This document summarizes key points from a presentation on the economics of injury prevention in New Zealand. It discusses health economic methods used to estimate the costs of injuries, including the value of preventable fatality. It reviews New Zealand cost of injury studies and estimates of government spending on injury prevention. Sensitivity analysis is important because choices around the value of preventable fatality, discount rates, and intervention effectiveness can significantly influence cost-benefit results. There is variation in willingness to pay to prevent different types of injuries. Estimated 2008/09 government spending on injury prevention totaled over $1 billion, with around 78% spent on road safety.

1. Indicative Results of NZIPS Project:
The Economics of Injury Prevention
&
Proposed Principles for Allocating
Injury Prevention Economic
Resources
www.nzips.govt.nzwww.nzips.govt.nz
Presenter: Dr John Wren – Research Leader NZIPS / Senior Programme
Manager Research, Research, ACC
17 November 2009

2. Workshop will cover the following
topics:
1. Review and discussion of health welfare
economic methods and NZ cost of injury
studies – including the Value of Preventable
Fatality (VPF) / Value of Statistical Life
(VoSL)
2. Review of New Zealand cost of injury
estimates respectively
3. Estimation of current central Government
expenditure on IP
4. Outline of a policy decision-making framework
utilising economic methods (CBA,CEA, CUA)
to help prioritise expenditure on IP
www.nzips.govt.nzwww.nzips.govt.nz

3. Part 1
• Critical review:
– health welfare economic methods
• why economic prioritisation
– the Value of Preventable Fatality (VPF) / Value of
Statistical Life (VoSL)
• what is VPF?
• is it the same for all injury areas?
• is there an agreed New Zealand VPF?
– NZ cost of injury studies
• is there any commonality?
– Key Issues – Sensitivity Analysis

4. Why bother with an economic
prioritisation project?
It has been argued that….
• the burden of injury is adequately described
epidemiologically
• effort would be better spent on estimating
effectiveness of interventions and the cost-
benefit of different types of intervention
(Currie, Kerfoot, Donaldson, et al., 2000)

5. We bother because…
• Cost is an “order of magnitude indicator”
• One mechanism for decision-makers to:
– Quantify the size of a problem in economic
terms using a single metric understood by
many
– Justify intervention
– Assist in the prioritisation of expenditure on
prevention
– Evaluate the effectiveness of expenditure
on prevention (Rice, 2000; Rice & Associates., 1989)

6. In New Zealand…
Government agencies use cost information to
inform economic and social decision-making
about:
– whether to invest in injury prevention,
rehabilitation, and compensation
– setting and evaluating outcomes and
priorities for allocating resources between
different injury types and population groups
– deciding who should bear the costs of injury
(Department of Labour, 2004, pg 9)

7. Recommended Cost of Injury (COI) Matrix
(DoL, 2004)
Cost Categories
/
Cost Perspectives
Individuals
and
Families
Employers Government Society
Treatment
and
Rehabilitation
Costs
Output
& Productivity
Costs
Human Costs
Total Costs
This is the
space
NZIPS
interested
in
This category
typically 50% to 70%
of total social costs
(Access Economics, 2008)

8. Three Main Methods to Quantifying
Human Costs (Intangible costs)
1. Human Capital
2. Willingness to Pay (Revealed Preference)
3. Willingness to Pay (Stated Preference /
Contingent Valuation)
WTP methods are the preferred approach to
estimating social costs
The $ value derived by WTP methods is usually
referred to as the:
• Value of Preventable Fatality (VPF), or
• Value of Statistical Life (VoSL)

9. What is Willingness to Pay?
• Willingness to Pay typically asks: How much
are you willing to pay to prevent the risk of a
fatal or serious injury to an immediate family
member?
• The question is always asked in the context of
a stated level of risk and risk reduction within
stated contingencies (usually cost or other
trade-offs (i.e. other opportunities / benefits
forgone)
• The payment value is always expressed in $,
and represents the statistical average value /
person

10. Is there a New Zealand Value of
Preventable Fatality?
Yes, but only for all official Government Transport
Sector (road, aviation, maritime) evaluations.
The VPF was set by Government in 1991 @ $2
million at 1 April 1990 prices (New Zealand
Gazette)
VALUE is updated annually, NOW EQUATES TO
$3,352,400 at June 2008 prices
BUT….

11. Q1: If you had a total of $10 million to spend on
preventing a death to a family member from risk
of a:
• Road injury
• Fire injury
• Suicide
• Heart Disease
how much would you be willing to pay to reduce
the risk of death for each of the above,
assuming the intervention had the same
potential to reduce the risk for all events by the
same amount?
Is the Transport Sector VPF applicable
to other injury areas?

12. Q2: Would you be willing to spend any of
the $10 million on preventing a fatality for
a member of the general public?
Yes or No
If Yes, out of the $10 million how much
would you be willing to pay? (Remember
this reduces the amount available to
reduce the risk for your family member)
Is the Transport Sector VPF applicable
to other injury areas?

13. Is the Transport VPF applicable to other
injury areas?
Good evidence VPF is not the same …
International Literature – VPF is related to
factors such as:
– Perceptions of risk and individual ability /
responsibility to control for different types of
injury
– Wealth of person / nation
– Family size
– VPF changes over time
– Significant variation between studies

14. Does the population accurately understand the risk
of injury? (NZ Safety Culture Survey, 2009)
69 61 5674 20 15 6 8
0
20
40
60
80
100
Road Work Home Water
%
General risk Personal risk

15. New Zealanders are over-estimating the risk
on the road and under-estimating the risk
in the home and at work (2009 Safety Culture Survey)
0
10
20
30
40
50
60
70
80
On the road In and around
the home
At work On or in the
water
Percent
Feel personally at risk %
New entitlement claims 2008-09 %
Costs associated with 2008-09 entitlement claims %

16. Other findings in NZ VPF Literature
• MoT 1989/90 survey respondents ranked preference for
paying to prevent a drowning fatality significantly lower
than road related fatality
• No conclusive evidence that NZers are willing to pay more
to prevent a child fatality
• Evidence suggests pay less for elderly
• Those with no children willing to pay more to prevent a
child fatality
• Those with higher incomes willing to pay more
• Those with larger families and lower incomes willing to
pay less
• 35% of respondents willing to pay something to protect
general public
• Survey response samples small (between n= 560 and
750)
(Evidence from analysis of three NZ VoSL Surveys: Two by MOT 1989/90 & 1998/99
and one by BERL for NZ Fire Service 2007)

17. Sensitivity Analysis: Critical Cost of
Injury Input Value Assumptions –
Choice of :
– Value of Preventable Fatality
– Discount rate (the Time Value of Money) and
period of return on investment
– Estimate of Size Effect of Intervention
are critical input values that significantly
influence the total social cost / benefit
output values of the model

18. What is Sensitivity Analysis?
• Sensitivity analysis is:
– the assessment of the impact of changes in
the input values on model outputs
– used to measure the variability around the :
• estimated costs
• expected benefits of an intervention
• testing the cost effects of different
assumptions or decision parameters (Frey et al,
2002, 2004; Ascough et al, 2005; Pannell, 1997).

19. Sensitivity Analysis: Impact of VPF
• Choice of VPF (Human Cost) typically accounts
for 50% to 70% of Total Social Costs in the
literature (Access Economics, 2008)
• There is considerable international debate about
how to measure the VPF
• Typically a 50% variation in the VPF for different
types of injury events and other health
conditions in the literature
(Access Economics, 2008; Miller and Guria, 1991; Leung and Guria, 2006; BERL, 2007)

20. Sensitivity Analysis: Time Value of
Money - Discount Rate
Key assumptions:
– Value of money changes over time: A $ spent or
saved today has more value today (present value)
than a possible future $
– A $ spent today on one intervention cannot be spent
on another (opportunity cost)
Discount rate is a method to adjust future $ cost
and benefit values into current (present) $
values

21. Sensitivity Analysis: Cost Effectiveness
of Interventions
• Cost benefit / effectiveness depends upon
– Size of the predicted reduction in number of fatalities /
hospitalisations or other desired outcome
• X intervention will reduce fatalities by Y amount
• Z intervention will reduce fatalities by T amount
• B intervention will result in positive shift in safety culture by A
amount
– Injury Prevention interventions with long time periods
before expected return will tend to rate poorly
compared to other interventions and social
expenditure opportunities with shorter periods of
return
Note Effectiveness can be measured in a number of ways: Cost Benefit Analysis, Cost
Effectiveness Analysis, Cost Utility Analysis (each of which has its particular uses)

22. Impact of choice of VPF: New Zealand
Evidence
• Survey of VPF for
preventing Home Fire
Fatalities found to be
56% to 62% of Transport
Sector VPF (BERL, 2007)
• MoT 1997/98 VPF
Survey found a higher
VPF of $5 million @
June 2008 prices
compared to the current
official transport Sector
VPF of $3.5 million set in
1991
Official New Zealand Transport Sector Value of Statistical Life Compared to
MOT Survey 1997/98 and Fire Service Fire VoSL Survey 2007
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
$5,000,000
$5,500,000
$6,000,000
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Year Ending June Quarter
Millions
Official New Zealand Transport Sector VoSL Adjusted NZ$
MOT VoSL 1997/98 Survey Adjusted Mean VoSL NZ$
BERL (2007) Fire VoSL @ 66% of MOT VoSL Adjusted Mean VoSL NZ$

23. Impact of Discount Rate: The present
value of survival for up to 25 years, at
various discount rates

24. IP Cost Benefit / Effectiveness Evidence
• Best examples of CBA and CEA evidence occur
in the Road and Fire Safety areas
• Limited CBA /CEA in many other areas:
Authoritative Reviews by
– Miller, T., & Levy, D. (2000). Cost-Outcome Analysis
in Injury Prevention and Control: Eighty-Four Recent
Estimates for the United States Medical Care, 38(6),
562-582
– Miller, T., Romano, E., & Spicer, R. (2000). The Cost
of Childhood Unintentional Injuries and the Value of
Prevention. The Future of Children, 10(1), 137-163.

25. Conclusions: IP Cost Benefit /
Effectiveness Research Suggests
• IP Intervention can reduce medical costs and
save lives
• Wider implementation of proven measures is
warranted
• Engineering, enforced regulation, and
comprehensive targeted safe community
programmes work
• Lack of CBAs for many interventions – need to
invest more in this area (Millar et al, 2000 (a, b))

26. Part 2: Review of New Zealand COI
Studies: Key findings
17 studies identified - first published in 1979:
• reflect developments in welfare economic
methods
• focus upon a specific area, e.g.
– road, suicide, drowning, work
• cover different time periods
• use different cost categories and data sets
• lack consistency in undertaking sensitivity
analysis(1 – see recommendations on this)

27. Review of New Zealand COI Studies:
Key findings
• tend to be written to inform policy decision-
making
• use the Transport Sector VPF as the measure
of social cost
• the Willingness to Pay (revealed preference)
has become the de-facto method to measure
social / human cost since it was first used by the
MOT in 1989/90

28. Review of New Zealand COI Studies:
Key findings
• very good evidence to suggest that the MOT
method for estimating the cost of injury by
severity (fatal, serious, other) needs significant
updating
• results are not comparable with each other and
cannot be used to generate a “total social cost of
all injury and for the six priority areas”
•Very large range in estimates – even as high as
10 fold difference

29. NZIPS (Wren & O'Dea) Cost of Injury
Method:
• Cost categories based upon DoL / Inter-agency
Cost of Injury Matrix (DoL, 2004)
• Monetised measure of health (Years of Life Lost
& DALY)
• Sensitivity analysis comprising
– Three New Zealand based VPF measures
– 95% confidence interval around incidence of
injury
– Discount rates of 3.0%, 3.5%, 6.0% and
10.0%
• Cost priced to 2007/08 year

30. Conclusions about cost estimates
• Wide variability is the norm
• Different methods = Different size
estimates
• No “single truth” about cost
• Different methods have their uses for
policy agencies
• Is the O’Dea & Wren approach useful /
appropriate?

31. Part 3: Estimating Government
Expenditure on Injury Prevention
• Approached 24 state sector agencies
• Core crown expenditure and money with the nature of a
taxation
• Collected 3 financial years
• Defined “injury prevention”
• Wanted expenditure in the 6 priority areas
& that which impacted across areas

32. What was excluded?
• Many scoping issues were worked through
• Examples of what is EXCLUDED:
- local govt
- agency H&S
- spend outside of priority areas
- where IP was a buy-product of the spend
- activity on the periphery of what is
usually considered to be IP
Please note all of the following info is
draft and should be treated with some
confidentiality.

33. Estimated government spend in injury prevention by injury priority
(based on 2008/2009 figures, except for NZTA figures which are an estimation of 2009/10
expenditure)
$866,866,450, 78%
$121,941,733, 11%
$50,647,590, 5%
$25,418,413, 2%
$19,029,416, 2%
$9,195,207, 1%
$8,074,482, 1%
Road Assault Workplace
Suicide Spend that affects all areas Falls
Drowning
The estimation of expenditure
in the area of "road" is made up
of spend from:
NZTA (65%)
NZ Police (33%)
and 6 other agencies w hich
account for the remaining 2%.
Please note that the NZTA
figures provided w ere an
estimation of 2009/10
expenditure - not actual
2008/09 spend.
$234 m (22%) of
the total estimated
spend)

34. Estimated 2008/09 government expenditure in injury prevention by agency
NZTA
52%
NZ Police
27%
MSD
7%
ACC
3%
ALAC
1%
DoL
2%
MoT
0%
Maritime NZ
0%
ERMA
0%
MoE
0%
HRC
0%
Housing NZ
0%
OCC
0%
Stats NZ
0%
FoRST
0%
NZLGB
0%
MoJ
1%
Corrections
2%MoH
2%
Road Safety Trust
0%
MED (Consumer Affairs)
0%
NZTA
NZ Police
MSD
ACC
DoL
MoH
Corrections
MoJ
ALAC
NZLGB
MoT
Maritime NZ
ERMA
Road Safety Trust
MoE
MED (Consumer Affairs)
HRC
Housing NZ
FoRST
OCC
Stats NZ
Please note that the NZTA figures
provided were an estimation of 2009/10
expenditure - not actual 2008/09 spend.
The expenditure represented here by NZ
Police and NZTA totals to $ 864m.
The other agencies account for $ 237m.

35. Estimated 2008/09 government expenditure in injury prevention by agency
(excluding NZ Police and NZTA)
MSD, $76,934,907, 32%
ACC, $34,620,958, 15%
DoL, $27,150,990, 11%
MoH, $27,136,959, 11%
Corrections, $24,741,499, 10%
MoJ, $12,890,218, 5%
ALAC, $10,122,000, 4%
NZLGB, $5,287,096, 2%
MoT, $4,745,200, 2%
Maritime NZ, $4,554,000, 2%
ERMA, $3,498,500, 1%
Road Safety Trust, $1,580,000, 1%
MoE, $1,138,602, 0%
MED (Consumer Affairs), $915,000,
0%
HRC, $859,988, 0%
Housing NZ, $500,000, 0%
FoRST, $292,000, 0%
OCC, $167,500, 0%
Stats NZ, $164,203, 0%
Mental Health Commission, $0, 0%
MSD
ACC
DoL
MoH
Corrections
MoJ
ALAC
NZLGB
MoT
Maritime NZ
ERMA
Road Safety Trust
MoE
MED (Consumer Affairs)
HRC
Housing NZ
FoRST
OCC
Stats NZ
Mental Health Commission
The total spend represented
here is $ 237m (ie, total minus NZTA
and NZ Police).

36. Part 4: Prioritising Injury Prevention
Resource Allocation
• Role of Economic Methods
• CBA evidence for injury prevention
interventions
• Issues in using CBA for injury prevention
• Proposed Prioritisation Framework
– Principles
– Appropriate uses of CBA methods

37. Key Ideas Underpinning Economic CBA
Decision-making
1. Resources are finite
2. Opportunity Cost
• investment in one activity imposes an opportunity
cost on other social and economic investments
Ideally, we should only invest in the
opportunities that maximise economic
and social return

38. Treasury Expectations
There is a need to ensure that any proposal for
government intervention clearly sets out:
– what the problem is
– what the outcomes sought are
– why government should intervene
– what options exist to address the problem,
and
– of the options available, which ones are likely
to return the greatest benefit for the cost
involved from a national perspective (NZ Treasury, 2005)

39. Part 4: Prioritising IP Resource
Allocation: Resources are Finite
Prioritisation is
concerned with how we
make decisions about
what health and
disability services or
interventions to fund,
for the benefit of New
Zealanders, within the
resources available
(Health Funding
Authority, 2000).
“Making sound safety
decisions require
accurate estimates of
the costs of injuries and
the benefits of their
reduction. These
estimates may be
produced intuitively by
citizens exposed to risk
of injury, or formally, by
analysts considering
alternative safety
policies.” (Fischhoff,
Furby, & Gregory,
1987).

40. Concept of CBA Attractive: Difficult and
Controversial in Practice
For example: what dollar value should we place:
• On preventing the loss of a child’s life in a road
crash compared to that of an older person?
• Is the value of preventing a loss of a life in a
home fire worth more or less than preventing the
loss of a life from a road crash or a suicide?
• Is the value of preventing a fatality, the same as
presenting a serious injury such as disabling
brain injury?

41. Economic CBA & Social Policy Trade-
offs
Road Safety Example
Lowering speed is an effective road safety
intervention that reduces the risk of road related
injuries and associated costs
Trade-off - increased travel times that have an
economic and social cost
1. General lack of a substantive evidence about
effectiveness or other cost-benefit information to
inform key assumptions
2. Weighing Social and Economic Policy trade-offs

42. Economic CBA & Social Policy Trade-
offs
Child Safety Example
Lowering Fort heights in playgrounds reduces
the risk of a serious fall injury
Trade-off – intervention is possibly
detrimental to children’s physiological
development and life experience
1. General lack of a substantive evidence about
effectiveness or other cost-benefit information to
inform key assumptions
2. Weighing Social and Economic Policy trade-offs

43. Injury Prioritisation and Role of
Economic Analysis: Research Advice
“Benefit-cost ratios and cost per QALY saved
are helpful guides, but other factors – notably
political feasibility, government cost, and
overlapping effects – become relevant in the
selection of a package that yields the
maximum safety gains at the lowest possible
price”
(Millar & Levy, 2000)
“Cost-effectiveness estimates are a decision
aid, not a decision rule”
(Grosse, Teutsch, & Haddix, 2007).

44. Suggested Prioritisation Framework for
IP Resource Allocation Decision-making
• Principles
+
• Where appropriate
– Cost-Benefit Analysis
– Cost-Effectiveness Analysis
– Cost Utility Analysis

45. Proposed Prioritisation Criterion:
Principles of Prioritisation:
• Effectiveness – extent programme produces
desired health outcome
• Equity – extent programme reduces disparity on
health status and / or health service experience
• Value for money – extent programme
represents best value for effectiveness and
equity possible (Health Funding Authourity, 2000; Vote
Health, 2005)

46. And, Appropriate Use of CBA Methods
CBA
Prioritisation
Method
Example Where Prioritising
Method Used
Economic CBA National level IP Programme
expenditure
Financial CBA ACC specific IP Programme,
Fiscal CBA Cabinet funding approval
paper
Source: Adapted from: Figure 2.1a. New Zealand Treasury CBA Primer, 2005.

47. Example of Application of CBA to Injury
Prevention
We should install a guardrail down the middle of a narrow
and dangerous stretch of coastal road if:
– the dollar cost of doing so is less than the implicit
dollar value of the injuries, deaths, and property
damage prevented (Frank, 2000b, 2000a)
However
– If another intervention or social policy proposal
achieved a return of $5 for every $1 invested then that
suggests it should be prioritised above an intervention
that only offers $1 return for $1 invested

48. Implications of Principles and CBA:
Might indicate that expenditure should be shifted
from:
– another health priority area to injury
prevention
– a current injury priority area to another -
– one population age group to another
– one type of injury prevention intervention to
another type
– IP spend is traded-off against other social
policy objectives
– Changing Hypothecated Funds

49. Making IP Resource Allocation Decisions
What do you think about the proposed
approach?

50. End
• Thank you for your time
• Please complete the Evaluation Form