Saving lives through administrative law and economics.

• Author: Graham, John D.

This Article examines the recent history and the future of federal lifesaving regulation. The Article argues that, considering both philosophical and practical perspectives, lifesaving regulation informed by benefit-cost analysis (BCA) has compelling advantages compared to regulation informed by the main alternatives to BCA. Contrary to the popular belief that BCA exerts only an antiregulation influence, I show, based on firsthand experience in the White House from 2001 to 2006, that BCA is also an influential tool in protecting or advancing valuable lifesaving rules, especially in a pro-business Republican administration. Various criticisms of BCA that are common in the legal literature are shown to be unconvincing: the tool's alleged immorality when applied to lifesaving situations, its supposed indeterminacy due to conceptual and empirical shortcomings, and the alleged biases in the way benefits and costs are computed. But the Article also pinpoints problems in the benefit-cost state, and opportunities for improvement in the process of lifesaving regulation. Innovations in analytic practice, coupled with improvements in the design of regulatory systems, are proposed to strengthen the efficiency and fairness of federal lifesaving regulation. The Article's suggestions provide a menu of promising reforms for consideration by the new administration and the new Congress as they take office in January 2009.

INTRODUCTION I. FOUNDATIONS OF BCA A. Welfarism B. The Pareto Criterion C. Kaldor-Hicks Efficiency D. From Kaldor-Hicks to BCA E. Evaluating the Kaldor-Hicks Test 1. Single Versus Repeated Applications 2. Unjust Distributions of Income and Wealth 3. Willingness to Pay or Willingness to Accept? 4. Summary of KH Evaluation II. BCA AND ITS ALTERNATIVES A. How to Use BCA 1. The "Hard" Test 2. The "Soft" Test 3. The Procedural Requirement 4. Evaluation of the BCA Approaches B. Alternatives to BCA 1. Absolutism 2. Feasibility 3. Intuitive Balancing III. THE REALITY OF THE BENEFIT-COST STATE A. Methodological Advances in BCA B. Early Examples of OIRA's Pro-Lifesaving Role C. OIRA's Strategy, 2001-2006 1. Unprecedented Openness 2. Revival of the "Return Letter" 3. Invention of the "Prompt Letter" 4. Shorter OIRA Reviews 5. Emphasis on Information Quality D. OIRA as an Advocate of Lifesaving Regulation, 2001-2006 1. Reducing Diesel-Engine Exhaust 2. Reducing Sulfur and Nitrogen Oxides from Coal Plants 3. Increasing the Fuel Efficiency of Cars and Light Trucks E. The Benefits and Costs of Federal Rules, 1981-2006 IV. TECHNICAL CHALLENGES IN BCA OF LIFESAVING RULES A. Are Life-Threatening Hazards Quantifiable? B. Are Lifesaving Benefits and Monetary Costs Commensurate? C. Are the Results of BCA Indeterminate? D. Are the Results of BCA Biased Against Lifesaving? 1. The Amount of Lifesaving 2. The Monetary Value of Lifesaving 3. Time Preferences for Lifesaving 4. Respect for Altruistic Sentiments 5. Accurate Estimates of Regulatory Costs E. Validation of BCA V. FUTURE DIRECTIONS FOR LIFESAVING REGULATION A. Ensure the Poor Are Treated Fairly B. Weigh Nonquantified Benefits and Costs C. Validate Benefit and Cost Estimates D. Create Authoritative Blueprints of Lifesaving Opportunities E. Codify OIRA and Citizen-Prompt Letters F. Codify Default Benefit-Cost Principles G. Authorize "Risk Trading" H. Coordinate U.S. and European Union Regulators INTRODUCTION

Public health, safety, and environmental regulation, launched with optimism during the Progressive Era, the New Deal, and the Great Society, (1) survived the deregulatory impulses of the early Reagan years and the Gingrich era. (2) Sometimes called "lifesaving" regulation for short, (3) these rules differ from curative medicine because they do not seek to improve the health of identifiable individuals. (4) Unlike an effort to save a trapped coal miner or a patient dying from kidney disease, administrative law saves lives by reducing small probabilities of premature death, injury, or illness among large numbers of anonymous workers, consumers, travelers, and residents. The names of those whose lives will be saved are unknown when the rule is adopted and may never be known. (5) They are sometimes called "statistical lives." (6)

Thanks to advances in probability research and statistics, we now know that federal lifesaving regulations do save lives, and there is no basis for believing that these lives are any less real than the lives saved by physicians and nurses in emergency rooms. Although the evaluation literature is not as comprehensive and robust as one would prefer, there is a variety of studies showing that specific federal rules (or combinations of rules) have saved lives, (7) and, in fact, such rules now account for a majority of the major rules issued each year by the U.S. federal government. (8)

Lifesaving is the focus of this Article because the pursuit of wise societal investments in lifesaving is a major social objective and a central challenge of law, economics, and public policy. There are many more opportunities to save lives with smart regulatory policies guided by public health science. (9)

Who are the lifesaving regulators? Measured by recent rulemaking activity, they include the Department of Agriculture (USDA), the Food and Drug Administration (FDA), the Environmental Protection Agency (EPA), the Occupational Safety and Health Administration (OSHA), and the Department of Transportation (DOT). Independent agencies such as the Nuclear Regulatory Commission (NRC) and the Consumer Product Safety Commission (CPSC) play an important role outside the purview of White House oversight. Since September 11, 2001, the Department of Homeland Security (DHS) also has been charged with lifesaving responsibilities. (10)

Over the last generation, a loose coalition of scholars--sometimes called "regulatory reformers"--made the case that federal lifesaving regulation could be improved through rigorous use of benefit-cost analysis (BCA) (11) and related tools. (12) Unlike some of the libertarians and free-market enthusiasts of the early Reagan years, who often sought deregulation, (13) the reformers of lifesaving regulation urged smarter regulatory policies (14) that could achieve more protection against risk at less overall cost to the private and public sectors. (15) It has been alleged that some reformers may have advocated reform as a cover for deregulation, (16) but the substance of the reform agenda was aimed at smarter lifesaving regulation, not less regulation. (17)

Instead of treating lifesaving regulation as a matter of protecting "rights," (18) reformers urged regulators to analyze lifesaving opportunities in a welfarist framework that draws heavily on the physical and life sciences, engineering, probability and statistics, psychology, and economics. (19) Reformers argued that a science-based approach to lifesaving would establish regulatory priorities based on relative risk, (20) promote wise investments in lifesaving, (21) minimize the unintended risks (22) and undue burdens (23) of regulation, and deploy market-oriented policy instruments that may stimulate innovation while minimizing costs. (24)

The legal obstacles to using BCA in the federal government are limited. On occasion, the legislation that underpins a regulator's authority prohibits consideration of BCA, but, more commonly, legislation is silent as to whether lifesaving rules may be informed by BCA and, if so, what role BCA should play. (25) In this legal vacuum, the reformers gained ground. Legal scholars refer to the emergence of the "cost-benefit state" (26) (or benefit-cost state) because lifesaving regulation is now routinely informed by insights from BCA (27) and related tools such as cost-effectiveness analysis (CEA), (28) quantitative risk assessment (QRA), (29) comparative risk assessment (CRA), (30) risk-tradeoff analysis (RTA), (31) and risk-benefit analysis (RBA). (32) In this Article, unless otherwise noted, I refer to BCA broadly to encompass this family of analytic tools.

There is dispute about how influential BCA has become at federal agencies, (33) but there is universal consensus that BCA plays a more significant role today than it did a generation ago. (34) In fact, benefit-cost thinking about regulation is also gaining ground in the fifty states, (35) in Canada (36) and the United Kingdom, (37) at the European Commission, (38) and within international organizations such as the Organization for Economic Cooperation and Development (OECD). 39

In this Article, I offer a broad assessment of federal lifesaving regulation informed by BCA. With the new Democratic administration, and with the increased Democratic majority in Congress, it is useful to examine how well the benefit-cost state is working and how the process of making lifesaving regulations can improve. My assessment is informed by seventeen years of faculty experience at Harvard, where I taught BCA to hundreds of public health and medical students and where I advanced through scholarship the application of BCA to lifesaving. I also draw on my experience from 2001 to 2006 as Administrator of the Office of Information and Regulatory Affairs (OIRA) in the White House Office of Management and Budget (OMB).

My central argument is that BGA, while easy to criticize because of its transparency, (40) has compelling philosophical and practical advantages over other suggested approaches to lifesaving regulation. In short, BGA is morally relevant and often helpful ("determinate") in distinguishing good rules from bad rules, assuming that the analysis is conducted properly and that the findings are interpreted appropriately. Rather than seeking to replace BGA or diminish its role, future administrations should work with Congress and the judiciary to improve the benefit-cost state. Through targeted analytic innovations and institutional reforms, federal regulatory agencies can save more lives in the future, reduce the...