436 Problem Set 5 Answers SU19.pdf

# You do not have to hand in the completed table but do

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Complete the calculations in the table. You do not have to hand in the completed table, but do write down the policies in order of decreasing cost effectiveness, together with the cost per life saved for each one. (Note: the lower the cost per life saved, the higher the cost effectiveness.) Reduction Expected Cost per Annual Exposed in Mortality Annual Life Cost Population Risk Lives Saved Policy (\$millions) (millions) (per million) Saved (millions) A 25.0 50 2.5 125 0.20 B 25.5 17 3.0 51 0.50 E 1,596.0 190 4.0 760 2.10 F 1,650.0 150 2.5 375 4.40 D 365.5 86 0.5 43 8.50 G 2,013.0 122 1.0 122 16.50 C 259.0 2 3.5 7 37.00 B. Suppose that it is proposed to implement only policies F and G. 1. How many total lives would these two policies save? 375+122=497 2. What is the greatest total number of lives that could be saved, at a total cost no greater than the total cost of F and G, if the most cost-effective policies were chosen? The total cost is \$1,650 + \$2,013 = \$3,663 million. Working down the list of policies in order of their cost effectiveness, this would be enough to do projects, A, B, E, F, and D. The total cost of these five policies would be \$3,662 million and the total lives saved would be 1,354. C. Suppose you learn that the government has decided to implement only the four most cost-effective policies. What could you infer about the implicit value of a statistical life being used by the government? The cost per life saved for the fourth most cost effective policy (F) is \$4.40 million, and the cost per life saved for the fifth most cost effective (D) is \$8.50 million. So the implicit value of life must be at least \$4.40 million but less than \$8.50 million.

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