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Standard values

210.Because of the difficulty and cost of estimating many values, it is convenient for some kinds of CBAs to have available standards values. An example is the values provided in the NZTA’s ‘economic evaluation manual’ for the value of time for different kinds of road and public transport users, and the value of injuries. Two other important values provided by NZTA are the value of life and the cost of air pollution. These are outlined below. The Treasury has developed a range of standard values for social sector projects and these will be published on the Treasury’s Cost Benefit Analysis website.

Discount rate

211.For the Treasury’s current recommended discount rate, see http://www.treasury.govt.nz/publications/guidance/planning/costbenefitanalysis/current discountrates. For an explanation, see page 34.

Deadweight cost of taxation

212.CBAs should include a deadweight cost of taxation, equal to 20% of project costs that are funded from general taxation. For an explanation, see page 15.

Value of life 

  • The value of statistical life is estimated at $3.85 million as at June 2013 and is indexed to the average hourly earnings (ordinary time).

213. A value that frequently needs to be estimated is the ‘value of statistical life’. It is therefore useful to provide a standard value.

214.Many projects increase or decrease the risk to life. People’s willingness to pay for taking on or avoiding risk can be estimated through revealed or stated preference methods.

215.By extrapolating from the willingness to pay or accept for a small change in risk, it is possible to arrive at an implied cost of a fatality (or value of life). This is a statistical device that is useful for CBAs where the change in the probability of fatalities may be known.

216.Viscusi, W Kip & Aldy, Joseph E (2003), undertook a survey of international studies into the value of life.

217.The Ministry of Transport undertook a willingness to pay (stated preference) survey in 1989/90, which established the value of statistical life (VOSL) at $2 million in 1991[15]. This value has been indexed to average hourly earnings (ordinary time) to express the value in current prices, and stood at $3.85 million in June 2013 (New Zealand Ministry of Transport, 2013). It is consistent with the international values found by Viscusi et al (2003), and is used in most evaluations of New Zealand transport projects as well as in some other kinds of evaluations.

Air pollution

  • Health costs of air pollution are estimated at $40 per person per year per microgram/m3.

218. Another useful standard value is the cost of air pollution. Air pollution can cause fatalities amongst people in very poor health. Damage is mainly caused by very small particles of less than 10 microns in diameter. These are referred to as PM10. Epidemiological studies suggest a 0.101% increase in daily death rates (across the population as a whole) for a 1 microgram per m3 increase in PM10.

219.Based on UK costs (assuming similar death rates and adjusting for New Zealand costs of life), the annual mortality costs in New Zealand have been estimated by the New Zealand Transport Agency at $30 per person exposed per year per microgram/m3 increase in PM10. This figure can be increased by 30% (based on US and French contingent valuation studies) to take account of poorer health amongst those who do not die, to give a total annual cost of $40 per person per year per microgram/m3. By contrast, health costs of ground level ozone are believed to be an order of magnitude less. See NZTA (2013);Maibach, M., Banfi, S., Doll, C., Rothengatter, Prof. W., Schenkel, P. Sieber, N., Zuber, J., (2000).

Notes

  • [15]Miller & Guria (1991).
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