Valuing Non-fatal Health Risks: Monetary and Health-Utility Measures

Abstract

Quantitative evaluation of environmental, health, and safety policies requires a metric for the value of changes in health risk. This metric should be consistent with both the preferences of the affected individuals and social preferences for distribution of health risks in the population. There are two classes of metrics widely used in practice: monetary measures (e.g., compensating and equivalent variations, willingness to pay and willingness to accept compensation) and health-utility measures (e.g., quality-adjusted life years (QALYs), disability-adjusted life years (DALYs)), both of which are summed across the population. Health-utility measures impose more structure on individual preferences than monetary measures, with the result that individuals’ preferences often appear inconsistent with these measures; for the same reason, health-utility measures help protect against cognitive errors and other sources of incoherence in estimates of the values of monetary measures obtained from revealed- and stated-preference studies. I will present theoretical and empirical evidence comparing these metrics and how they co-vary.