0:06

Economists often prefer to express the outcomes or consequences of water

and sanitation interventions in terms of

economic benefits measured in monetary units.

In this video, I'll illustrate this approach

for just one component of the total benefits.

This is the mortality risk to households.

0:25

It's useful to think of two types of benefits

that households receive from a piped water and sanitation project.

Health benefits and non-health benefits.

The health benefits can be subdivided

into mortality reductions and morbidity reductions.

In addition, positive externalities may spill over and

benefit households who are not using the intervention.

The main non-health benefits to households are

increased income from having more, cleaner and cheaper

water, time savings from not having to collect

water, and aesthetic, or quality of life benefits.

A household can receive the health benefits from non-piped water

and sanitation systems, but only some of the non-health benefits.

For instance, if they still have to spend time carrying water back to the home.

1:20

The economic benefits from mortality reduction will

be a function of four uncertain parameters.

The first is the baseline diarrhea incidents in the target population.

The second is the reduction in baseline

diarrhea incidence due to the WASH intervention.

The third is the case fatality rate.

This means the proportion of the cases of diarrhea that lead to death.

1:44

The fourth is the value of a statistical life.

This is a measure based on how much people are willing to pay ex

ante, that is, before they get sick, for a specified reduction in mortality risk.

2:30

This figure is from the Fisher paper.

It shows diarrhea episodes per child per year in selected low income countries.

The range is about 2 to 4 episodes per child per year.

The second parameter is the effectiveness of

the intervention at reducing the incidence of

WASH-related diseases in the population if a

specified number of individuals use the intervention.

You can think of the effectiveness of the

intervention as the percentage reduction in baseline incidence.

So, if an intervention is 90% effective, you have 10% of the number of cases left.

We'll assume, for purposes of illustration, that 100% of

the people in the target population use the intervention.

The instance after the intervention, labeled here Inc subscript after, is 1

minus Eff times the baseline incidence,

that is the instance before the intervention.

The change in the number of cases due to the intervention is the number

of cases in the target population before

minus the number of cases after the intervention.

To calculate the change in the number of cases, you multiply the number of

people in the target population times the

effectiveness of the intervention, times the baseline incidence.

3:49

For this parameter we go back to the

Fewtrell paper that we discussed in the previous video.

Here's that figure again.

We said a good estimate for the reduction in risk from

baseline conditions due to a large intervention was around 30 to 40%.

In these calculations, I'll use 30% for the mean case.

4:09

The third step is to calculate the change in

the number of deaths due to the WASH-related diseases.

You can think of this as the number of lives saved by the intervention.

This is done by multiplying the number of cases avoided by the case fatality rate.

4:34

The diarrhea mortality rate is not the same as the case fatality rate.

The mortality rate is the number of deaths due to

a specific cause for a population during a specific time period.

The case fatality rate is the proportion

of deaths within a designated population of cases.

5:13

The WHO global burden of disease report estimates

the number of deaths by different causes in population.

The mortality rate due to a specific cause of death, such as

diarrhea, is calculated from the estimates of the number of deaths in population.

5:42

The estimates of the mortality rates in this figure show

that very few people in these countries are dying of diarrhea.

Even Bangladesh looks pretty good.

For Ethiopia, the mortality rate is estimated

at about 150 deaths per 100,000 people.

That's a 0.15% chance of dying from diarrhea per year in Ethiopia.

6:19

The average diarrhea mortality rate for Africa stands out.

Is much larger than for other regions.

It is about 115 per 100,000, compared to South Asia which is about 65 per 100,000.

Now, let's look at the relationship between the diarrhea

mortality rate, the baseline incidence and the case fatality rate.

7:05

The case fatality rate is then 150 deaths divided

by 150,000 episodes, or 1 death per 1000 episodes.

The fourth step is to multiply the number of deaths avoided by the value

of the mortality risk reduction as judged

by the members of the target population themselves.

The mortality reduction benefits, from an economist's perspective, are equal

to the value of the statistical life, multiplied by the

case fatality rate, times the size of the par, target

population, times the effectiveness of

the intervention, times the baseline incidence.

7:44

I should emphasize though that the size of the target population is

the only parameter in this equation that is known with much certainty.

Our calculations depend on four uncertain parameters,

baseline diarrhea incidence, reduction in baseline diarrhea incidence

due to the WASH intervention, case fatality

rate and the value of a statistical life.

Now I want to show what happens to the final

result as we make different assumptions about these four parameters.

8:14

This table shows you the assumptions I'll make for the parameters.

For each parameter I'll make a low, mean and high assumption.

In the baseline incidence column you'll see, I'm assuming

0.5, 1, and 1.5 cases of diarrhea per year.

Note that these estimates are an average of both adults and children and are a

little different that then two to four episodes

per year for children that we saw earlier.

9:12

In this table, we calculate the numerous cases

of diarrhea avoided as a result of the intervention.

For the mean case, that's the 30% reduction.

The second row here, in this table, the number of cases of diarrhea avoided is

30,000 but this varies from 5,000 for the low case to 75,000 for the high case.

9:43

For the mean case, the first row here, the result is 24 deaths per year.

This varies from 2 deaths per year for the low

case to 90 deaths per year for the high case.

Notice how the range of uncertainty is expanding.

2 deaths per year from a population of a

100,00 is very different from 90 deaths per year.

10:06

This table shows step four, the calculation of the economic

value of the mortality risk reduction due to the intervention.

The total economic value of the mortality risk

reduction varies from US $20,000 to US $9 million.

That's a huge range.

10:29

The high estimate is equivalent of US $38 per household per month.

This is a huge benefit for a poor household in a low income country.

But the low estimate of US $0.08 per household per

month is not a large benefit, even for a poor household.

10:47

If we are trying to understand household behavior, and how

a household thinks about the economic value of an intervention.

The difference between these three cases is very large.

To wrap up, I want you to think about what

these calculations mean for understanding baseline or status quo conditions.

One lesson is that the economic outcomes of a water and sanitation intervention

will depend on the timing and sequencing of investments, and on local conditions.

And inevitably will be subject to a high level of uncertainty.

This is because the uncertainty in the estimates increases

as you multiply several uncertain perimeters in a row.

In other words, this means that uncertainty is not

additive, it's multiplicative, and the range of uncertainty expands rapidly.

11:34

This finding resonates with Nobel

Laureate Douglass North's observation that, quoting,

we should be very tentative about how we understand the world.

That doesn't mean you don't do things.

You've got to do things, but you've got to recognize that you may be wrong.

We will return to the implications of this insight in our second follow up MOOC.

11:54

To remind you, that's where we'll focus on specific policy interventions in

the water and sanitation sector, the

questions, what works, what should be done.