Mia Ha - Problem Set 5.docx

# Necessary to calculate the cost effectiveness of each

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necessary to calculate the cost effectiveness of each policy A. 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.)

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B. Suppose that it is proposed to implement only policies F and G. 1. How many total lives would these two policies save? The total lives the policies F and G saved are 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 of F + G = 1,650 + 2,013 = 3,663 With this cost we could use policies: A, B,C, D, E ( total cost = 25 + 25.5 + 259+ 365.5 + 1596 = 2,271) and 2,271 < 3,663 Using policies A, B, C, D, E would save 125 + 51 + 7 + 43 + 760 = 986 lives. 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 So if the government only chooses to implement 4 most cost effective policies, the four policies would be policy A, B, D, E ( total cost = 25 + 25.5 + 365.5 + 1,596 = 2,012) (total lives saved = 125 + 51 + 43 + 760 = 979. Total cost per life saved = 2,012/979 = 2.05 million. The cost per expected life saved for the 5th most cost effective policy (F) = 1650/375 = 4.4 million. We could conclude that the implicit value of an expected life save is between 2.05 million and 4.4 million.

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