7.2 Defensive Behavior and Cost of Illness - Defensive Behavior and Costof-Illness VALUING BENEFITS REVEALED PREFERENCE METHODS Valuing Bene\ufb01ts

7.2 Defensive Behavior and Cost of Illness - Defensive...

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Defensive Behavior and Cost- of-Illness VALUING BENEFITS: REVEALED PREFERENCE METHODS Valuing Benefits: Revealed Preference Methods
RP: Defensive Behavior Studies Aver<ng behaviors: ac<ons individuals take to reduce risk or effects of environmental exposures e.g. drinking boEled water, buying smoke detectors, purchasing organic foods We can, in principle, es<mate WTP for the risk reduc<on by observing the cost of the ac<on or good, and its effec<veness at reducing or mi<ga<ng the effects of environmental exposures Premise : individuals will take protec<ve ac<on as long as they think the benefits are greater than the costs Valuing Benefits: Revealed Preference Methods
Defensive Behavior Model Maximize ࠵? = ࠵?(࠵? , ࠵? , ࠵?) Subject to: ࠵? = ࠵?(࠵? , ࠵? , ࠵?) ࠵? = ࠵?(࠵? , ࠵?) ࠵? + ࠵?࠵? = ࠵? + ࠵?࠵? + ࠵?࠵?࠵? + ࠵?࠵?࠵? + ࠵?(࠵?) + ࠵?࠵? Consumer maximizes u<lity as a func<on of consump<on (X), Leisure <me (L), and Sick <me (S) Sick <me (a bad!) is a func<on of exposure to pollu<on (E), goods bought to mi#gate the effects of exposure ( G ), and exogenous factors – vulnerability, for example (Z) One’s own exposure to pollu<on depends upon the amount in the environment (A), and goods bought to avert or avoid this expsure ( ࠵? ). Finally there is a budget constraint. This is in terms of <me. Right hand side is income + earned wages. The right hand side has expenditures for consump<on (X), leisure <me (L), Mi<ga<ng good (G), Aver<ng goods (A), and medical costs and lost wages from being ill. Valuing Benefits: Revealed Preference Methods
Defensive Behavior ࠵?࠵?(࠵?࠵?⁄࠵?࠵?)(࠵?࠵?⁄࠵?࠵?)/࠵?࠵?⁄࠵?࠵? =− ࠵?࠵?࠵?࠵?⁄࠵?࠵?/࠵?࠵?⁄࠵?࠵? Marginal WTP for an improvement in quality is low if 1. Defensive behavior is a. cheap (low ࠵?࠵? or ࠵?࠵? ), and b. it is effec<ve ( ࠵?࠵? / ࠵?࠵? or ࠵?࠵? / ࠵?࠵? is big) 2. Or if pollu<on (or other causal factor) doesn’t affect health much (small ࠵?࠵?⁄࠵?࠵? or ࠵?࠵?⁄࠵?࠵? ). Valuing Benefits: Revealed Preference Methods
Defensive Behavior There are many reasons to buy boEled water One aspect may be because it is perceived as healthier than tap water.

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