8.3. Economic assessment using the ‘value of statistical life approach’¶
To quantify the value of a statistical life of premature mortality related to a risk factor (e.g. obesity, alcohol consumption), the approach developed by OECD-ENV (Environment Directive) was used. The OECD formula includes the following features:
The OECD base value of USD 3 million in year 2005 is the starting point for the calculation of VSL values both for OECD countries and for other countries
The calculation is in purchasing power parity (PPP)-adjusted USD estimates of per-capita GDP in each country relative to the OECD average per capita GDP
The income elasticity beta applied is 0.8, being the mid-point of the best estimate of 0.7-0.9 established in OECD research [OECD, 2014 [43]], and [World Health Organization Regional Office for Europe, 2018 [91]].
Therefore, for any given country, C, for any given year (here 2015):
\[VSL {C}_{2015} = VSL {OECD}_{2005} \times (\frac{Y{C}_{2005}}{Y{OECD}_{2005}})^\beta \times (1 + \% \Delta P + \% \Delta Y)^\beta\]
Where:
\(\Delta P\) = change in productive
\(\% \Delta Y\) = change in income
\(\beta\) = income elasticity of 0.8
\(VSL {OECD}_{2005}\) = 3 million USD.
This approach is based on a willingness-to-pay (WTP) approach, and does not take into account age at death.
The social (welfare) costs associated with premature mortality were estimated by following a ‘value of a statistical life’ (VSL) approach. VSL models the social cost of obesity based on WTP surveys, which implicitly include the costs of pain and suffering. Premature mortality is commonly defined as mortality between 30 to 70 years of age (i.e. by WHO and under the Sustainable Development Goals).
The VSL approach utilised by the Secretariat follows a methodology developed by the Environment Directorate of the OECD (OECD-ENV), relying on the valuation of mortality impacts on results from stated preference studies.
The VSL metric is a long-established metric, which can be quantified by aggregating individuals’ WTP to secure a marginal reduction in the risk of premature death over a given time period (see [OECD, 2012 [42]]). The subsequent section provides further detail on the differences between the VSL and the Cost of Illness approach in estimating the burden of disease.
OECD [OECD, 2012 [42]] describes the basic process for deriving a VSL from a stated preference survey. For example, if the survey finds an average WTP of USD 30 for the reduction in annual risk of dying from air pollution from 3 in 100,000 to 2 in 100,000. This means that each individual is willing to pay USD 30 to have a 1 in 100, 000 reduction in risk. In this example, for every 100,000 people, one death would be prevented with this risk reduction. Summing the individual WTP values of USD 30 over 100,000 people gives the VSL – USD 3 million. VSL values for subsequent years are derived based on an extrapolation method of this anchor value.