Structural benefit transfer: An example using VSL estimates

This paper describes and illustrates a method for benefits transfer referred to as preference calibration or structural benefits transfer. This approach requires selection of a preference model, capable of describing individual choices over a set of market and associated non-market goods to maximize utility when facing budget constraints. Once the structure is selected, the next step involves defining the analytical expressions for the tradeoffs being represented by the set of available benefit measures. These algebraic relationships are used with the benefit estimates from the literature to calibrate the parameters of the model. The calibrated model then offers the basis for defining the “new” tradeoffs required for the policy analysis, i.e., for 'transferring benefits'. A new application is used to illustrate the structural benefits transfer logic. It involves the benefits for mortality risk reductions, measured with labor market compensation a worker would accept to be willing to work with added risk. The measure is usually labeled the value of a statistical life (VSL). Our application indicates that we should not have expected differences in these measures for the economic value of risk reductions with age. The calibrated estimates were not greatly different for combinations of risk levels, labor supply choices, wages, and non-wage income for older adults. Thus, simple adjustments relying on value per discounted life year remaining seem questionable.