Economic Valuation of Health for Environmental Policy: Comparing Alternative Approaches. Introduction and Overview

Protecting human health is a primary goal of environmental policy and economic evaluation of health can help policy-makers judge the relative worth of alternative actions. Economists use two distinct approaches in normatively evaluating health. Whereas environmental economists use benefit-cost analysis supported by monetary valuation in terms of willingness-to-pay, health economists evaluate interventions based on cost-effectiveness or cost-utility analysis (CEA), using quality-adjusted life-years (QALY) or similar indexes. This paper provides background on the controversy about the relative merits of these approaches and introduces the remaining papers in the special issue. These papers (with one exception) were presented at a conference sponsored by the Department of Economics at the University of Central Florida with support from the US Environmental Protection Agency. Although CEA might not lead to substantially different implications for environmental policy than benefit-cost analysis, and QALY may provide a benefit transfer tool to fill gaps in the morbidity valuation literature, the papers in this issue raise serious concerns about the suitability of QALY-based CEA for environmental regulatory analysis. QALY does not in general appropriately represent individual preferences for health and CEA is neither independent of income distribution nor adequate to assess efficiency.     

The Case of the Missing Pollution Haven Hypothesis

One particularly vexing puzzle for economists and policymakers over the past several decades concerns the empirical significance of the theoretically predicted pollution haven hypothesis. While neoclassical theory and conventional wisdom both surmise that local economies will suffer deleterious effects from stricter environmental regulations, empirical studies have largely failed to validate such claims. This study utilizes the method of matching to show that the impact of stricter regulation is heterogeneous spatially, varying systematically based on location-specific attributes. Previous studies that assume a homogenous response may therefore inadvertently mask the overall impact of more stringent regulations by pooling unaffected and affected regions.JEL Classification: Q25, Q28, H00, L51, R1The authors wish to thank to Michael Crew, Anthony Heyes, an anonymous referee, Werner Antweiler, Randy Becker, Wayne Gray, Shelby Gerking, Michael Greenstone, Vern Henderson, and Arik Levinson. Participants at various university seminars and conferences also lent useful insights to this line of research.     

A note on introducing a "zero‐line" of welfare as an escape route from Arrow's theorem

Since Sen's insightful analysis of Arrow's Impossibility Theorem, Arrow's theorem is often interpreted as a consequence of the exclusion of interpersonal information from Arrow's framework. Interpersonal comparability of either welfare levels or welfare units is known to be sufficient for circumventing Arrow's impossibility result. But it is less well known whether one of these types of comparability is also necessary or whether Arrow's conditions can already be satisfied in much narrower informational frameworks. This note explores such a framework: the assumption of (ONC + 0), ordinal measurability of welfare with the additional measurability of a "zero‐line", is shown to point towards new, albeit limited, escape routes from Arrow's theorem. Some existence and classification results are established, using the condition that social orderings be transitive as well as the condition that social orderings be quasi‐transitive.     

Conditioning manager alphas on economic information: another look at the persistence of performance

This article presents evidence on persistence in the relativeinvestment performance of large, institutional equity managers.Similar to existing evidence for mutual funds, we find persistentperformance concentrated in the managers with poor prior-periodperformance measures. A conditional approach, using time-varyingmeasures of risk and abnormal performance, is better able todetect this persistence and to predict the future performanceof the funds than are traditional methods.     

Have Air Pollutant Emissions Converged Among U.S. Regions? Evidence from Unit Root Tests

Previous studies of income distribution have found evidence indicating that incomes across U.S. regions have converged, supporting the prediction of the neoclassical growth model. A potential shortcoming in these studies is that only one measure of well-being is considered—a measure of wealth linked to incomes or production. This paper examines whether income convergence was accompanied by air pollutant emission convergence. Results from unit root tests provide some evidence that indicators of environmental quality have converged across U.S. regions during the 1929-1994 period.     

US domestic airline alliances: does the national welfare impact turn on strategic international gains?

The six largest U.S. airlines announced in the beginning of 1998 the formation of three domestic alliances, but the size and scope of these alliances spurred significant public interest concerns. GAO analysis suggests a rough equivalence between the domestic costs and benefits of alliances, yet the international competitive effects have not been considered. I argue that the national welfare merits of domestic airline alliances turn on positive international competitive effects. Empirical tests - run on comprehensive panel data covering the international airline markets among 21 nations over the 1983–1992 period - support domestic market concentration resulting in strategic international gains; hence, domestic airline alliances likely improve national welfare.