INTRODUCTION II. ACKERMAN AND HEINZERLING'S CONTRIBUTIONS TO THE COST-BENEFIT DEBATE III. PROBLEMS WITH THE ACKERMAN AND HEINZERLING ARGUMENT A. Ackerman and Heinzerling's Overbroad Criticism of Economies B. The Problem With Moral Outrage as a Rhetorical Strategy C. The Problem with Ackerman and Heinzerling's Moral Absolutism IV. WHEN SHOULD COST-BENEFIT ANALYSIS BE A GUIDING PRINCIPLE? A. High Probabilities of Harm B. Environmental Justice Concerns V. CONCLUSION I. INTRODUCTION
Legal scholarship on cost-benefit analysis in environmental law has produced a considerable amount of heat and light. Numerous books, scores of law review articles, and countless white papers have been devoted to argumentation over the proper role of cost-benefit analysis. (1) While the debate has been illuminating, it often seems to be carried on by two disparate camps that, for the most part, talk past each other. The argumentation is such that the meaningful exchange of ideas has given way to posturing. There is considerable truth in both camps, as there often is when there are deep and bitter divisions. And yet this debate is carried on in terms of absolutes, as if it were a debate that can be won on rhetoric and storytelling alone.
The detractors of cost-benefit analysis generally believe that it should play little or no role in environmental law. Objections are grounded largely, but not completely, on deontological grounds. (2) While there are some detractors who believe that at least as presently practiced, cost-benefit analysis has too many methodological problems to be useful, (3) the most vocal faction of detractors object to the practice on ethical grounds. The view of this latter faction is that environmental issues are fundamentally moral issues, and should not be resolved by an amoral practice such as cost-benefit analysis. (4)
By contrast, advocates of cost-benefit analysis, who believe that cost-benefit analysis should play some role (typically some role short of being a decision rule (5)), have tended to base their arguments largely, but not completely, on consequentialist grounds. (6) While there is some divergence of opinion in the advocates' camp with respect to the robustness of cost-benefit analysis, all would agree that it is a way of introducing some rationality into a legislative and regulatory process beset by cognition problems, arbitrary priority setting, and institutional biases. (7)
Professor Lisa Heinzerling has emerged as perhaps the leading voice of the detractors' camp. (8) She has dedicated most of her distinguished career to attacking the use of economics in environmental law and policy, including the use of cost-benefit analysis. Although not formally trained in economics, she has developed an expertise in the field that humbles many formally trained economists, including this author. Her criticisms of specific uses of cost-benefit analysis and of specific techniques in estimating costs and benefits are well-researched and compelling. But Heinzerling's combative style, while it has captured the moral outrage of the environmental side and elevated her in the environmental field, has not garnered the attention she deserves from outside this constituency. Sometimes her bright light is lost in her intense heat; lost also is her discerning recognition of problems with cost-benefit analysis that truly need to be addressed.
With environmental economist Frank Ackerman, Heinzerling has produced the book Priceless: On Knowing the Price of Everything and the Value of Nothing (Priceless), a comprehensive criticism of the use of economics--in particular, the use of cost-benefit analysis--in environmental and safety regulation. Praised by Ralph Nader for "tak[ing] apart the barren but intricate hokum of deregulatory formulaics," (9) Priceless pulls together the different strands of critiques that the two authors have produced over the years, and restates both their moral and methodological objections to everything economic. Ackerman and Heinzerling clearly object to economic analysis on deontological grounds. They argue that environmental protection and health and safety regulation are moral issues, not economic ones. More than once in the book (and also in Heinzerling's past scholarship), they announce that economics gives us reason to do the "obviously wrong thing." (10) Ackerman and Heinzerling claim that this book offers "an attitude rather than an algorithm." (11) In addition, they spend a considerable amount of time attacking consequentialist justifications for cost-benefit analysis. They express deep skepticism that cost-benefit analysis is any better than the traditional paradigm of environmental regulation, which reformers have criticized as being unnecessarily burdensome and ineffective. Ackerman and Heinzerling criticize, even mock, a variety of techniques used in economic analysis and cost-benefit analysis, including discounting (they devote a chapter, "Honey, I Shrunk the Future," to this topic) and contingent valuation methodology, the survey-based method of estimating non-market values (in the chapter "Unnatural Markets"). (12) Ackerman and Heinzerling argue that even if environmental protection and health and safety regulation were economic issues, cost-benefit analysis is deeply flawed. Along the way, they condemn a number of political movements that they associate with economics, such as trends towards market deregulation and privatization of government services.
While Ackerman and Heinzerling raise some important methodological issues with cost-benefit analysis, this book falls short of being the definitive critique of the practice that I had hoped for from these distinguished scholars. Rather, Priceless is a rallying cry, a call for our collective outrage to rise up and smite those regulated interests that pollute our air, water, and land, and that subject us to a vast array of involuntary risks. But while their passion and outrage seems aimed at energizing their core constituency--those who have always believed in more stringent environmental and safety regulation--their derisive and disdainful tone (13) detracts from the contributions they make, and turns off those whose minds might truly be changed.
In Part I of this Review, I examine three of the contributions that the book makes to the cost-benefit debate: problems with estimates of the value of a statistical life 1) due to the nature of wage-risk data and 2) due to income effects, and 3) problems with systemic overestimates of compliance cost. In Part II, I discuss in detail three of the problems with the Ackerman and Heinzerling argument: their overbroad attack on economics, their flawed rhetorical strategy of rallying by moral outrage, and their failure, in advancing their brand of moral absolutism, to engage with any of the subtleties that must be wrestled with in critiquing cost-benefit analysis and economics. In Part III, I offer some thoughts as to how we might instead think about the role of cost-benefit analysis in environmental law. Advocates have denied that they are proposing cost-benefit analysis as a decision rule. But they have not offered up any principle to determine which problems should be resolved by resort to cost-benefit analysis. I offer some thoughts in this Part in hope of triggering a discussion on how to develop such a principle. I conclude by making some general observations about objections to cost-benefit analysis.
ACKERMAN AND HEINZERLING'S CONTRIBUTIONS TO THE COST-BENEFIT DEBATE
Priceless makes, in my view, at least three important contributions to the cost-benefit debate. They should not be ignored, even by those economists that are the targets of Ackerman and Heinzerling's barbs.
First, Ackerman and Heinzerling point out the problem of selection bias in using wage-risk data to estimate the value of a statistical life. Most estimates are based upon wage-risk data--broad statistical information on how much wage premium workers typically demand for risky jobs. Economists assume that workers understand the added riskiness of particular occupations, and will demand slightly higher wages to compensate for the higher risk. By essentially dividing the wage premium by the added risk, an inference can be made about how much this risk is worth to the individual worker. (14) The problem is, as Ackerman and Heinzerling point out, that those who take risky jobs and demand a wage premium for it tend to be less risk averse than the general population; hence their implicit valuation of risk should not be taken as representative of the general population. (15) Their argument is persuasive. Although wage-risk studies do a credible job of controlling for a variety of variables--e.g., gender, race, education, and industry (16)--there is no empirical way to measure the difference in risk aversion between those who take these risky jobs and those who choose other jobs. Thus, there is no way to estimate the degree to which workers in risky jobs have a lower risk premium than the rest of us. Estimates of a statistical life that are based solely on wage-risk data are thus doomed to understate the value of risk for the rest of us who are involuntarily exposed to environmental risk.
Second, Ackerman and Heinzerling point out that most estimates of the value of a statistical life are based upon data dating back to the 1980s. While they have been carefully adjusted to account for inflation, they have often not been updated to account for the increase in incomes over the last 20 years. (17) This is a particularly strange omission on the part of those performing cost-benefit analyses. Kip Viscusi himself, the author or coauthor of much of the work done on the value of a statistical life, has concluded that risk avoidance increases with income. (18) So why aren't adjustments made for the value of a statistical life? Ackerman and Heinzerling suggest that the estimated value of a statistical life should simply be...
Priceless: On Knowing the Price of Everything and the Value of Nothing.
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COPYRIGHT GALE, Cengage Learning. All rights reserved.
COPYRIGHT GALE, Cengage Learning. All rights reserved.