To live is to take risks: Danger is all around us and the most we can do is to slightly reduce our exposure. Certain actions such as buckling your seat belt when driving or drinking only bottled water do in fact reduce the risk of incurring mortal injuries or contracting painful diseases; however, even such simple measures are not costless. Is a morning coffee worth the risk of hot water burns or the risk of spills on the laptop? Every moment of every day, we are making decisions that trade risks against some benefit we incur by accepting them. In my thesis, I attempt to deepen our understanding about how people value certain risks, and shed light on how government policies might nudge individuals towards better choices.
If we could and wanted to protect ourselves against identified risks, we would need to incur costs. Unfortunately, we have limited resources, thus, we need to find a system that allows us to minimize the expected impact that those risks may have at the lowest cost. Comparing diverse risk-reduction strategies requires a common metric. One popular approach is to use a monetary metric which facilitates the comparison between costs and benefits. Costs are usually expressed in monetary terms and are relatively easy to measure; generally they are computed using process-based calculations. Benefits are more problematic. In many cases, population-level risk reduction results in probabilistically saving the lives of unidentified individuals. How much is such a thing valued by society? The conventional metric for valuing a reduction in mortality risk in a monetary form is the Value of a Statistical Life (VSL). While the VSL is often misinterpreted, it does not purport to represent the value of an identified individual’s life. On the contrary, it is a measure of how much society is willing to pay to reduce a diffuse but possibly mortal risk.
It would be valuable, from a policy perspective, to know exactly how much an individual is willing to pay to reduce a mortal risk to him or herself or to others; unfortunately, we hardly ever do. It is therefore necessary to try to extract this information from the decisions that people make. There are two main ways that this is done in practice: either through revealed or stated preferences. Neither approach is perfect, but both are powerful tools that allow researchers to estimate true preferences. On one hand, the main advantage of the revealed preference approach is that it is based on what consumers are actually choosing. Unfortunately, revealed preference measures face the critique that the effect that is being captured could possibly be confounded with other effects. Identification of the willingness to pay (WTP) to reduce risk is compromised. On the other hand, stated preferences overcome the issue of identification by controlling the decision-making environment but stated preferences are stated; we do not know whether the respondents would really behave as they have stated . Nevertheless, under the right circumstances, these tools can be valuable aids for evaluating or designing policies.
VSL models assume that people make decisions based on their individual preferences. What about the risks that we take for others? Empirically, individuals tend to be willing to pay more for risk reductions relating to children. Evidence of this is can be found in the Food Quality Protection Act in the United States of 1996 which requires an additional tenfold margin of safety for children to ensure that they face no risks from pesticide residue in food (Dockins et al. s 2002). Why is this the case? First, while individuals tend to prefer risks that are voluntary (Slovik, 1987), children are generally perceived as involuntary participants in risky activities. Second, there is ambiguity related to the lifetime health risks faced by children, particularly for new or modern threats. Theoretically, an increase in WTP for risk reduction could plausibly stem from ambiguity aversion (Alary et al. 2012). Finally, there is some evidence to suggest that age could affect WTP (Rowe et al. 1995). In general, we assume that parents have the right incentives to care for their children, and therefore accept parents' valuations of their children's health. Of course, this is under the assumption that parents always have the information they need to take the right action, but do they?
In my first paper, I use a revealed preference approach to explore a particular risk-reducing action taken by mothers. In 2000, the French government, following a worldwide trend, began a health advisory policy urging French residents to improve their eating habits. The policy, which is still being implemented today, is commonly known as “Manger Bouger”. Embedded within this larger policy, a smaller, lesser known initiative (starting from 2005) targeted fetal neural tube diseases (NTDs). NTDs are potentially deadly conditions which occur when the neural tube is not fully covered by the spinal cord. While NTDs often lead to abortions, the condition is generally not terminal; the consequences for the child include paralysis or severe brain malformation. To reduce the risk of NTDs, mothers need to consume at least 400 micrograms of folic acid (also known as Vitamin B9) on a daily basis for two months before and two months after conception. This amount can be achieved either through naturally occurring folic acid or through supplementary pills.
Unfortunately, the NTDs trend did not change after the policy. Over the past decade the yearly NTD prevalence was roughly 1 baby per 1000. Does this mean that the policy did not have any effect? Using a highly detailed household level purchase database, a quasi-experimental setting and state of the art demand estimation techniques on the ready-to-eat breakfast cereal market, my research suggests that targeted women did in fact consume more folic acid after the policy was implemented. This increase was achieved through pill supplements. Regrettably, timing is everything. Supplemental folic acid taken outside the narrow time window will have no effect on fetal NTD risk. Although targeted individuals did consume more folic acid it may seem that they did not consume it at the appropriate moment. This is not surprising since it is very hard to correctly predict the timing of conception.
Is there anything else that can be done? Fortifying staple foods is a common practice in France, it is an inexpensive and effective process. Nearly all the baguettes consumed are fortified with some vitamins. However, vitamin B9 is not among them. This omission is due to the plausible secondary effects that B9 can have on individuals aged 50 years and over. There are epidemiological studies linking increased levels of folic acid to the proliferation of some types of cancer. Others studies find an association with decreased levels of cancer proliferation.
The bottom line: there is an important level of uncertainty regarding the secondary effects of B9 in some segments of the population. To deal with this uncertainty, I construct a probabilistic model and evaluate the impact of a massive B9 fortification policy in France: an increase in folic acid intake of 400 micrograms or more by the entire population. After taking into account the effects on longevity, health and wealth for children and adults, I conclude that a fortification policy is advised.
In the second chapter of my thesis, in joint work with James Hammitt, we conducted a French representative Internet based survey to assess the WTP to reduce risks of fatal disease. The survey was designed to identify how WTP varies with characteristics of the disease (cancer or other diseases, which organs are affected etc.), the latency between exposure and the manifestation of the symptoms (1, 10 or 20 years), and whether the person at risk is the adult respondent, a child or another adult in the respondent's household. We use a latent class estimation technique along with paradata - data on how the survey data was collected - to identify those respondents who have correctly answered the survey. What is considered as answering a survey correctly? What is usually done in the literature is to check if, at least, the respondents are paying attention to characteristics that are hard to grasp. One of those characteristics relates to scope sensitivity. It is conventional that a survey passes the scope sensitivity test if the amount willing to be paid is nearly proportional to the risk reduction. We find that the proportion of respondents that are paying attention to these hard characteristics varies between 20 and 40 per cent. Time spent filling the survey influences heavily the quality of the answers: too little or too much time spent has a negative effect. Moreover, the implied VSL with and without our estimation procedure varies substantially: results range from 6, 10 and 8 million euros per statistical life for respondents, child and other adults respectively, based on the standard technique to 2.2, 2.6 and 1.8 millions euros with the latent class estimation. Although these results are still preliminary, they suggest that the differences in VSL we initially observed are partly explained by respondents answering the survey incorrectly.
As compared with the US where the implementation of cost-benefit analyses to select the best projects is the norm, their use in France is still quite restricted. In part, this has limited the scope of WTP studies in France particularly regarding WTP for child risks. There are clear intentions from the French government to begin using cost-benefit analyses more frequently. This development highlights the need to investigate whether established policies are working, as well as to develop reliable French VSLs estimates for ex-ante (or ex-post) project evaluations.