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Social Willingness to Pay, Mortality Risks and Contingent Valuation.

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Abstract

The Willingness-to-Pay approach is the basic justfication for the use of the Contingent Valuation method to evaluate public mortality risk reduction programs. However, aggregating unweighted willingness-to-pay is a valid method only when individuals have the same marginal value of money, an unrealistic assumption in the presence of heterogeneity. We show that heterogeneity on wealth and baseline risk (respectively on risk reduction) leads to systematically overestimate (respectively underestimate) the social value of a risk reduction program. Using a recently published Contingent Valuation analysis, we find this overestimation to be quite modest though, approximately 15% in an upper bound case.

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