Pricing the Priceless: Cost-Benefit Analysis of Environmental Protection. Ackerman, F. & Heinzerling, L. 150(5):1553–1584.
Pricing the Priceless: Cost-Benefit Analysis of Environmental Protection [link]Paper  doi  abstract   bibtex   
[Introduction] Many analytical approaches to setting environmental standards require some consideration of costs and benefits. Even technology- based regulation, maligned by cost-benefit enthusiasts as the worst form of regulatory excess, typically entails consideration of economic costs. Cost-benefit analysis differs, however, from other analytical approaches in the following respect: it demands that the advantages and disadvantages of a regulatory policy be reduced, as far as possible, to numbers, and then further reduced to dollars and cents. In this feature of cost-benefit analysis lies its doom. Indeed, looking closely at the products of this pricing scheme makes it seem not only a little cold, but a little crazy as well. Consider the following examples, which we are not making up. They are not the work of a lunatic fringe, but, on the contrary, they reflect the work products of some of the most influential and reputable of today's cost-benefit practitioners. We are not sure whether to laugh or cry; we find it impossible to treat these studies as serious contributions to a rational discussion. Several years ago, states were in the middle of their litigation against tobacco companies, seeking to recoup the medical expenditures they had incurred as a result of smoking. At that time, W. Kip Viscusi - a professor of law and economics at Harvard and the primary source of the current \$6.3 million estimate for the value of a statistical life' - undertook research concluding that states, in fact, saved money as the result of smoking by their citizens. Why? Because they died early! 3 They thus saved their states the trouble and expense of providing nursing home care and other services associated with an aging population. 4 Viscusi didn't stop there. So great, under Viscusi's assumptions, were the financial benefits to the states of their citizens' premature deaths that, he suggested, "cigarette smoking should be subsidized rather than taxed." ' Amazingly, this cynical conclusion has not been swept into the dustbin where it belongs, but instead recently has been revived: the tobacco company Philip Morris commissioned the well-known consulting group Arthur D. Little to examine the financial benefits to the Czech Republic of smoking among Czech citizens. Arthur D. Little International, Inc., found that smoking was a financial boon for the government-partly because, again, it caused citizens to die earlier and thus reduced government expenditure on pensions, housing, and health care.6 This conclusion relies, so far as we can determine, on perfectly conventional cost-benefit analysis. There is more. In recent years, much has been learned about the special risks children face due to pesticides in their food, contaminants in their drinking water, ozone in the air, and so on. Because cost-benefit analysis has become much more prominent at the same time, there is now a budding industry in valuing children's health. Its products are often bizarre. Take the problem of lead poisoning in children. One of the most serious and disturbing effects of lead contamination is the neurological damage it can cause in young children, including permanently diminished mental ability. Putting a dollar value on the (avoidable, environmentally caused) retardation of children is a daunting task, but economic analysts have not been deterred. Randall Lutter, a frequent regulatory critic and a scholar at the AEI-Brookings Joint Center for Regulatory Studies, argues that the way to value the damage lead causes in children is to look at the amount parents of affected children spend on chelation therapy, a chemical treatment that is supposed to cause excretion of lead from the body. 7 Parental spending on chelation supports an estimated valuation of as low as \$1100 per IQ point lost due to lead poisoning. 8 Previous economic analyses by the EPA, based on the children's loss of expected future earnings, have estimated the value to be much higher-up to \$9000 per IQ point. 9 Based on his lower figure, Lutter claims to have discovered that too much effort is going into controlling lead: "Hazard standards that protect children far more than their parents think is appropriate may make little sense"; thus, " [ t]he agencies should consider relaxing their lead standards." 1 0 In fact, Lutter presents no evidence about what parents think, only about what they spend on one rare variety of private medical treatment (which, as it turns out, has not been proven medically effective for chronic, low-level lead poisoning)." Why should environmental standards be based on what individuals are now spending on desperate personal efforts to overcome social problems? For sheer analytical audacity, Lutter's study faces some stiff competition from another study concerning kids-this one concerning the value, not of children's health, but of their lives. In this second study, researchers examined mothers' car-seat fastening practices. 2 They calculated the difference between the time required to fasten the seats correctly and the time mothers actually spent fastening their children into their seats.1 3 Then they assigned a monetary value to this difference of time based on the mothers' hourly wage rate (or, in the case of nonworking moms, based on a guess at the wages they might have earned).14 When mothers saved time-and, by hypothesis, money-by fastening their children's car seats incorrectly, they were, according to the researchers, implicitly placing a finite monetary value on the life-threatening risks to their children posed by car accidents. Building on this calculation, the researchers were able to answer the vexing question of how much a statistical child's life is worth to its mother. (As the mother of a statistical child, she is naturally adept at complex calculations comparing the value of saving a few seconds versus the slightly increased risk to her child!) The answer parallels Lutter's finding that we are valuing our children too highly: in car-seat-land, a child's life is worth only about \$500,000.16 In this Article, we try to show that the absurdity of these particular analyses, though striking, is not unique to them. Indeed, we will argue, cost-benefit analysis is so inherently flawed that if one scratches the apparently benign surface of any of its products, one finds the same kind of absurdity. But before launching into this critique, it will be useful first to establish exactly what cost-benefit analysis is, and why one might think it is a good idea. [...] [Conclusion] Two features of cost-benefit analysis distinguish it from other approaches to evaluating the advantages and disadvantages of environmentally protective regulations: the translation of lives, health, and the natural environment into monetary terms, and the discounting of harms to human health and the environment that are expected to occur in the future. These features of cost-benefit analysis make it a terrible way to make decisions about environmental protection, for both intrinsic and practical reasons. Nor is it useful to keep cost-benefit analysis around as a kind of regulatory tag-along, providing information that regulators may find "interesting" even if not decisive. Cost-benefit analysis is exceedingly time - and resource - intensive, and its flaws are so deep and so large that this time and these resources are wasted on it. Once a cost-benefit analysis is performed, its bottom line number offers an irresistible sound bite that inevitably drowns out more reasoned deliberation. Moreover, given the intrinsic conflict between cost-benefit analysis and the principles of fairness that animate, or should animate, our national policy toward protecting people from being hurt by other people, the results of cost-benefit analysis cannot simply be "given some weight" along with other factors, without undermining the fundamental equality of all citizens-rich and poor, young and old, healthy and sick. Cost-benefit analysis cannot overcome its fatal flaw: it is completely reliant on the impossible attempt to price the priceless values of life, health, nature, and the future. Better public policy decisions can be made without cost-benefit analysis, by combining the successes of traditional regulation with the best of the innovative and flexible approaches that have gained ground in recent years.
@article{ackermanPricingPricelessCostbenefit2002,
  title = {Pricing the Priceless: Cost-Benefit Analysis of Environmental Protection},
  author = {Ackerman, Frank and Heinzerling, Lisa},
  date = {2002-05},
  journaltitle = {University of Pennsylvania Law Review},
  volume = {150},
  pages = {1553--1584},
  issn = {0041-9907},
  doi = {10.2307/3312947},
  url = {https://doi.org/10.2307/3312947},
  abstract = {[Introduction] Many analytical approaches to setting environmental standards require some consideration of costs and benefits. Even technology- based regulation, maligned by cost-benefit enthusiasts as the worst form of regulatory excess, typically entails consideration of economic costs. Cost-benefit analysis differs, however, from other analytical approaches in the following respect: it demands that the advantages and disadvantages of a regulatory policy be reduced, as far as possible, to numbers, and then further reduced to dollars and cents. In this feature of cost-benefit analysis lies its doom. Indeed, looking closely at the products of this pricing scheme makes it seem not only a little cold, but a little crazy as well. Consider the following examples, which we are not making up. They are not the work of a lunatic fringe, but, on the contrary, they reflect the work products of some of the most influential and reputable of today's cost-benefit practitioners. We are not sure whether to laugh or cry; we find it impossible to treat these studies as serious contributions to a rational discussion. Several years ago, states were in the middle of their litigation against tobacco companies, seeking to recoup the medical expenditures they had incurred as a result of smoking. At that time, W. Kip Viscusi - a professor of law and economics at Harvard and the primary source of the current \$6.3 million estimate for the value of a statistical life' - undertook research concluding that states, in fact, saved money as the result of smoking by their citizens. Why? Because they died early! 3 They thus saved their states the trouble and expense of providing nursing home care and other services associated with an aging population. 4 Viscusi didn't stop there. So great, under Viscusi's assumptions, were the financial benefits to the states of their citizens' premature deaths that, he suggested, "cigarette smoking should be subsidized rather than taxed." ' Amazingly, this cynical conclusion has not been swept into the dustbin where it belongs, but instead recently has been revived: the tobacco company Philip Morris commissioned the well-known consulting group Arthur D. Little to examine the financial benefits to the Czech Republic of smoking among Czech citizens. Arthur D. Little International, Inc., found that smoking was a financial boon for the government-partly because, again, it caused citizens to die earlier and thus reduced government expenditure on pensions, housing, and health care.6 This conclusion relies, so far as we can determine, on perfectly conventional cost-benefit analysis. There is more. In recent years, much has been learned about the special risks children face due to pesticides in their food, contaminants in their drinking water, ozone in the air, and so on. Because cost-benefit analysis has become much more prominent at the same time, there is now a budding industry in valuing children's health. Its products are often bizarre. Take the problem of lead poisoning in children. One of the most serious and disturbing effects of lead contamination is the neurological damage it can cause in young children, including permanently diminished mental ability. Putting a dollar value on the (avoidable, environmentally caused) retardation of children is a daunting task, but economic analysts have not been deterred. Randall Lutter, a frequent regulatory critic and a scholar at the AEI-Brookings Joint Center for Regulatory Studies, argues that the way to value the damage lead causes in children is to look at the amount parents of affected children spend on chelation therapy, a chemical treatment that is supposed to cause excretion of lead from the body. 7 Parental spending on chelation supports an estimated valuation of as low as \$1100 per IQ point lost due to lead poisoning. 8 Previous economic analyses by the EPA, based on the children's loss of expected future earnings, have estimated the value to be much higher-up to \$9000 per IQ point. 9 Based on his lower figure, Lutter claims to have discovered that too much effort is going into controlling lead: "Hazard standards that protect children far more than their parents think is appropriate may make little sense"; thus, " [ t]he agencies should consider relaxing their lead standards." 1 0 In fact, Lutter presents no evidence about what parents think, only about what they spend on one rare variety of private medical treatment (which, as it turns out, has not been proven medically effective for chronic, low-level lead poisoning)." Why should environmental standards be based on what individuals are now spending on desperate personal efforts to overcome social problems? For sheer analytical audacity, Lutter's study faces some stiff competition from another study concerning kids-this one concerning the value, not of children's health, but of their lives. In this second study, researchers examined mothers' car-seat fastening practices. 2 They calculated the difference between the time required to fasten the seats correctly and the time mothers actually spent fastening their children into their seats.1 3 Then they assigned a monetary value to this difference of time based on the mothers' hourly wage rate (or, in the case of nonworking moms, based on a guess at the wages they might have earned).14 When mothers saved time-and, by hypothesis, money-by fastening their children's car seats incorrectly, they were, according to the researchers, implicitly placing a finite monetary value on the life-threatening risks to their children posed by car accidents. Building on this calculation, the researchers were able to answer the vexing question of how much a statistical child's life is worth to its mother. (As the mother of a statistical child, she is naturally adept at complex calculations comparing the value of saving a few seconds versus the slightly increased risk to her child!) The answer parallels Lutter's finding that we are valuing our children too highly: in car-seat-land, a child's life is worth only about \$500,000.16 In this Article, we try to show that the absurdity of these particular analyses, though striking, is not unique to them. Indeed, we will argue, cost-benefit analysis is so inherently flawed that if one scratches the apparently benign surface of any of its products, one finds the same kind of absurdity. But before launching into this critique, it will be useful first to establish exactly what cost-benefit analysis is, and why one might think it is a good idea. [...] [Conclusion] Two features of cost-benefit analysis distinguish it from other approaches to evaluating the advantages and disadvantages of environmentally protective regulations: the translation of lives, health, and the natural environment into monetary terms, and the discounting of harms to human health and the environment that are expected to occur in the future. These features of cost-benefit analysis make it a terrible way to make decisions about environmental protection, for both intrinsic and practical reasons. Nor is it useful to keep cost-benefit analysis around as a kind of regulatory tag-along, providing information that regulators may find "interesting" even if not decisive. Cost-benefit analysis is exceedingly time - and resource - intensive, and its flaws are so deep and so large that this time and these resources are wasted on it. Once a cost-benefit analysis is performed, its bottom line number offers an irresistible sound bite that inevitably drowns out more reasoned deliberation. Moreover, given the intrinsic conflict between cost-benefit analysis and the principles of fairness that animate, or should animate, our national policy toward protecting people from being hurt by other people, the results of cost-benefit analysis cannot simply be "given some weight" along with other factors, without undermining the fundamental equality of all citizens-rich and poor, young and old, healthy and sick. Cost-benefit analysis cannot overcome its fatal flaw: it is completely reliant on the impossible attempt to price the priceless values of life, health, nature, and the future. Better public policy decisions can be made without cost-benefit analysis, by combining the successes of traditional regulation with the best of the innovative and flexible approaches that have gained ground in recent years.},
  keywords = {*imported-from-citeulike-INRMM,~INRMM-MiD:c-13235802,antipattern,cognitive-biases,controversial-monetarisation,cost-benefit-analysis,multiplicity,science-ethics,science-policy-interface,science-society-interface,scientific-communication,technocracy},
  number = {5}
}
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