Valuation of Human Health: An Integrated Model of Willingness to Pay for Mortality and Morbidity Risk Reductions

Abstract

This paper develops and applies an integrated model of mortality and morbidity valuation that is consistent with principles of welfare economics. To obtain the integrated model, the standard one-period expected utility model of one person facing the prospect of either being alive or dead is extended to incorporate: (1) a third health state (sick) with a utility level that is intermediate to utility if healthy and utility if dead, (2) a family perspective in which a parent makes choices about risk exposure both for herself and for a child, and (3) a multi-period framework that allows for possible parent/child differences in illness latency. Monetary benefits of health risk reduction obtained from the integrated model are compared with those that would be computed using the standard model. The integrated model then is applied using data obtained from two field studies of skin cancer and leukemia to demonstrate how it can be used to estimate health benefits of reduced illness and death risks.

Keywords: willingness to pay, children, environmental hazards, health, integrated model, morbidity, mortality, illness latency, value of a statistical life, cancer, stated preference

JEL Classification: Q51; Q58; I12