Environmental exposures that impair human health can reduce people's well-being in at least five ways, as follows:

• medical expenses associated with treating pollution-induced diseases, including the opportunity cost of time spent in obtaining treatment;
• lost wages;
• defensive or avertive expenditures associated with attempts to prevent pollution-induced disease;
• disutility associated with the symptoms and lost opportunities for leisure activities;
• change in life expectancy, or risk of premature death.

To get an estimate of the social costs of health impacts from air pollution, all these categories of costs need to be considered.  These include costs both to the affected individuals and to the employers (e.g. in terms of lost work days and productivity loss), as well as the medical costs covered by the public health care system and medical insurance companies. In thecase of the first three of the five categories listed above, this is relatively straightforward, for each has readily available monetary counterparts. The fourth and fifth categories present greater difficulties, for direct monetary analogues usually do not exist.  Assessment thus relies on the use of non-market valuation techniques.  This is commonly done by assessing the willingness-to-pay to avoid or delay the effects.  Two main approaches are used for this purpose: revealed prefernce (RP) and stated preference (SP) approaches.

Revealed preference approaches

The revealed preference (RP) approach relies on deducing values of mortality or morbidity by observing behaviours in the real-world.  It is used especially as a basis for evaluating mortality, by assessing the Value of a Statistical Life (VSL).  This is the rate at which people are prepared to trade off income in  return for a reduction in their risk of dying.  One way of doing this is in terms of the Hedonic Wage (HW).  If a person is working in a job with above average mortality risk then they will require a higher wage to compensate them for this risk.  The wage premium thus indicates the value attached to that risk.

An alternative method (which can also be applied to morbidity) is the self-protection (or avertive behaviour) approach.   Two main types of model can be used in this context:

• consumer market models that essentially plot the additional expenditures incurred to avoid risks of illness, injury or death; and
• health production functions in which consumers’ demand for a health input reveals the value they place on the health output.

Stated preference approaches

Stated preference (SP) approaches, in contrast, are based on people's personal valuations of mortality or morbidity.  This involves asking individuals how much they would be willing to pay (or willing to accept) to compensate for a small reduction (or increase) in risk.  SP methods can be divided into direct and indirect approaches. The direct Contingent Valuation (CV) method is by far the most commonly used, though over recent years the indirect approach of Choice Modelling (CM) has gained popularity. The former typically asks the respondents for their willingness-to-pay (WTP) for a public programme that would reduce their mortality risk directly in one of two ways:

• via an open-ended question (e.g. “What is the most you are willing to pay for the programme?”), often combined with showing a payment card listing representative amounts (from small to large); or
• via a dichotomous (referendum) question of the form: “The cost of the programme is 30 euros per household per year.  Would you vote for or against the programme?  or  Would you pay the amount – Yes or no?:

CM on the other hand, asks the respondents a series of choices between health risks with different characteristics and monetary amounts.

The main appeal of SP methods is that, in principle, they can elicit WTP from a broad segment of the population, and can value causes of death or morbidity hat are specific to environmental hazards.