Author:  Lori Alden

Audience:  High school and college economics students

Time required:  About 50 minutes

NCEE Standards:  Scarcity and opportunity cost, using cost-benefit analysis to evaluate government programs

Summary:  Teams of students figure out how the government could (really!) save lots of lives each year without spending any more money.  The trick is to replace inefficient health and safety programs with more cost-effective ones.  This exercise is based on studies that have been published in scholarly journals.

Instructions:  Give each student a copy of the following handout.  Break students into teams of three or four and ask them to answer the questions in the handout and report their findings to the entire class.   (Solutions are at the bottom of the page.)

Handout:

Saving Lives with Economics

  The following table shows some government health and safety programs, along with estimates of each program’s annual cost and benefit.  Each benefit is expressed in life-years, or the additional years of life people can expect to enjoy as a result of the program.  

Existing programs

Estimated annual cost  
(2004 dollars)

Estimated annual life-years saved

Ban asbestos in brake blocks

$     407,498

10.8

Control radionuclide emissions at elemental phosphorus plants

3,688,269

  0.5184

Ban asbestos in automatic transmission components

28,900

  0.000333

Control arsenic emissions at glass manufacturing plants

6,254,690

  3.563

Prevent releases of carcinogenic chloroform at pulp mills

38,630,000

  0.0003048

Totals

  $49,009,357

14.8820378

Suppose you’re hired by the government to be a decision-making consultant. Your task is to see if you can save more lives for the same cost by eliminating inefficient government programs and replacing them with others that deliver “more bang for the buck.”  The following table shows the costs and benefits of some proposed programs that haven’t been implemented. 

Proposed programs

Estimated annual cost

(2004 dollars)

Estimated annual life-years saved

Screen and treat if necessary the 20% of black newborns who aren’t yet being screened for sickle cell.

  $    295,382

   961

Control radionuclide emissions at surface uranium mines

1,229,423

       0.23976

Require seat belts in certain school buses

13,853,096

       3.84

Vaccinate 50,000 sixth grade students at risk for hepatitis B virus infection

2,805,000

1,025.65

Present a tobacco-prevention program to 321,513 seventh grade students.

6,175,525

 

6,079

Increase the number of heart transplants that are performed

33,067,100

   160

Triple the wind-resistant capabilities of some new buildings to protect occupants in the event of a hurricane

15,684,000

       4.616

1.  Rank all of the programs, with the most cost-effective at the top of your list and the least at the bottom.  Given that your budget is $49,009,357, which programs would you recommend implementing?  

2.  Which existing programs would you recommend eliminating?  What is the total annual cost of the programs you’re eliminating?  How many life-years will be lost as a result of these programs being eliminated?

3.  Which proposed programs would you implement in their place?  What is the total annual cost of the programs you’re adding?  How many life-years will be saved as a result of the programs?  (Note:  The total annual cost of your new programs shouldn't be greater than the total annual cost of the programs you’re eliminating.)

4.  How many life-years did you save by selecting programs based on their cost-effectiveness?    Did you have any money left over?   If so, how much?

5.  Suppose a congresswoman calls to complain about some of the programs you've proposed cutting.  "These programs don't cost taxpayers a cent," she said.  "Businesses are required to implement them in order to comply with regulations."  How would you reply?

6.  Suppose some senators have called to say their constituents don’t want them to cut health and safety programs to save money, since human life is priceless.  Instead, they want to increase taxes to pay for all of the existing and proposed health and safety programs so they can “save as many lives as possible.”

Unfortunately, an economic study suggests every $17 million that Americans collectively lose in disposable income (say through higher taxes or smaller dividends from corporations) leads to the loss of a “statistical life,” since it makes people poorer and poorer people tend to engage in riskier behavior, like eating poorly, not changing smoke alarm batteries, or not getting enough exercise.  If we assume that a statistical life corresponds to 10 life-years, does it make sense for Congress to fund each of the existing and proposed programs?  If not, which would you eliminate? 

Solutions

1.  To rank the programs, calculate the estimated annual cost per life-year.  The top programs should offer the lowest cost per life-year saved.

Existing programs

Estimated annual cost/life-year

(2004 dollars)

Rank

Ban asbestos in brake blocks

$407,498/10.8 = $37,731

4

Control radionuclide emissions at elemental phosphorus plants

$3,688,269/0.5184 =
$7,114,716

9

Ban asbestos in automatic transmission components

$28,900/0.000333 =
$86,786,787

11

Control arsenic emissions at glass manufacturing plants

6,254,690/3.563 =
$1,755,456

6

Prevent releases of carcinogenic chloroform at pulp mills

$38,630,000/0.0003048 =
$126,738,845,100

12

Proposed programs

Estimated annual cost

(2004 dollars)

Rank

Screen and treat if necessary the 20% of black newborns who aren’t yet being screened for sickle cell.

  $295,382/961 =
$307

1

Control radionuclide emissions at surface uranium mines

$1,229,423/0.23976 =
$5,127,724

10

Require seat belts in certain school buses

$13,853,096/3.84 =
$3,607,577

8

Vaccinate 50,000 sixth grade students at risk for hepatitis B virus infection

$2,805,000/1,025.65 =
$2,735

3

Present a tobacco-prevention program to 321,513 seventh grade students.

$6,175,525/6,079 =
$1,016  

2

Increase the number of heart transplants that are performed

$33,067,100/160 =
$206,669

5

Triple the wind-resistant capabilities of some new buildings to protect occupants in the event of a hurricane

$15,684,000/4.616 =
$3,397,747

7

Since there's a budget constraint of $49,009,357, the best solution is to adopt the programs that ranked 1-6 and eliminate the others.

2.  Eliminate:

Existing programs

Estimated annual cost

(2004 dollars)

Estimated annual life-years saved

Control radionuclide emissions at elemental phosphorus plants

3,688,269

  0.5184

Ban asbestos in automatic transmission components

28,900

  0.000333

Prevent releases of carcinogenic chloroform at pulp mills

38,630,000

  0.0003048

Totals

  $42,347,169

  0.519

3.  Replace with:

Proposed programs

Estimated annual cost

(2004 dollars)

Estimated annual life-years saved

Screen and treat if necessary the 20% of black newborns who aren’t yet being screened for sickle cell.

  $    295,382

   961

Vaccinate 50,000 sixth grade students at risk for hepatitis B virus infection

2,805,000

1,025.65

Present a tobacco-prevention program to 321,513 seventh grade students.

6,175,525

 

6,079

Increase the number of heart transplants that are performed

33,067,100

   160

Totals

$42,343,007

8,225.65

4.  Life-years saved = 8,225.65 -  0.519 = 8,225.131.  Money left over:   $42,347,169 - $42,343,007 = $4,162.

5.  Americans still pay for these programs even if they're not funded with tax dollars.  Firms that incur higher regulatory costs pass them onto their customers, resource suppliers, or shareholders.  Congress should treat regulatory costs the same as budgetary costs when weighing the costs and benefits of government programs.

6.  Allowing taxpayers to keep their tax money can be thought of as a health and safety program in its own right, with a cost of $17,000,000/statistical life X (1 statistical life/10 life-years) = $1,700,000/life-year.  This "program" would fall between the heart transplant program (which ranked 5) and the arsenic emissions program (which ranked 6).  If Congress wished to save as many lives as possible, it should implement only the top five ranking programs and eliminate the rest.

Sources:

Krahn, Murray, Guasparini, Roland, Morris Sherman, and Allan S. Detsky.  "Costs and Cost-Effectiveness of a Universal, School-Based Hepatitis B Vaccination Program" American Journal of Public Health, 00900036, Nov98, Vol. 88, Issue 11

;

Lutter, Randall, John F Morrall III, and W. KipViscusi , “The Cost per Life-Saved Cutoff for Safety Enhancing Regulations,” 37 Economic Inquiry 599 (1999)

Morrall, John F. "A Review of the Record," Regulation, (November/December 1986): 25-34.

Tengs, Tammy O.; Miriam E. Adams; Joseph S. Pliskin; Dana Gelb Safran; Joanna E. Siegel; Milton C. Weinstein; and John D. Graham  “Five-Hundred Life-Saving Interventions and Their Cost-Effectiveness” Risk Analysis  Volume 15, No. 3, 1995
Pages: 369-390 

Tengs, Tammy O. "Dying Too Soon: How Cost-Effectiveness Analysis Can Save Lives." NCPA Policy Report  May 1, 1997

Van Houtven, G.L., and M. Cropper. 1996. When Is a Life Too Costly to Save? Evidence from Environmental Regulations. Journal of Environmental Economics and Management 30(3):348-368.

Wang, Li Yan MBA, MA; Linda S. Crossett, RDH; Richard Lowry, MD, MS; Steve Sussman, PhD; Clyde W. Dent, PhD “Cost-effectiveness of a School-Based Tobacco-Use Prevention Program” Arch Pediatr Adolesc Med. 2001;155:1043-1050

 

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