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NATURAL WORLD
How Much Is a Manatee Worth?
by Malcolm G. Scully
Article re-printed from The Chronicle of
Higher Education March 5, 2004
Cost-benefit analysis has become the preferred technique
among policy makers for determining when health and
environmental risks are serious enough to warrant
regulation of the substances or activities that cause
them. By quantifying the costs and the benefits of
regulation, its proponents say, bureaucrats can set
rational policies rather than respond to public hysteria.
In the absence of such analysis, the proponents add,
special-interest groups can manipulate public opinion
about some risks in ways that distort economic and
regulatory priorities while more serious risks may
be ignored. Cost-benefit analysis provides an efficient,
objective way to prevent those distortions and to
avoid breaking the bank.
At least that's the theory. In a new book, an economist
and a law professor charge that cost-benefit analysis,
especially as practiced by the Bush administration,
is rigged in favor of anti-regulatory corporate interests.
According to Frank Ackerman and Lisa Heinzerling,
the authors of Priceless: On Knowing the Price of
Everything and the Value of Nothing, published last
month by the New Press, cost-benefit analysis is neither
as objective nor as efficient as its proponents claim.
Ackerman, director of the research-and-policy program
at Tufts University's Global Development and Environment
Institute, and Heinzerling, a professor of law at
Georgetown University, argue that proponents of cost-benefit
analysis, especially those at the Office of Management
and Budget's Office of Information and Regulatory
Affairs, regularly stack the deck. They overstate
the costs of regulation and understate the benefits.
The result is what Ackerman and Heinzerling call complete
cost-incomplete benefit analysis. Because the benefits
never can be fully quantified, or "monetized,"
they say, analysts and the OMB almost always conclude
that the costs of regulation outweigh the benefits.
"Most or all of the costs are readily determined
market prices, but many important benefits cannot
be meaningfully quantified or priced, and are therefore
implicitly given a value of zero," they write.
They argue as well that the analysts "imply that
the only important benefit of health and environmental
regulation is to prevent human deaths." They
have no way of placing a value on an ecosystem, the
services it provides, or on an individual species.
How much is a manatee worth?
All of the important gaps in the analyses are on
the benefits side, they say, and practitioners choose
to fill those gaps with questionable data, implausible
hypotheses, and problematic approximations that suit
their anti-regulatory agenda. Much of the research
that is regularly cited as justifying the approach,
they add, is flawed to the point where it is meaningless.
They point out, for instance, that some of the widely
cited studies of the costs of regulation have included
rules that were never adopted and in some cases never
even contemplated. While the authors of the studies
noted where their findings were based on hypothetical
regulations, those caveats have been lost in the litany
of anti-regulatory rhetoric that followed.
"The studies ... demonstrate conclusively that
it is possible to describe a collection of nonregulations
that would have been expensive, had they ever been
adopted," they write. "To interpret this
'analysis' as describing the real-world performance
of any actual regulatory agency is deeply misleading.
Despite the subtle concessions of the researchers
that their cost estimates include measures that were
not implemented, it is easy enough to take away from
these studies the impression that they describe the
systematic working, and failures, of current regulation."
Despite their flaws, the findings of such studies
have become the horror stories of critics of regulation.
"The case against health, safety, and environmental
protection rests on a handful of widely circulated
stories, told by just a handful of storytellers,"
Ackerman and Heinzerling write. "The stories
enter the public's consciousness as they are credulously
spread by editorial writers, newspaper reporters,
and others."
One of the stories that aggravates them the most
is based on a study by Ralph L. Keeney of the University
of Southern California, who noted a statistical relationship
between income and life expectancy. "He then
offered a set of 'illustrative' examples of the effects
of regulation, assuming that because the cost of regulations
makes people poorer, regulations also decrease life
expectancy." Under the "richer is safer"
assumption, Keeney then "estimated that one fatality
would result from every $3-million to $7.5-million
of regulatory expense."
The "richer is safer" studies have a hidden
bias, Ackerman and Heinzerling say, which is demonstrated
by "the limited use to which they have been put.
"Every large program, whether it has an educational,
military, environmental, or other purpose, imposes
costs on some people and creates jobs and incomes
for others. ... Using Keeney's $7.5-million per life
estimate, the budget for national defense in a typical
year will kill about 50,000 American citizens. Yet
no one ... has suggested that the military or public
schools or, in fact, any program that does not save
lives should be scrutinized for its indirectly lethal
effects."
Ackerman and Heinzerling can be polemical. They parody
the free-market approach: "If government regulation
is needlessly burdensome and bureaucratic - raising
costs by excessive intervention in the market - then
the answer must be deregulation, rolling back those
silly old rules and letting markets be markets. The
results are sure to be lower costs for all. Just ask
California's electricity consumers."
And the approach to cost-benefit analysis they condemn
is based primarily on what is known as the "exploitationist"
view of humans' relationship with nature, a view that,
as Simon Dresner in The Principles of Sustainability
(Earthscan Publications, 2002) says, sees "nature
solely as a collection of goods and services of instrumental
value to human beings." In that view, he says,
"the future value of the environment is discounted
and justified by the assumption that economic growth
will allow human-made capital to substitute for natural
capital."
But Dresner, a research fellow in the environment
group at the Policy Studies Institute, a think tank
in London, notes that scholars like R. Kerry Turner,
a professor of environmental studies at Britain's
University of East Anglia, have discussed other approaches
to cost-benefit analysis that are less exploitationist.
Many environmentalists have proposed a "radically
modified
cost-benefit analysis" that "puts environmental
considerations before economic ones." In that
approach, "economic analysis would be used only
to indicate the most cost-effective ways of achieving
environmental goals." It would "allow for
some exploitation of ecosystems as long as they remained
'healthy' and biologically diverse."
Many environmentalists believe that some version
of that approach that includes ways to measure the
benefits of the services that ecosystems providei.e.,
the way wetlands filter pollution out of the runoff
from agricultural irrigation and wastewater generallywould
be a useful method of invoking cost-benefit analysis
in ways that protected the environment rather than
made it more vulnerable to exploitation. They also
call for "internalizing" the costs of economic
exploitation of natural resources, so that, for instance,
logging companies, not the federal government, would
pay for the roads and other services needed to take
timber from national forests.
When the costs are fully internalized and the benefits
fully quantified, they say, cost-benefit analysis
in many cases will make protection of natural resources
preferable to exploitation.
But Ackerman and Heinzerling are having none of it.
They reject the notion that the environment can be
incorporated into the market economy by monetizing
the use and existence values of nature. The use value
can sometimes be approximated by, for instance, placing
a dollar value on a commercial fishery or by calculating
the revenues from ecotourism, but establishing the
existence value of a whale, a deer, or an ecosystem
is more difficult. Is a whale worth anything more
than what its body parts can generate in the marketplace?
Ackerman and Heinzerling believe so, but they say
there is no way to put a dollar figure on that worth
and then include it in a cost-benefit analysis.
As with many other policies of the Bush administration,
the reliance on cost-benefit analysis is based, at
least in part, on legitimate concerns - in this case
about the cost and efficacy of regulatory policies
now in place. But nothing the administration has done
suggests that it wants to use the new approach to
improve protection of public health or the environment.
Rather, it
wants to make life easier and more profitable for
its corporate backers.
Even if that were not the case, Ackerman and Heinzerling
don't believe that the problems with the approach
would be fixed by devising better ways to measure,
in dollar terms, the benefits of regulation. Rather,
they say, the entire concept is misguided.
"The basic problem with narrow economic analysis
of health and environmental protection is that human
life, health, and nature cannot be described meaningfully
in monetary terms," they write. "They are
priceless. ... There are hard questions to be answered
about protection of human health and the environment,
and there are many useful insights about these questions
from the field of economics. But there is no reason
to think that the right answers will emerge from the
strange process of assigning dollar values to human
life, human health, and nature itself, and then crunching
the numbers."
Malcolm G. Scully is The Chronicle's editor at large.
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