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Cost-benefit analyses of sprinklers in nursing homes for elderly

  • Henrik Jaldell EMAIL logo
Published/Copyright: April 24, 2013
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Abstract

The risk of dying in fires in nursing homes is six times the risk of dying in fires at home in Sweden. One way to reduce this risk is to install fire sprinklers. This study measures the benefits using value of full lives, life years and quality adjusted life years (QALYs) for deaths and injuries. The results show that sprinklers are cost-effective in newly built nursing homes no matter what value of life is used. However, if sprinklers are installed in already existing buildings, they are cost-effective only if the value of a statistical life is used.


Corresponding author: Henrik Jaldell, Karlstad University – Economics, Universitetsgatan 1 Karlstad 651 88, Sweden

  1. 1

    21 million SEK was equal to 2.3 million USD and 2.0 million EUR both adjusted for PPP in 2006.

  2. 2

    Of course the different country values fluctuate with the exchange rates. The exchange rates for January 2012 are: 1 €=SEK 8.8=1.3 US$=1.3 C$=1.2 A$.

  3. 3

    The risk of a traffic accident for example is quite similar considering per capita and per vehicle-km for the UK and Sweden, but the average EU risk is higher, and Australia and Canada have similar risk levels and income levels, all according to IRTAD (2010). Another factor not taken into account here, and rarely in international comparisons, is that the VSLs normally are given in consumer prices (since revealed and stated preference studies consider consumers’ willingness to pay), that is including taxes. The consumer tax levels are quite different between countries; Sweden has a normal value-added-tax of 25%, while some states in the USA have no sales tax at all.

  4. 4

    Savage explains the perhaps intuitively surprising finding that a lower degree of knowledge of the risk leads to a lower WTP, by arguing that people may be more willing to spend money on things that they know will have an effect.

  5. 5

    One rare recent example is Desaigues et al. (2011) that estimated VSLY directly from WTP surveys on reducing air pollution in nine European countries. They conclude that a reasonable value for Western Europe is €40,000. (Using an interest rate of 4% and a life expectancy of 40 years, this corresponds to a VSL of about €1.1 million).

  6. 6

    Mason et al. (2009) argue that if a declining VSL over age is assumed such information should be incorporated in the calculations. However, this is not regarded here, firstly because the evidence on declining VSL is not clear, and secondly that Mason et al. find that taking this fact into account does not in a substantial way.

  7. 7

    In the UK it is assumed that the social discount rate is 3.5%, of which 1.5% is due to pure time preferences.

  8. 8

    The scale goes from 0 (=dead) to 1 (=full health). This scale is presented here even if some authors have used a scale from 0 to 100.

  9. 9

    Halvorsrud and Kalfoss (2007) reviewed measurements of quality of life in older adults. They listed different methods used and tried to set a quality mark on each study, but unfortunately they did not list and compare the absolute value of quality of life from each study. (Many studies do not list the absolute value, but they just compare correlations between different methods used.)

  10. 10

    A theoretical analysis of the problem (impossibility?) of finding a societal WTP for a QALY is discussed by Dolan and Edlin (2002).

  11. 11

    All monetary figures are in 2010 prices. In October 2012 1 US$=6.70 SEK.

  12. 12

    x*(1-effect)*(share of buildings with sprinklers)+x*(share of buildings with sprinklers)= y x*(1-0.7)*0.1+x *(1-0.1)=4.9 x=5.3.

  13. 13

    Values from 2006 (SIKA 2009) have been adjusted for inflation to 2010.

  14. 14

    A triangular distribution has also been tested. The variation is smaller using a triangular distribution, but the Figures 3–6 look very similar.

  15. 15

    It seems reasonable to vary expected life year in elderly homes and the different QALY-weights in a Monte Carlo simulation. This was also tested, but the results were very similar to those in Table 12 and are therefore not discussed in the paper.

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Published Online: 2013-04-24
Published in Print: 2013-08-01

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