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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:
  • by applying per-unit value estimates from the existing literature to the quantified effects in the regulatory analysis, or
  • by using the functional form and parameter estimates presented in the existing literature, along with data describing the population affected by the regulation, to derive a new set of value estimates specific to the regulation.

7 Benefits Analysis

 7.0 Intro

 7.1 Economic
   Benefits: An

 7.2 Steps in Con-
   ducting Benefits

 7.3 Benefits
    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 population’s 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.

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