The Welfare Costs of HIV/AIDS in Eastern Europe : An Empirical Assessment Using the Value-of-Life Approach

Rationale: International priority setting in the fight against global epidemics calls for new approaches to quantify the effects of diseases on entire economies and groups of countries. Objective: We aim to estimate the full social costs of HIV/AIDS in Eastern Europe, using the willingness-to-pay approach. Methodology: Based on the aggregation of individual willingness-to-pay for a statistical life without HIV/AIDS, we calibrate an intertemporal optimization model to determine the welfare losses from HIV/AIDS in 25 Eastern European countries. The calculations are based on the average per-capita income in each country, which explains why even in countries with a relatively low HIV-prevalence, the welfare losses from HIV/AIDS are already too big to be ignored.Results: Assuming a discount rate of three percent, we find a total welfare loss for the whole region of 1.2 trillion US-$ which amounts to approximately 16 percent of the region's annual GDP between 1995 and 2001. This probably underestimates the true welfare costs of HIV/AIDS, because the calculation does not include the suffering of HIV-positive individuals prior to death. Taking into account the high level of education in large parts of the population of Eastern European countries, we also calibrate a human-capital-scenario in which an individual's income is distributed unevenly across the lifecycle and assumed to peak at around 35 years. In this case, the welfare losses turn out to be even higher. Overall, prevalence and incidence rates diverge sharply between countries with Central Europe still far less affected than the major countries in the Commonwealth of Independent States and the Baltics. Conclusions: Prevalence rates of HIV/AIDS in Eastern Europe have been rising rapidly since 1994 and the epidemic is likely to spread to less affected countries unless a coherent strategy of prevention and treatment is backed up by substantial increases in health care investments. The sheer size of this task and the international nature of the epidemic render this one of the most important current challenges for all of Europe. Our estimates provide some evidence to inform policy makers about the likely social payoff from reductions in prevalence and infection rates that specific measures might achieve