Managing the Health Impacts of Climate Change through Sector Projects Box 4 19 Accounting for the Role of Socioeconomic Characteristics A simple application has recently been implemented by Dasgupta et al. (2011). The specification of the risk model incorporates three effects: economic development, weather, and education. The formal specification is as follows for (country) i in period t : (1) L  ln( Rit ) = ln  it  = β 0 + β1Git + β 2 Eit + β 3 Rit + β 4Tit + ε it  Pit  where R L P G E R T ε = = = = = = = = Impact risk (death from floods, affected by floods, and affected by droughts) Total loss (persons killed or affected) Population Gross domestic product (GDP) per capita Educational enrollment rate Precipitation Temperature A random error term With such models, using projections of GDP per capita, education, as well as of precipitation and temperature (as determined by global circulation models), it is possible to estimate a range of possible future deaths from floods or number of people affected by floods or droughts. While Dasgupta et al. have used ”death from floods” as well as the number of people ”affected by floods” or “affected by droughts,” a similar analysis could be undertaken for cases of weather-related diseases and conditions such as typhoid, dengue, and malnutrition. Source: Dasgupta, S., et al. 2011. Exposure of Developing Countries to Sea-level Rise and Storm Surges. Climate Change. 106(4). pp. 567–579. Monetizing Health Impacts in Projects While numerous approaches may be used to monetize the health impacts of investment projects (including those of climate change adaptation projects), they all aim at measuring individuals’ willingness to pay to access a specific good or service (such as clean water). These may be grouped into two broad approaches. A first approach relies on estimating monetary outlays that individuals (or households) may undertake to prevent illness (defensive expenditure methodology) or to treat illness (cost-of-illness methodology). In the economic literature, these are known as the revealed preferences approaches to monetizing health impacts. When the cost-of-illness approach is used, foregone work compensation incurred by individuals is generally also included. A second approach relies on asking individuals to state their willingness to pay for the provision of a specific good or service. This approach, which falls under the category of stated preferences approaches, is generally known as the contingent valuation approach. Each approach has its strengths and weaknesses. In particular, both the defensive expenditure methodology and the cost-of-illness methodology are relatively straightforward to apply. On the other hand, these two approaches do not capture other adverse impacts associated with illnesses, such as pain and suffering. In other words, the “real cost” of being sick is likely to be much higher than what defensive or treatment expenses will reveal. The contingent valuation approach will provide a better approximation of the economic costs of diseases. However, it is a time-consuming approach that requires strong economic expertise. These are discussed briefly below.12 The steps involved in applying the two approaches are presented below. 12 It is not the intent of this section to provide a detailed review of monetization approaches. The interested reader has access to an extensive literature on the topic, including Alberini and Krupnick (2003); Krupnick (2004); and Wilhelmine, Robinson, and Lawrence (2006).