TTN/Economics & Cost Analysis Support
OAQPS Economic Analysis Resource Document
7.3 Benefits Transfer
| Monetizing the benefits
of a regulation typically involves using benefits transfer; that is, applying
monetary values estimated in existing empirical studies to assess the
value of a quantified effect in a different study. In practice,
this approach typically involves searching the relevant empirical literature
to identify existing studies that value effects similar to those in which
the analyst is interested. For example, if an analyst is evaluating
the benefits of a regulation for which the primary benefit is X premature
deaths avoided, then the analyst will want to identify studies that have
estimated the values of a premature death avoided (i.e., the VSL saved).
Once a relevant study (or studies) has (have) been identified, the analyst will need to apply the results found in the study to his or her own economic analysis. In general, this can be done in one of two ways:
| The first approach
(value transfer) is the simpler of the two methods; however, if the analyst
chooses this approach, he or she must use caution in identifying the empirical
study (or studies) to be used. In particular, to ensure that the
results of the benefits transfer are defensible, the analyst must ensure
that the commodity valued in the existing study is comparable to the identified
benefit of the regulation and that the study population over which the
existing value estimate was derived is sufficiently similar to the population
that will receive the regulatory benefit.
The second approach (functional transfer) alleviates a majority of the problems associated with specifying the appropriate population. For example, if the existing literature defines WTP to avoid a premature death as a specific function of income or age, then this relationship can be used to more accurately specify a value estimate for the regulatory context. If the population affected by a rule has a high average income or age, then the benefit function can be used to estimate WTP conditional on these characteristics. Compared to using an unconditional unit-value estimate from existing studies, this approach should provide a value that more accurately reflects the affected populations WTP. Even though the functional transfer approach enables the analyst to tailor the empirical results to the specific population of interest, the analyst must still ensure that the effect being analyzed in the existing literature resembles, as closely as possible, the effect of interest to the analyst.
Analysts applying benefits transfer techniques are referred to the March 1992 edition of Water Resources Research for a thorough discussion of the advantages and criticisms of using benefits transfer.