An individual’s WTP to avoid an adverse health effect will include, at a minimum, the amount of

money he or she would have to pay for medical expenses associated with the illness. Because

medical expenditures are to a significant extent shared by society, via medical insurance,

Medicare, etc., the medical expenditures actually incurred by the individual are likely to be less

than the total medical cost to society. The total value to society of an individual’s avoidance of an

adverse health effect, then, might be thought of as having two components: (1) the cost of the

illness (COI) to society, including the total value of the medical resources used (some portion of

which will be paid by the individual), plus the value of the lost productivity, as well as (2) the

WTP of the individual, as well as that of others, to avoid the pain and suffering resulting from the


The COI approach attempts to estimate the total value of the medical resources used up as well

as the value of the individual’s time lost as a result of the illness. Because this method does not

include the value of avoiding the pain and suffering resulting from the illness (a potentially large

component), it is generally believed to underestimate the total value of avoiding the illness,

perhaps substantially.

The contingent valuation method attempts to elicit from people what they would be willing to pay

to avoid the illness. Because of the distortion in the market for medical goods and services,

whereby individuals generally do not pay the full value of the medical care, this method too is

likely to understate the total value of avoiding the illness.


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