The Final Step in Estimating the Cost of Air Pollution:
Value of a Statistical Life
Term Paper
for
Environmental Economics
Woong Ki Lee
Graduate School of Environmental Studies, Seoul National University
[email protected]
Abstract: Recently, OECD published a report on the economic consequences of outdoor air pollution,
projecting South Korea to be one of the most affected countries within 40 years. Air pollution is
becoming a serious problem in South Korea and public awareness on the issue is increasing by day.
Adopting new policies and regulations for an improvement in environmental quality is not a simple
task as it often may involve reduction in productivity of industries that are sensitive to such changes.
Hence, decision makers need evidences showing that the net social benefit of abating air pollution,
which often returns in the form of increased health, is greater than the net cost of actions for
abatement. These evidences should be reliable for decision-makers to act in a prompt, rational, and
an appropriate manner. Estimation of the value of a statistical life is a measurement of the willingness
to pay for a given population as a substitution for a marginal decrease in the risk of mortality. It is a
vital factor to be considered in cost-benefit analyses used for the assessment of various environmental
policies, not to mention the importance in measuring the impact of air quality regulations. This paper
reviews on some of the core issues revolving around the estimation of VSL, including different
methods of measurement, problems affiliated with each approach, how they are being used in the real
world, and finally, on some of the policy implications they pose.
Introduction
In recent years, the level of air pollution has been on the constant rise across the globe. This is
also quite evident in most parts of South Korea, whose people’s awareness on the seriousness of the
issue is growing by day with constant surge of alarming reports from the media, academics, and various
private and public organizations. However, the government’s response in dealing with the substantive
degradation of air quality across the country has not been as effective as desired by the public; perhaps
due to difficulties associated with the trans-boundary nature of air pollution, or due to other factors
including political, technological, and economical complexities surrounding the issue.
Quite a number of studies have been conducted in the past that relate increased mortality to
increased air pollution; and many of them show the social cost of these additional loss of life in
monetary terms via using the concept of value of a statistical life (VSL). By accurately monetizing the
effects of air pollution, policy makers could better understand its impacts and compare the level of
importance of the issue with other policy options in demand. However, although estimates of VSL are
used quite universally across a variety of economic fields including insurance, health, environment, and
more, there still remain problems and uncertainties related to the theoretical solidity and empirical
difficulties associated with the approach.
Hence, this paper intends to identify various issues revolving around the concept of VSL,
discuss about its limitations, and propose ways to better translate the actual cost of what the society has
to pay for a loss of life under different circumstances (although as will be discussed below, this is
slightly different from the actual definition of the VSL). The first part of the paper will consist of
definitions and basic principles for estimating VSL. The second part will show different methods to
measure them along with limitations and problems associated with the theories. The third part of this
paper will discuss about the comparable usage of VSLs in different parts of the world, using the
examples of US, EU, Canada, UK, OECD, and South Korea. The final part of the paper will unfold
policy implications identified and raised throughout the review, thus drawing attention to the magnitude
of seriousness of the current air pollution status in South Korea.
Measuring the Costs of Air Pollution
Cost-benefit analysis is an essential part of various types of decision making, especially at
national levels where the stake of gain or loss to be returned as a consequence is often quite substantial
and considerably large. Government decisions to impose new regulations or large-scale and/or longterm project plans thus require careful ex ante considerations of the cost-benefit analysis prior to the
actual implementation of policies or plans. Regarding the environmental aspect of government
decisions, it is often the case that cost is the harder component to measure when dealing with decisions
that may potentially lead to environmental degradation. On the other hand, for decisions that may lead
to improvement in environmental quality, measuring the benefit would be the source of problems for
economists. The benefit of improved air quality, or the cost of air pollution, falls under the latter and is
indeed a difficult task to undertake. However, economists have developed various ways to measuring,
or monetizing, values of non-marketed goods, including the impacts of air pollution that can be used
for cost-benefit analyses. The results in turn allow for a more informed decision making by stakeholders,
which in turn could contribute to the improvement of social welfare.
There are various forms of benefits pertaining to improved air quality including improvements in
health, agriculture, labor productivity, and many other non-use values. For instance, [Figure 1] shows
various categories of the cost of air pollution that were considered by OECD in their most recently
published report on the economic consequences of air pollution across the globe (OECD, 2016). In this
article, however, I intend to focus only on the mortality risks of air pollution, so as to be able to narrow
the scope of the discussion to various methods of estimating VSL, and not sidetrack to the actual
estimations of the entire cost of air pollution. Health impacts of air pollution can be shown by
concentration-response functions between the increase in unit concentration of pollutants and the
resulting health outcomes amongst exposed population groups during a given period of time (WHO
Europe, 2016). However, such analysis and assessment would give a result in the form of how many
lives (or life years) would be saved as a result of, say, implementation of a new policy for air quality
improvement. However, monetizing the value of these lives saved, or benefits, allows for a more direct
comparison of the results with the costs that are borne by the implementation of a new policy, and thus
makes it more feasible for decision makers to make better judgements on the potential effects of the
newly imposed, or planned, policy. Monetization of the effects of air pollution also sounds more
plausible as a means for raising public awareness and understanding about the seriousness of the issue,
although some may argue, including Cameron (2010), that the terminology of VSL actually poses wrong
impressions on the general public and even decision makers about the actual meaning it implies.
[Figure 1] Cost categories considered in the OECD report (2016)
Value of a Statistical Life
To be concise, value of a statistical life is not a measure of how much an individual’s life is
worth in monetary terms. It is similar, but not quite exact. To give an economic explanation of the term,
it could be described as the marginal rate of substitution between mortality risk and composite goods,
or money (Cameron, 2010). This, in simplified form, could be explained by the following equation: V*
= ΔW / ΔP; where ΔW is the change in wealth, ΔP is the change in probability of death, and V* is the
trade-off between the two, or the VSL, for a certain mortality risk (Ashenfelter, 2006). There are various
econometric methods to estimate such values for a given set of population, and the most widely used
forms include hedonic wage pricing and contingent valuation method (Lanoie, 1995).
Hedonic Wage Pricing - Revealed Preference
Estimating the VSL using hedonic wage pricing is a revealed preference approach where
economists seek to measure the willingness to pay for an individual by differentiating the wage-risk
trade-off from other sets of variables that affect wages (Viscusi & Aldy, 2003). Such intuition on the
difference in wage due to risks accompanied by certain jobs was first noted by Adam Smith (1776).
Since then, there have been numerous discussions on the issue regarding hedonic analysis including
Rosen (1974), Smith (1979), Duncan (1983), and Viscusi (1979) that attempted to validate such
intuition and improve ways to estimate the risk trade-offs from revealed evidences in the labor market.
The following passage is an excerpt from Graves (2013) that gives a general idea about the definition
of hedonic wage pricing.
“The labor market method of determining VSL employs wage regressions to value the risk
of on-the-job death, with more risky jobs requiring higher wages, at least in principle. In
these studies, the dependent variable is wages (or natural logarithm of wages) of
individual workers, which is statistically related to a vector of individual personal
characteristics (e.g., age, education, race, sex, experience) and job characteristics (e.g.,
occupation, industry, unionization). The risk of death, although quite controversially
measured, is then included, with an expectation of a positive coefficient to reflect the
needed compensation for job risk. The compensation required for the higher risk can then
be used to estimate the VSL for use in broader policy contexts.”
The microeconomic approach to estimating VSL through hedonic wage pricing has constantly
been mentioned, developed, and improved across various studies in the field, and is well summarized
by Viscusi and Aldy (2003) using the general form of wage equation below:
(eq. 1)
- - - - - - - - 𝑤𝑖 = 𝛼 + 𝐻𝑖′ 𝛽1 + 𝑋𝑖′ 𝛽2 + 𝛾1 𝑝𝑖 + 𝛾2 𝑞𝑖 + 𝛾3 𝑞𝑖 𝑊𝐶𝑖 + 𝑝𝑖 𝐻𝑖′ 𝛽3 + 𝜀𝑖 1
As evident in previous studies, and through methodologies mentioned above, economists are
able to distinguish the willingness to pay for an individual for decrease in the risk of mortality, or
willingness to accept wealth in return for an increased risk of death. Traditionally, it has been widely
accepted by economists that the WTA is often much larger than the WTP (Hanemann, 1991; Kahneman
et al., 1990). Through an extensive review and meta-analysis of WTA and WTP studies, Horowitz et al.
(2002) found that the averages values of the mean values of each estimates show a difference by a factor
of 7.2, and argues that such large differences may in part be due to the weak construction of
experimental features designed by economists to measure them. However, recently, Kniesner et al.
(2014) took to challenge this argument to show that the WTA is actually equal to the WTP in the case
of hedonic wage pricing for the estimation of VSL; hence further strengthening the reliance of this
approach to estimating the impacts of health risks by air pollution, which could be incorporated for
cost-benefit analysis by policy makers.
Contingent Valuation Method - Stated Preference
VSL can also be estimated by measuring the stated preference of an individual for reducing
the marginal risk of mortality for a given price. This is usually done by a non-market valuation approach
known as the contingent valuation method (CVM). History of the development of the concept of CVM
for measuring non-marketed values dates back to the 40’s, with studies from Bowen (1943) and CiriacyWantrup (1947) suggesting possibilities of measuring demand for public goods through well-structured
surveys; i.e. by directly asking people for their willingness to pay or accept. In estimating the VSL,
𝑤𝑖 is the worker i’s wage rate, 𝛼 is a constant term, H is a vector of personal characteristic variables for
worker i, X is a vector of job characteristic variables for worker i, 𝑝𝑖 is the fatality risk associated with worker
i’s job, 𝑞𝑖 is the nonfatal injury risk associated with worker i’s job, 𝑊𝐶𝑖 is the workers’ compensation benefits
payable for a job injury suffered by worker i, and 𝜀𝑖 is the random error reflecting unmeasured factors
influencing worker i’s wage rate. The terms 𝛼, 𝛽1 , 𝛽2 , 𝛽3 , 𝛾1 , 𝛾2 , and 𝛾3 represent parameters estimated
through regression analysis (Viscusi and Aldy, 2003).
1
similar approaches can be adopted and used.
In this methodology, a hypothetical market situation is created and assumed, and the key is to
come up with survey questions that allow for drawing the least biased and closest to true value of WTA
or WTP from the respondent (Lanoie, 1995). This is not easy, especially when it comes to measuring
non-market goods, like health, that are closely related to actual and complicated policies. In such cases,
the process of developing a survey could be a lengthy task, often involving focus groups, cognitive
interviews, pretests, and pilot studies (Carson, 2012). Nonetheless, CVM is one of the most widely used
methods for estimating non-market values such as environmental quality, and is also a strong tool that
many countries rely on for estimating their VSL (OECD, 2012).
Some Problems Associated with the Two Methodologies
Despite the convenience that the two methodologies provide in measuring the risk of health
due to changes in air quality, problems prevail for both approaches. Lanoie (1995) argues that the
hedonic price approach relies on the crucial assumption that workers have all the information, and
correct ones, regarding the risks of mortality associated with different jobs. This implies that one should
conduct wage-risk analyses with their own perceived risk, since workers will base their wage demand
on that, rather than on objective measures of on-the-job risks. He also points out that this approach takes
for granted the mobility of workers across different jobs as being free and unconstrained. If not, workers
may be forced to accept a lower wage premium than their optimal choice, which in turn may lead to a
lower than true estimated value of a statistical life.
The problems associated with CVM are incessantly dealt with in detail by Jerry Hausman
(2012). Of the many, Hausman focuses on the three main limitations of the methodology: 1)
hypothetical response bias that leads contingent valuation to overstatements of value; 2) large
differences between willingness to pay and willingness to accept; and 3) the embedding problem which
encompasses scope problems.
Real World Applications
As mentioned above, there are two most common and widely used methods for estimating
VSL: hedonic wage pricing and the contingent valuation method. These two methods may show quite
substantial differences in results, even in studies conducted for the same group of population sets
(Lanoie, 1995). Then which method should be preferred for use in cost-benefit analyses that could allow
for decision makers to make a more informed and rational decision? In the following section, I will
discuss about how the VSL estimates are being used in different countries, and about the possible
implications of these choices.
United States
In the United States, at least at the government level, revealed preference or hedonic wage
pricing is the dominant means of estimating VSL for use in cost-benefit analyses (Robinson and
Hammitt, 2007; OECD 2012). Different regulatory agencies use different VSL for reference in making
policy related decisions, results of which are summarized by Robinson and Hammitt (2010) in [Table
1]. According to Robinson (2007) and OECD (2012), most of these agencies use central values
(expressed in 2007 USD) suggested by the US Office of Management and Budget 2003 guidance for
regulatory analysis, of roughly USD 1 million to USD 10 million. In this paper, I intend to restrict the
discussion of the usage of VSL in the US to that adopted by the EPA, as it is the value that most closely
relates to estimating the cost of air pollution.
Up to date, EPA has undergone three major steps to compromise on the current VSL that it
uses for various cost-benefit analysis involving policy standards. VSL was first adopted in the economic
analysis of policy impacts for the assessment of The National Ambient Air Quality Standards for
Particulate Matter (US EPA, 1984). This analysis drew on a review of six wage-risk studies published
during 1976-1981 with a central estimate of $4.6 million (2001 USD). In 1983, EPA issued their first
economic guidance for policy impact analysis and reported a range of VSL estimates for use in policy
analysis of $0.7 to $12.9 million (2001 USD) (US EPA, 1983). The second guideline was published in
2000 and consisted of VSL findings on 26 studies, of which five came from using the stated preference
valuation method (US EPA, 2000). Kochi et al. (2005) argued that each of the selected empirical studies
should not be assumed to withhold equal weight due to differences in precision of the conduct of each
study, and thus suggested using the empirical Bayes approach to combine different estimates of VSL.
[Table 1] Base VSL estimates in US regulatory analyses
Basis
Agency
Reported VSL Estimates (range, dollar year)
Office of Management and
Budget 2003 Guidance
USD 1 million – USD 10 million (no dollar year
reported
Environmental Protection
Agency 2000 Guidance
USD 7.5 million (USD 0.9 million –USD 21.1
million, 2007 USD)
Viscusi (1992, 1993) literature review
Department of
Transportation 2008
Guidance
USD 5.8 million (sensitivity analysis:
USD 3.2 million, USD 8.4 million;
probabilistic analysis: standard deviation of
USD 2.6 million, 2007 USD)
Mrozek and Taylor (2002), Miller
(2000), Kochi et al. (2006), Viscusi
and Aldy (2003) meta-analyses;
Viscusi (2004) wage-risk study
Food and Drug
Administration 2007
analyses
USD 5 million, USD 6.5 million (varies, no
dollar year reported)
Viscusi and Aldy (2003) metaanalysis
Department of Homeland
Security 2008 analyses
USD 6.3 million (USD 4.9 million –
USD 7.9 million, 2007 USD)
Viscusi (2004) wage-risk study
Other agencies
Economically significant rules addressing mortality risks infrequent, approaches generally
similar to the above
(Source: Robinson and Hammitt, 2010)
Available research, allows agency
flexibility
The value proposed in this second guideline, as shown in [Table 1], was the VSL that EPA
adopted for making various health related policy decisions with the aid of cost-benefit analysis. Inflation
factor had been the sole component that had been taken into consideration over the past years. Recently,
the third Guidelines for Preparing Economic Analysis was published with a new default central VSL of
$7.9 million (in 2008 USD) to be used to value reduced mortality for all programs and policies (US
EPA, 2010). It is stated in the guideline that this value was adjusted from the base value reported in US
EPA 2000 ($4.8 million in 1990 dollars) using the consumer price index (CPI), and not adjusted for
income growth over time. Over the course of the years, it is notable that not much have changed since
the estimated value was proposed in 1999 for the 2000 guidelines. The EPA’s National Center for
Environmental Economics (NCEE), however, is constantly working with their Science Advisory Board
(SAB) to improve their estimated VSL, for instance, by considering possibilities of including income
elasticity or results from newly conducted empirical studies and meta-analyses in the evaluation. These
efforts are evident from several white papers submitted by the NCEE.
Canada, UK, and the European Commission
Canada, UK, and the European Commission share a similarity in that they tend to possess a
certain distinctiveness in measuring estimations of VSL in comparison to the methods adopted by the
US (OECD, 2012). In Canada, for instance, although they use similar approaches in measuring revealed
preference from the labor market using wage-risk studies, the government agencies incorporate age
adjustments in their estimations across population subgroups despite the fact that no such discussions
are evident in their national-level guidance on impact assessment (Treasury Board, 2007). Amidst the
argument between Viscusi and Aldy (2003) and Mrozek and Taylor (2002) regarding the upward and
downward biases caused by considering inter-industry differences in wages during estimations, Chesnut
and De Civita (2009) suggests that the truth lies somewhere in between the two, which also corresponds
with the value obtained by CV studies.
UK tend to prefer to rely on the stated preference approach of using surveys when dealing with
estimating VSL (OECD, 2012). In 2007, the UK Interdepartmental Group on Cost and Benefits
published an extensive literature review on the price regression approach and CVM in order to decide
which results to use for CBA (IGCB, 2007). Another notable characteristic of the UK’s estimation of
the cost of air pollution is the adoption of the value of a life year (VOLY), but this will not be considered
in this paper as it intends to focus its discussion on the estimations of VSL. U.K. lack in number of
empirical studies conducted within the country, and estimation derived from Chilton et al. (2004) is the
most widely accepted value.
EC seems to propose a more generalized, and last resorting value for estimations of VSL. In
EC (2009), an advisable number was suggested (as EUR 1-2 million) along with the suggestion that
these values are to be used “if no more context specific estimates are available.”
Organization for Economic Co-operation and Development
Recently, OECD published an extensive report on the economic costs of outdoor air pollution
(OECD, 2016). The organization has been a strong proponent of the stated preference approach, or
CVM, in measuring estimates of VSL as evident in OECD (2012) and reinstated in OECD (2016), and
uses the results of the former study, which consisted of extensive meta-analyses of 1,095 values from
92 published studies, as the reference value for the latter. This reference VSL value is then transformed
to meet country-specific VSL via benefit transfer methodology, which is also highlighted in OECD
(2012). Adjustments are made based on the income, time, and income elasticity of VSL, while the
country-and year-specific VSL can be calculated using the equation below.
(eq. 2)
𝑌𝑡
𝛽
𝑟
- - - - - - - - 𝑉𝑆𝐿𝑡𝑟 = 𝑉𝑆𝐿2010
)
𝑂𝐸𝐶𝐷 ∙ (𝑌 𝑡
𝑂𝐸𝐶𝐷
Here, y is the average income (GDP per capita) for country r in year t expressed in 2010 USD PPP, and
𝛽 is the income elasticity of VSL, which measures the percentage increase in VSL for a percentage
increase in income. This methodology is applied in the analysis (OECD, 2016) to obtain VSL values
for the all countries in the world and the value used for mortality is USD 3 million following OECD
(2014).
South Korea
In South Korea, as of current, not much empirical studies regarding the estimation of VSL
exist. The few evidences that do exist in the literature have been organized by Hong et al. (2014) and is
shown in [Table 2]. It is notable that of the eight studies identified in the table, only two were conducted
using CVM, and none using hedonic wage pricing for estimating VSL in South Korea.
[Table 1] Existing Studies of Estimating the Statistical Value of Life in Korea
Studies
In order to estimate
Estimation Method
Estimated Statistical
Value of Life
(100 million KRW)
Shin and Cho (2003)
Value of reducing the probability of death
CVM
4.6600
Lee et al. (2004)
Shin (2008)
Cost of exposure to benzene
Value of cancer screening
CVM
Risk-averting behavior
3.600
3.2110
Eom (1997)
Value of seat belt
Risk-averting behavior
1.7900 ~ 8.5700
KHIDI (2008)
Cost of emergency deaths
Human capital approach
1.8000
Kim and Lee (2003)
Death of indemnity
Human capital approach
2.1300
Kim and Lee (2003)
Insurance payment
Human capital approach
2.2000
KDI (2008)
Cost of death by traffic accident
Human capital approach
5.2741
(Source: Hong et al., 2014)
Further research in the literature shows a few more empirical studies that have been conducted
for estimating VSL in Korea including that of Shin et al. (2015), Song (1993), and Kim and Fishback
(1999). Studies conducted by Shin and Song were each Masters and Doctoral thesis that used CVM and
wage pricing respectively. Kim and Fishback used wage regressions to examine the South Korean labor
market over the years 1984-1990 to give a VSL estimate of approximately $0.5 million (or $529,125 to
be exact; Kim and Fishback, 1999), but failed to discern statistically the compensating differentials for
risk between union and non-union workers (Viscusi and Aldy, 2003). Another masters thesis by Kim
(1985) used wage differentials to estimate VSL in Korea, resulting in a compensation between $550,000
and $1.1 million.
Some empirical evidences show that there is a considerable amount of variability for
compensating differentials depending of the institutional settings of labor (Kim and Fishback, 1999).
For instance, Kniesner and Leeth (1991) found that in their comparative study of the U.S., Australia,
and Japan, compensating differentials were largest in the unionized Australian setting and smallest in
Japan where labor mobility was restricted most by the institutional setting. Kim and Fishback hints on
this intuition as the limitation for using wage regressions as a means of obtaining WTP in South Korea
by stating that: “The presence of rigid structures in internal labor markets that focus on age, seniority,
and academic origin, as in South Korea and Japan, might have led to lower compensating differentials
than in markets characterized by more fluidity.” Kim and Lee (2003) support this argument, suggesting
that hedonic pricing may not be the most adequate means for measuring VSL in Korea, where labor
mobility is relatively stringent and unions exhibit substantial influence within the institutional setting.
Given the limited amount of empirical evidences for estimating VSL, it is not likely that the
government agents in South Korea will use a standardized estimate value (e.g. $7.9 million for US EPA)
across all policy assessments and ex ante cost-benefit analyses. As assumed from the number of existing
empirical studies, no meta-analysis exists in Korea as that of Viscusi and Aldy (2003) or Mrozek and
Taylor (2002). Regarding estimations of VSL in Korea, the Guidelines for Policy Impact Assessment
2013 published by the Office for Government Policy Coordination, states as follows: “In general, value
of a statistical life is not universal and must be estimated considering various conditions; assistance
from specialized research institutes to be used if necessary.” An example for the analysis of VSL is
given in the following section of the Guideline in a very simplified format using human capital approach.
The Guidelines for Cost-Benefit Analysis of Environmental Policies published by the Department of
Environment in 2003 also has some information on estimating VSL although, similar to the above
Guideline, it only provides some general concepts of the definition, this time supported by a case
example of usage of wage-regression model.
Such lacking in empirical data only leads to limitations in making sound and appropriate
decisions for implementing environmental policies or measuring their impacts. For instance, in their
study for the assessment of human health effects of air-pollution using cohort DB and estimation of
economic costs in South Korea, An et al. (2015) show three cases where Korean Government agencies
adopted VSL for cost-benefit analysis related to various environmental concerns. In GRI (2003), only
one empirical VSL estimate for mortality (Eom, 1997) was used for the CBA. In DoE (2007), EPA
estimates of VSL are used via benefit transfer methodology and in NIER (2012), one VSL estimation
from CVM by Shin and Cho (2003) was seldom used. Given the likelihood of uncertainties in any single
empirical study for estimating VSL using either CVM or wage regression, it could be stated that the
current methods of environmental CB analysis being conducted in South Korea, at least regarding the
health effects air quality, may imply possibilities for significantly large error.
Policy Implications and Concluding Remarks
Over the past few decades, economists have worked to improve methods that are used for
measuring willingness to pay for an individual in exchange for a marginal decrease in the risk of
mortality. Up to date, two methods have come to dominate the scene: the hedonic pricing and contingent
valuation method. Both methods have pros and cons, where the former requires conditions of free
mobility amongst different works and access to full and accurate information, whilst the latter is often
confronted with controversies revolving around the hypothetical biases and other problems associated
with direct surveying; not to mention the economic cost burden raised during the process that build up
to the survey.
Nonetheless, these methods are still the most widely accepted approaches that have become
an essential part in estimating VSL, which in turn provides crucial information to decision makers who
can then make decisions about relevant policies and regulations based on more rational, comprehensive,
comparable, and feasible evidences. Even today, economists are working to make adjustments to the
current VSL, so as to be able to make it even more accurate than before (e.g. Alberini et al. is currently
working on an overview of the different methodologies used to elicit the VSL as well as their
characteristics and shortcomings, 2016; forthcoming).
Different countries use different methods to estimate their own VSL depending on various
factors, including institutional settings of the labor market in a country, which could deter, in certain
cases as in South Korea and Japan, measurements based on revealed preference approach through wage
regressions. Many countries tend to use contingent valuation method in lieu of wage-risk differentiation,
apart from the US where most of the revealed preference studies in the literature pertain.
In South Korea, virtually no meta-analyses of empirical studies for estimating VSL exist. In
fact, as it currently stands, it is impossible to conduct any research of such kind given the limited number
of existing empirical literature within the country. At the moment, cost-benefit analyses involving the
benefits or costs of health with reference to changes in environmental quality, such as air, are carried
out by using a single empirical result or by adjusting foreign VSLs for local usage through benefit
transfer methodology. In a recent publication by the OECD (2016) regarding the economic
consequences of outdoor air pollution, South Korea was projected to suffer most amongst the entire
OECD member states by 2060. The report estimated that in the absence of any further actions to abate
air pollution in the region, South Korea will be faced with an increase in premature mortality from 359
to 1,109 in 1 million populations within just 40 years. The economic consequence, which takes into
account the burden of increased mortality along with various other health related (such as morbidity)
and non-health related (such as agriculture) losses due to air pollution, is anticipated to form an
aggregate of 0.63 percent of the gross domestic product by the same year as above.
This is a substantial and an imminent threat. Even without the gloomy future projections set
out by the OECD (2016), people in South Korea nowadays encounter high levels of particulate and
fine-particulate matter almost on a weekly basis. Even the media is focusing on the seriousness of the
issue, but the policy-makers are slow to react. The costs affiliated with abating air pollution incur
instantly, whereas the benefits tend to return at a relatively slower rate. However, decision makers
should be able to make judgements on a fair ground, with solid and robust evidences that show
economic benefits of abating air pollution. In this respect, more accurate and extensive collection of
empirical studies on estimating the VSL could be of guidance.
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