Monetisation methods
- The text on this page is taken from an equivalent page of the IEHIAS-project.
The purpose of monetary valuation is to summarise all impacts on people's welfare of concern (which may vary in their nature - e.g. health effects, biodiversity loss) in the form of a single metric of utility, or value, using money (e.g. euros) as the unit of measurement. In the process, impacts are weighted relative to each other and converted to a common measurement scale, thereby allowing a cost-benefit analysis to be conducted.
In the context of environmental health impact assessment, monetary valuation comprises two main steps:
- Derivation of monetary values for each health outcome;
- Summation of these values across all health outcomes, to derive an overall, monetary measure of impact.
The monetary values used in an assessment often derive from previous studies, undertaken in somewhat different contexts (e.g. study areas, time periods). Because the values are to some degree context-dependent, they may need to be translated using an accepted transfer procedure. Whilst monetary values for many health impacts are also directly measurable (e.g. from data on health service or insurance costs), others are more difficult to asses because they involve implications for people's welfare that are not readily captured by market prices. In these cases, non-market monetary values have to be derived. This is usually done by determining the willingness to pay (WTP) or willingness to accept (WTA) for goods, risks or utility changes that are not traded on the market. A number of techniques are available for this purpose, including contingent valuation.
In some situations, also, allowance has to be made for changes in the perceived worth of monetary values over time. This arises especially when health effects may arise (or continue) in future years. In these situations, discounting may be done to adjust the monetary values to a common (reference) year, on the assumption that a negative impact in the future is valued less than in the present.
As with all parts of integrated assessment, uncertainty is also inherent in monetary valuation, and methods need to be applied both to assess the levels of uncertainty in the analysis and to control its effect on the results.