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Your Money or Your Life
by Cass R. Sunstein
Article re-printed from The NewRepublic
March 3, 2004
In
protecting the environment, how do America and Europe
differ? The standard account is this: Europe follows
the precautionary principle; America follows cost-benefit
analysis.
According to the precautionary principle, it is better
to be safe than sorry. Aggressive regulation is justified
even in the face of scientific uncertainty--even if
it is not yet clear that environmental risks are serious.
According to cost-benefit analysis, regulation should
be undertaken not on the basis of speculation, but
only if it is justified by a careful quantitative
assessment of both the costs and the benefits of regulatory
action. The two approaches lead in radically different
directions. What should national governments do about
the genetic modification of food? Many Europeans argue
that the consequences of genetic modification are
uncertain and that real harm is possible--and hence
that stringent regulation is readily justified. Many
Americans respond that the likely benefits of genetic
modification are far greater than the likely harms--and
that stringent regulation is unsupportable. Or consider
global warming. Many European leaders have argued
in favor of precautions, even extremely expensive
ones, simply to reduce the risk of catastrophe. But
under President Bush, American officials have called
for continuing research on the costs and the benefits
of higher temperatures.
European and American reality is not quite so simple,
of course. Europeans are hardly oblivious to costs
and benefits; under the Kyoto Protocol, they would
reduce the emission of greenhouse gases by a certain
percentage below the levels of 1990, rather than below
the much lower levels of 1940. And the precautionary
principle is not exactly absent from American practice.
Under the Clean Air Act, the Environmental Protection
Agency is required to build a "margin of safety"
into air-quality standards. In the matter of terrorist
threats, the United States has certainly embraced
a version of the precautionary principle, concluding
that we should spend a great deal to reduce risks
that cannot be established with certainty. (Bush's
doctrine of "preemptive war" can be understood
as a precautionary principle.) But in the context
of environmental protection, the central tendencies
are clear. At the same time that European regulators
have been increasingly committed to the idea of precaution,
their American counterparts have been growing more
insistent on the need for cost-benefit balancing.
John Graham, Bush's regulatory czar, is one of the
nation's most prominent advocates of cost-benefit
analysis, and in the Bush administration he has done
a great deal to promote its use within the federal
government. Graham has also offered some cautionary
words about the precautionary principle, suggesting
that it might lead in undesirable directions. The
underlying debates have played a large role in many
important controversies, extending, for example, into
discussions of mad cow disease, ephedra, clean air,
abandoned hazardous waste dumps, arsenic in drinking
water, and even national security. And to the dismay
of many environmentalists, cost-benefit balancing
has become a major part of America's decisions involving
health, safety, and the environment.
Frank Ackerman and Lisa Heinzerling deplore cost-benefit
analysis. They think that it is a form of pseudo-science,
with the pernicious effect of blinding us to the real
values at stake. Human lives are priceless, and deaths
are not mere "costs." In their view, cost-benefit
analysis is morally obtuse, a recipe for capitulation
to powerful industries and ultimately for deregulation.
Ackerman and Heinzerling want to replace cost-benefit
analysis with the precautionary principle, which,
in their hands, is "a more holistic analysis"
that argues for regulation in the face of scientific
uncertainty and that tries to ensure "fairness
in the treatment of the current and future generations."
Why are some people so enthusiastic about cost-benefit
balancing? In the United States, a part of the answer
lies in widely publicized studies that seem to show
a high level of inefficiency in modern regulation.
According to such studies, regulations are wildly
and even comically inconsistent. Sometimes we spend
$100,000 (or less) to save a human life. Sometimes
we spend tens or even hundreds of millions. Cost-benefit
enthusiasts ask: shouldn't we be devoting our resources
to serious health problems rather than trivial ones?
If we can spend $10 million to save one thousand lives,
shouldn't we do that rather than wasting the money
on a similarly priced program that saves only one
or two people?
Ackerman and Heinzerling respond that the attack
on the current system is based on misleading studies,
on "urban legends." When we look carefully
at the system, we find that few regulations really
impose huge costs for trivial benefits. True, some
regulations do not prevent many deaths, but they do
prevent serious (non-fatal) harm to human health,
and also to ecosystems. The resulting benefits should
not be disparaged. Ackerman and Heinzerling add that
the key studies find low benefits partly because they
greatly "discount" future gains to life
and health. Everyone agrees that a dollar today is
worth a lot more than the same dollar will be worth
in twenty years; economists use a standard "discount
rate" (about 7 percent annually) to convert future
dollars into current equivalents. In calculating the
benefits of regulation, they use the same discount
rate for mortalities prevented. Ackerman and Heinzerling
contend that this approach is immoral--that it discounts
future people, and hence wrongly shrinks the value
of regulations that will save people in the future.
Suppose that their arguments are right--that existing
regulations do not require huge investments for trivial
benefits. Regulators still might want to use cost-benefit
analysis to improve their current decisions. Ackerman
and Heinzerling complain that to do this they will
have to produce a dollar value for a human life--and
any such effort will be arbitrary, offensive, or worse.
The EPA has recently valued a life at $6.1 million,
so that twenty human lives are "worth" $122
million. Where does the $6.1 million figure come from?
The answer lies in studies of labor markets conducted
by a number of economists, most prominently W. Kip
Viscusi. These studies show, more or less, that if
American workers are asked to face annual accident
risks of one in 100,000, their annual salaries are
(on average) $61 higher as a result. A simple exercise
in multiplication--100,000 times $61--produces a value
of $6.1 million for each life. There are now numerous
studies of how much consumers and workers are willing
to pay to reduce risks, and agencies build on these
studies in converting human lives into dollar equivalents.
In taking this approach, regulators are not really
"valuing life." What they are doing is assigning
a dollar value to the elimination of risks--saying,
for example, that it is worthwhile to spend $60 to
get rid of a mortality risk of one in 100,000 from
arsenic in drinking water.
Ackerman and Heinzerling mount a barrage of arguments
against this way of proceeding. They contend that
workers often have little information about the risks
that they face, and hence they cannot be charged with
consciously trading hazards against dollars. And even
when workers are informed, they may have few options
and hence little choice. If they accept a job with
significant hazards, it is not because they are really
free to choose. This point is strengthened by strong
evidence that unionized workers are paid a lot to
assume mortality risks--and hence some economists
find that the value of a unionized worker's life is
more than double that of a nonunionized worker. Note,
too, that for incurring workplace hazards, white workers
get far more than African American workers do--a finding
that seems to cast doubt on government's use of labor
markets to produce a value for life.
Ackerman and Heinzerling add that the pertinent studies
ask only how much individuals care about risks to
themselves. They ignore the fact that we often value
the lives of others, too. I might be willing to pay
just $60 to eliminate a risk of one in 100,000 that
I face, but I might be willing to pay much more than
that to eliminate that risk from my child's life,
and substantial amounts to help reduce the risks of
my friends. Altruism is ignored in the current calculations.
In one of their most intriguing discussions, Ackerman
and Heinzerling insist that statistically equivalent
risks should not be treated the same, because people's
valuations of risk depend not only on the probability
of harm but also on context. About three thousand
people died from the terrorist attacks of September
11--a much smaller number than die each year from
suicide (30,500), motor vehicle accidents (43,500),
and emphysema (17,500). To say the least, the nation's
reaction to the terrorist attacks was not based on
simple numerical comparisons: "Most of us, when
thinking about and responding to risks to life and
health, care about more than numerical probabilities
of harm." Drawing on important work by the psychologist
Paul Slovic, Ackerman and Heinzerling emphasize that
the risk judgments of ordinary people diverge from
the risk judgments of experts--not because ordinary
people are stupid or confused, but because they have
a different framework for evaluating risks. While
experts focus on the number of deaths at stake, most
of us are especially averse to risks that are unfamiliar,
uncontrollable, involuntary, irreversible, man-made,
or catastrophic.
Most people are not greatly troubled by the risks
associated with X-rays, partly because they are voluntarily
incurred. The risks of terrorism, by contrast, are
especially alarming because individuals cannot easily
control them. And when a risk is faced by an identifiable
community--say, when landfills with toxic chemicals
are located in largely poor areas--the public is especially
likely to object. Ackerman and Heinzerling complain
that cost-benefit analysis disregards important qualitative
differences among social risks. It also "tends
to ignore, and therefore to reinforce, patterns of
economic and social inequality" above all because
it pays no attention to a key question, which is "who
gets the benefits and who pays the costs."
Ackerman and Heinzerling are particularly concerned
about how cost-benefit analysts value nature. How
much will human beings pay to save an animal or a
member of an endangered species? Economists have tried
to answer the question by actually asking people.
One study found that the average American family is
willing to pay $70 to protect the spotted owl, $6
to protect the striped shriner (an endangered fish),
and as much as $115 per year to protect major parks
against impairment of visibility from air pollution.
Ackerman and Heinzerling ridicule these numbers, complaining
that any precise monetary value "contains no
useful information." Bans on whaling, for example,
are rooted in a widely shared ethical judgment, not
in cost-benefit analysis. A democracy should base
its decisions about the protection of nature on such
ethical judgments, rather than by aggregating people's
willingness to pay.
Ackerman and Heinzerling offer a final objection
to cost-benefit analysis: the rights of future generations.
As I have noted, economists generally apply a "discount
rate" to future gains and losses. The greater
the discount rate, the smaller the current value of
future amounts. With a 7 percent discount rate, for
example, $1000 in twenty years is worth only $260
today. Cost-benefit analysts within the federal government
have long applied the usual discount rate for money
(7 percent) to the benefits of safety and health regulation,
so that the prevention of one thousand cancers in
2024 is equivalent to the prevention of 260 cancers
this year. Ackerman and Heinzerling are appalled.
They insist that lives are not like money; your life
cannot be placed in a bank for the accumulation of
interest. This claim is important, for "discounting
has a dramatic shrinking effect on the perceived benefits
of regulations that save lives in, or protect the
environment for, the future." More broadly, Ackerman
and Heinzerling contend that it is ridiculous to do
what cost-benefit analysis essentially does, which
is to license companies to kill people at a stated
price: "Is a corporation or public agency that
endangers us pardoned for its sins once it has spent
$6.1 million per statistical life on risk reduction?"
With this argument, the assault on cost-benefit balancing
is complete. What do Ackerman and Heinzerling want
instead? The simple answer is that they want some
version of the precautionary principle. We should
take action against "serious threats even before
there is a scientific consensus," so as to protect
against the loss of lives before research has become
definitive. (Global warming is a case in point.) Above
all, they want regulators to adopt a "holistic"
approach and to make regulatory decisions by attending
to the worst-case scenario. If the worst case is really
awful, aggressive regulation is desirable even if
we might be wasting our money. A central question
is: "How bad could the effects of dioxin, climate
change, low-level radiation, and other controversial
hazards turn out to be?" If we spend too much
on regulatory protection, we will spend too much on
safety, which admittedly is not good; but it is a
lot better than catastrophe. Their "preference
is to tilt toward overinvestment in protecting ourselves
and our descendents." Ackerman and Heinzerling
assert that this approach was taken in the context
of the military spending of the Cold War, arguing
that the nation rightly prepared "for the high-risk
case." They see protection against terrorism
in similar terms. They want to treat health and environmental
risks in just the same way.
For both domestic and international environmental
issues, Ackerman and Heinzerling also emphasize the
importance of fairness. We need to know who in particular
is helped and who is hurt. If environmental threats
mostly burden poor people, regulators should take
that effect into account. Current generations owe
obligations to the future as well. Ackerman and Heinzerling
note that each generation might "act like a guardian,
empowered only to take care of the earth and its environment
until the next generation comes of age." Most
generally, they want decisions about health and safety
to reflect not economists' numbers, but democratic
values, chosen on moral grounds.
This is a vividly written book, punctuated by striking
analogies, a good deal of outrage, and a nice dose
of humor. The authors raise several good questions
about cost-benefit analysis. Certainly regulators
should care not only about reduced fatalities, but
also about the health gains produced by regulation.
They should take account of all the potential benefits,
such as protection of ecosystems and animals, including
members of endangered species. It is quite crude to
say that every life is "worth" $6.1 million;
some kinds of risk, and some kinds of death, produce
heightened concern. (Cancer risks seem to create more
alarm than risks of a sudden, unanticipated death.)
Even if studies show that American workers are paid
$60 to assume a risk of one in 100,000, it does not
necessarily follow that environmental policy should
require companies to spend no more than $60 to reduce
similar risks associated with air and water pollution.
Distributional issues matter. If poor people are hit
especially hard by environmental risks, something
has gone wrong.
As Ackerman and Heinzerling know, there is no easy
answer to the question of how to handle risks that
will not materialize soon. Almost everyone would rather
eliminate a one in 100,000 risk of mortality faced
today than an identical risk that will not be faced
until 2024. To this extent, economists and regulators
are surely correct to "discount" risks that
will not come to fruition for many years. But human
beings cannot be banked, and they do not earn interest.
In applying the usual discount rate for money to human
lives and environmental amenities, regulators have
not been sufficiently reflective.
But what should be done with these criticisms? We
could read Ackerman and Heinzerling to be calling
for an improved and chastened form of cost-benefit
analysis--for an assessment that includes all benefits,
not just a subset; appropriately values the future;
is sensitive to issues of distribution; and is based
on more accurate "translations" of social
risks into dollar equivalents. But this is hardly
what Ackerman and Heinzerling want. They seek to end
cost-benefit analysis, not to mend it. They want to
replace it with a "holistic" approach that
follows the precautionary principle. And it is here
that they run into trouble. In deciding what to do,
it is inadequate to argue in favor of precautions.
We have to know about costs and benefits, too--and
we should try to be as quantitative as we possibly
can.
To see the point, consider a much-disputed question:
how stringently to regulate arsenic in drinking water.
By itself, it is unhelpful to say that regulators
should be "precautionary." The real question
is how precautionary to be. Should permissible levels
of arsenic be reduced to twenty parts per billion,
ten parts per billion, five parts per billion, or
three parts per billion? As regulation becomes more
stringent, it usually becomes more expensive. It also
becomes more protective. (Is that a surprise?) Suppose
that the most stringent alternative--three parts per
billion--would be extremely expensive, producing an
annual national cost of, say, $900 million and a large
increase in people's water bills. Suppose, too, that
if the most stringent alternative were selected, many
people would have to pay $600 more each year for water.
Don't costs matter? And suppose that the best evidence
suggests that low levels of arsenic pose low levels
of risk, so that a reduction from ten parts per billion
to three parts per billion is expected to prevent
no more than five deaths each year. Don't benefits
matter, too? (For the sake of comparison, a recent
EPA air-pollution regulation, governing particulate
matter, is expected to prevent more than three hundred
deaths annually.) To know what precautions to take,
we had better investigate the likely costs and benefits
of different courses of action--even when science
does not enable us to identify them with anything
like precision.
Ackerman and Heinzerling are aware of these arguments.
They know that defenders of cost-benefit analysis
insist that resources are limited, that policy options
require trade-offs, and that we should choose the
most cost-effective approaches. They respond that
"resources are of course ultimately limited,
but there is no evidence that we have approached the
limits of what is possible (or desirable) in health
and environmental protection." As an illustration,
they refer to the fuel efficiency of automobiles,
which can be greatly improved before we reach "the
ultimate constraint." They are right; we have
not reached the limit of what is possible for fuel
efficiency. But in reducing risks, should we really
seek those limits? If the government ordered it, I
have no doubt that American automobiles could achieve
much higher fuel efficiency by 2007 than they achieve
today. But what would be the expense of that achievement,
and how much would be gained by it? Don't we have
to know not what is possible, but what is best?
Of course it is difficult and uncomfortable to assign
monetary values to human lives or to risks of death.
Many people find the very idea preposterous. But whenever
government decides how much to reduce risks, it is
implicitly assigning such values. The government has
a choice about the stringency of air pollution regulations
governing carbon monoxide, which contributes to many
adverse health effects, including death. No one argues
that government should try to eliminate carbon monoxide
from the ambient air; such an effort would require
the elimination of the internal combustion engines
that now power most cars and trucks (not to mention
fossil fuel combustion processes, on which the nation
continues to depend for electricity). Any regulator
will acknowledge that at some point the cost of additional
risk reduction is just too high. Why not be honest
about that? Ackerman and Heinzerling cannot really
deny that the current system of regulation does show
inexplicable and apparently unjustified patterns--large
sums devoted to small risks, small sums devoted to
large risks. The government's decisions will be far
more transparent to the public, and far more consistent,
if the government says how much it is willing to pay
to prevent a risk of death. There is little to be
said for hiding the ball.
In any case, the assignment of monetary values to
human life can spur more regulation, not less. One
of the most important environmental initiatives in
the nation's history--the phase-out of lead in gasoline--was
strongly supported by cost-benefit studies. Under
John Graham's leadership, the Bush administration
has pioneered the idea of "prompt letters,"
by which the Office of Management and Budget asks
agencies to issue new regulations when the benefits
seem to exceed the costs. A prompt letter in 2002
helps account for the government's 2003 decision to
require companies to disclose levels of trans fatty
acids among their "nutrition facts"--a decision
that is expected to save hundreds of lives each year.
Ackerman and Heinzerling would prefer to replace
cost-benefit analysis with a European-style precautionary
principle. But in many contexts, that principle is
worse than unhelpful; it is utterly incoherent. Risks
are often found on all sides of social situation,
and risk reduction itself produces risks. If the Food
and Drug Administration carefully screens medicines
before they come on the market, it will undoubtedly
prevent some death and illness--but it will also cause
death and illness, because it will delay the availability
of beneficial medications. What does the precautionary
principle counsel? Or suppose that the precautionary
principle is invoked as a reason for banning genetic
modification of food, on the ground that genetic modification
creates risks to human health and to the environment.
The problem here is that genetic modification of food
also promises benefits to human health and to the
environment--and so regulation itself runs afoul of
the precautionary principle. Or return to the case
of fuel efficiency. If government mandates fuel-efficient
cars, manufacturers might respond by producing vehicles
that are smaller, lighter, and less safe--and hence
fuel-efficiency requirements seem to violate the precautionary
principle. Perhaps government could require new cars
to be safe as well as fuel-efficient, but then fewer
people would be able to buy new cars, and hence older
cars, many of them less safe and less fuel-efficient,
would stay on the roads longer. Wouldn't that violate
the precautionary principle?
The problem is ubiquitous. Indeed, a whole field
has grown up around the idea of "risk-risk tradeoffs."
(It is discussed in depth by John Graham and Jonathan
Wiener in Risk vs. Risk: Tradeoffs in Protecting Health
and the Environment, which appeared in 1996.) When
multiple risks are involved, it makes sense to accompany
cost-benefit analysis with an appreciation of the
need for precautions against the worst cases. If catastrophe
is possible, stringent regulation might be adopted
as a form of insurance. But this judgment should be
undertaken only after a careful analysis of the relevant
risks and the costs of reducing them.
Ackerman and Heinzerling do not sufficiently appreciate
the risk that expensive regulation will actually hurt
real people. Consider their seemingly offhand remark
about protection against workplace hazards: The "costs
of the regulation probably would be borne by the employers
who would be required to maintain safer workplaces."
That is far too simple. The costs of regulation are
often borne not only by "employers," but
also by consumers, whose prices increase, and by workers,
who might find fewer and less remunerative jobs. When
government imposes large costs on "polluters,"
consumers and workers will probably pay part of the
bill. Since this is so, it is especially important
to learn how much regulation costs and how much we're
getting for it.
In the end, Ackerman and Heinzerling's argument seems
to me to suffer from the authors' anachronistic and
even Manichaean view of the regulatory world. In their
rendition, regulators can either stop evildoers from
hurting people or prevent serious threats to human
health and the environment. That is the right way
to think about some environmental problems, to be
sure--but most of the time environmental questions
do not involve evildoers or sins. They involve complex
questions about how to control risks that stem both
from nature and from mostly beneficial products, such
as automobiles, cell phones, household appliances,
and electricity. In resolving those questions, we
cannot rely entirely on cost-benefit analysis, but
we will do a lot better, morally as well as practically,
with it than without it.
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