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Benefit Transfer Functions for Avoided Morbidity: A Preference Calibration Approach

Author

Listed:
  • George L. Van Houtven
  • Subhrendu K. Pattanayak
  • V. Kerry Smith

Abstract

Preference calibration has been proposed as a method for improving benefit transfers (Smith et al., 2002). The objective of this method is to develop a WTP function that can be used to predict individuals’ values for a wide range of quality changes. The analyst’s specification of preferences determines the form of this WTP function, and existing empirical studies provide the information that is needed to identify values for its parameters. The purpose of this paper is to explore and illustrate how the logic of preference calibration can be applied in the area of morbidity valuation. Using relatively simple functional forms for utility, we consider both acute (short-term) and chronic (long-term) illness. To identify values for key preference parameters, we combine information about WTP, health indexes, income, and, in some cases, duration of illness. We then use the calibrated parameters to specify WTP functions. Finally, we demonstrate how these functions can serve as benefit transfer functions, using them to predict WTP for a range of reductions in the severity and/or duration of illness and for different income levels.

Suggested Citation

  • George L. Van Houtven & Subhrendu K. Pattanayak & V. Kerry Smith, 2004. "Benefit Transfer Functions for Avoided Morbidity: A Preference Calibration Approach," NCEE Working Paper Series 200404, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Apr 2004.
    • Handle: RePEc:nev:wpaper:wp200404
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    File URL: https://www.epa.gov/environmental-economics/working-paper-benefit-transfer-functions-avoided-morbidity-preference
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    References listed on IDEAS

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    2. Smith, V. Kerry & van Houtven, George & Pattanayak, Subhrendu K., 1999. "Benefit Transfer as Preference Calibration," Discussion Papers 10607, Resources for the Future.
    3. Thompson, M.S., 1986. "Willingness to pay and accept risks to cure chronic disease," American Journal of Public Health, American Public Health Association, vol. 76(4), pages 392-396.
    4. F. Reed Johnson & Melissa Ruby Banzhaf & William H. Desvousges, 2000. "Willingness to pay for improved respiratory and cardiovascular health: a multiple‐format, stated‐preference approach," Health Economics, John Wiley & Sons, Ltd., vol. 9(4), pages 295-317, June.
    5. Joseph S. Pliskin & Donald S. Shepard & Milton C. Weinstein, 1980. "Utility Functions for Life Years and Health Status," Operations Research, INFORMS, vol. 28(1), pages 206-224, February.
    6. V. Kerry Smith & George Van Houtven & Subhrendu K. Pattanayak, 2002. "Benefit Transfer via Preference Calibration: "Prudential Algebra" for Policy," Land Economics, University of Wisconsin Press, vol. 78(1), pages 132-152.
    7. Jhonson, F. Reed & Fries, Erin E. & Banzhaf, H. Spencer, 1997. "Valuing morbidity: An integration of the willingness-to-pay and health-status index literatures," Journal of Health Economics, Elsevier, vol. 16(6), pages 641-665, December.
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    Cited by:

    1. Mark Dickie & John List, 2006. "Economic Valuation of Health for Environmental Policy: Comparing Alternative Approaches. Introduction and Overview," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 34(3), pages 339-346, July.

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