7.1 Introduction to Valuation, Discounting, and Pooling

This section presents an introduction to valuation, discounting, and pooling. Valuation generally

refers to placing a dollar value on estimated health incidence. In BenMAP, you might also think

of valuation as including the assignment of quality adjust life year (QALY) weights, in the sense

that the placement of dollar values and QALY weights both occur in the APV configuration. We

discuss both dollar values and QALY weights here. In addition, we provide a brief introduction

to discounting, which has to do with placing less weight on things occurring in the future than we

do for things today. Finally, we discuss pooling, which has to do with combining comparable

results.

7.1.1 Overview of Valuation

Improvements in ambient air quality generally lower the risk of developing an adverse health

effect by a fairly small amount for a large population. A lower risk for everyone means that fewer

cases of the adverse health effect are expected, although we cannot predict which people would

be spared. Therefore, the health benefits conferred on individuals by a reduction in pollution are

actually reductions in the risk of having to endure certain health problems. Monetizing the

benefits of a reduction in air pollution involves estimating society’s willingness to pay (WTP) for

these reductions in risk and is typically referred to as valuation. BenMAP uses valuation

functions to estimate the benefits of reducing air pollution.

These benefits (reductions in risk) may not be the same for all individuals (and could be zero for

some individuals). Likewise, the WTP for a given benefit is likely to vary from one individual to

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