Years Married71.2% Education9.9 Years Household size4.7 Head of household36.6% Hours per day out door5.19 Average monthly income2,082,068 Rials

11. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL VSL Using CVM The mean and median bids for a one in 1,000 reduction in the probability of dying prematurely are 35,000 and 15,000 Toman, respectively. Using the median survey responses results in a VSL of $66,750.

12. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL Quality of Well Being (QWB) Drawing on work by French and Mauskopf (1992) and by Johnson et al. (1997), we make use of a health- status index to link morbidity WTP values to mortality WTP numbers. Specifically, we perform the following steps to arrive at our VSL estimates:

13. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL Quality of Well Being (QWB) 1.Convert our WTP survey results into PPP-adjusted U.S. dollars. 2.For each health effect, determine the number of Quality-Adjusted Life-Days lost, using health index numbers developed by Johnson et al.

14. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL Quality of Well Being (QWB) 3.Calculate a range of estimates for the Value of a Quality-Adjusted Life-Year (QALY). 4.Combine the value of a QALY with life-years remaining to derive the VSL.

15. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL Mean and Median Bids for Symptom Avoidance (in Rials) SymptomsMeanMedianMedian in $ Cough per day8,9994,000$ 1.78 Shortness of Breath13,4137,000$ 3.12 Chest Pain10,3275,000$ 2.23 Irregular Heart Beat14,1138,000$ 3.56 Vomiting7,2364,000$ 1.78 Headache per day12,0855,000$ 2.23 Sore Throat per day6,7433,000$ 1.33 Eye irritation per day9,1245,000$ 2.23

16. GEF Quality of Well Being (QWB ) First, the WTPs (expressed in Rials) are expressed into US dollars, using the exchange rate of 8000 Rials = $1. Using the purchasing power parity (PPP) the symptom avoidance are valued from $1.33 (to avoid a day of sore throat) to $3.56 (to avoid a day with Irregular Heartbeat).

17. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL Quality of Well Being (QWB ) French and Mauskopf (1992) developed an approach for using health-status indexes to derive WTPs for specific symptoms (such as cough, headache, and asthma) from the value of a statistical life. Here, we "reverse the process" to derive an estimate of the VSL from our reported WTP values for specific symptoms.

18. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL Quality of Well Being (QWB ) Quality of Well-Being index provides a quantitative measure of the perceived severity of specific health conditions, on a scale ranging from 0 (death) to 1 (perfect health). By subtracting a symptom's QWB from one, the portion of the "day lost" due to the symptom is inferred.

19. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL Quality of Well Being (QWB ) Combining the WTP for avoiding a day with a particular symptom with its QWB index number, it becomes a simple matter to infer the value of a Quality-Adjusted Life-Year (QALY). Value of 1 Life -Year = (WTP for Avoiding 1 day with symptom * 365)/ (Days Lost) For instance, using mild cough value of a QALY to be [($1.78)*365 / 0.257] = $2,528.

20. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL Life Days Lost and Value of Life (in US $) Symptoms Days Lost Value of 1 Year $ VSL Cough per day0.257 $ 2,528$ 80,896 Shortness of breath0257 $ 4,424$141,569 Chest Pain0.299 $ 2,716$ 86,916 Irregular Heart Beat0.359 $ 3,620$115,824 Vomiting0.357 $ 1,820$ 58,236 Headache per day0.244 $ 3,328$106,508 Sore Throat per day0.170 $ 2,866$91,722 Eye irritation per day0.230 $ 3,531$112,991

21. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL Quality of Well Being (QWB ) $VSL = ($QALY) x (Life-Years Remaining) Based on average age of our survey respondents (37), and the Iranian life expectancy of 69 years, 32 years of life remaining for an "average" survey respondent

22. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL Quality of Well Being (QWB ) The VSL ranges from $58,236 to $141,569, with an average value of $ 99,333.

23. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL Income Elasticity Approach Bowland and Beghin (2001) is an attempt to estimate VSL for developing countries by using information from the industrialized nations. This equation accounts for differences in risk, human capital levels, and income. Their work also led to the estimation of an income elasticity of WTP for reductions in the probability of premature mortality.

24. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL Income Elasticity Approach The elasticity, which Bowland and Beghin estimated ranges from 1.52 to 2.27: WTP A = WTP B (INC A / INC B ) ε Where the A and B subscripts denote two different countries, WTP is the willingness to pay for a particular health effect (value of avoiding premature death), and INC denotes the per capita income in each nation. The ε is the income elasticity of WTP.

25. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL Income Elasticity Approach To estimate ε for Iran, we use the Bowland-Beghin equation, along with our Iranian VSL. Assuming a US VSL of $6 million, PPP-adjusted per capita income for the 2 countries, and the range of VSL estimates derived from our study, ε = 2.44

26. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL Income Elasticity Approach This values is compatible with Bowland and Beghin's predicted range for ε. This values falls slightly outside Bowland and Beghin's predicted range for ε, giving further support to the validity of our morbidity-based VSL estimation procedure.

27. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL VSL using the Miller approach. Ted R. Miller evaluated the value of statistical life from 68 studies spread over 13 countries. Miller concluded that the value of statistical life for any country is typically about 120 times GDP per capita.

28. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL Conclusions Diye is very close to the value obtained using the human capital approach. (Lower Bound) CVM on mortality valuation, results in a VSL which is about 50 percent higher than Diye/human capital number.

29. GEF Caspian EVE 2005/UNDP and WBI Morteza Rahmatian, From Diye to VSL Conclusions CVM on morbidity results in VSL of nearly $100,000 with an income elasticity of 2.44. These estimates are consistent with values reported in other recent valuation studies for developing countries. We speculate that peoples’ attitudes toward the value of avoiding premature death, as captured by our WTP mortality survey, are strongly influenced by the long-held Diye tradition.