Input Cost and Forgone Health

What is sacrificed in the allocation of inputs to a specific output is the possibility of using these same inputs in other production to gain alternative benefits. This is the sacrifice that standard economics calls opportunity cost.

For inputs that are immediately used up in production, such as fuels, this statement is true as it stands.

For inputs that are not immediately used up, such as workers, tools, buildings, or recyclable raw materials, the statement refers to concurrent production activities. It is not possible to use a specific set of workers to build a bridge and a dam simultaneously, but the workers could build both structures at different times.

Although the allocation sacrifice refers to a potential rather than an actual loss, it is nevertheless highly significant for an economic framework such as ENL. If inputs are misallocated, resulting in fewer benefits than could have been achieved from alternative production, human lives can be lost or severely degraded.

This means that the concept of opportunity cost, in this limited application, accurately reflects the sacrifice made in allocation. ENL refers to this sacrifice as forgone health. The word "cost" is avoided in this context because ENL does not recognize an allocation sacrifice as a true cost.

Although forgone health is very similar to opportunity cost, it is useful to explain the concept using ENL terms exclusively.

Assume that a set of inputs can be employed to produce one of three outputs: A, B, and C. Based on analysis and experience, it is estimated that the eventual health gains from these outputs will be 20 units, 15 units, and 10 units respectively.

In this situation, if we choose to produce B, the best alternative is A, which results in 20 units of sacrificed health. The same is true if we choose C.

If we choose A, however, the best alternative is B, resulting in 15 units of sacrificed health. Choosing A thus minimizes forgone health, which is ENL's aim for rational allocation.

The second sacrifice relates to the health impact on human beings from production, and in this context the term "cost" fully applies. The death of a worker is a cost. So is a worker's disability through injury or disease.

Less obviously, the impact on human health from the emission of production wastes into the environment is a cost.

In general, any direct or indirect health damage to humankind resulting from production is a cost that must be set against the gains achieved from consuming the associated final outputs.

This second type of sacrifice, informally reffered to as "real cost" above, is called input cost in ENL.

Like potential and effectual value, input cost is objective, not subjective. It has two components, reflecting the direct and indirect effects of production on health.

The direct effects are mostly experienced by workers engaged in the production process. Such effects include excessive fatigue, debilitating stress, injuries, diseases, and deaths. These are referred to collectively as labor cost.

The indirect effects, through the environmental changes resulting from production, are experienced by both workers and the population at large. These are referred to collectively as natural cost.

Just as potential and effectual value apply to the duration of a final output's useful existence, input cost applies to the duration of these health effects.

For example, if a worker contracts an occupational disease in a factory, the input cost involved depends on the health loss for the entire disease period, not just the period during which production takes place.

ENL expresses no views on the question of who makes allocation decisions. This could be done by individuals, groups, communities, corporations, states, or governments. While this is an extremely important issue, it is primarily political rather than economic, and therefore beyond the framework’s analytical scope.


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