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Responsible Regulation: A Sensible Cost-Benefit, Risk vs. Risk Approach to Federal Health and Safety Regulation
Abstract
Federal health and safety regulations have saved or improved the lives of thousands of Americans, but protecting our citizens from risk entails significant costs. In a world of limited resources, we must spend our regulatory dollars responsibly in order to do the most we can with the money we have. Given the infeasibility of creating a risk-free society, this paper argues that a sensible cost-benefit, risk versus risk approach be taken in the design of U.S. regulatory oversight policy. The goal should always be to further the best interests of the nation, rather than to satisfy the narrow agenda of powerful industry or political forces. This entails designing safety regulations efficiently to maximize society's welfare, choosing the point where their marginal benefits equal their marginal costs - rather than simply asking whether total benefits exceed total costs in the aggregate. Federal regulatory oversight policy should also ask that proposed regulations compare the risks they reduce to the new risks they unintentionally create (substitution risks). Additionally, our citizens should be educated regarding systematic risk misperceptions, and regulatory agencies should make their risk assessments objectively. Moreover, most-likely scenarios must be addressed by responsible regulatory solutions, rather than the current practice of focusing on worst-case estimates. Finally, agencies should publish and justify their regulatory triggers and perform ex-post evaluations of their programs in an attempt to continuously improve the quality of regulatory design. Efforts by the executive branch, from Presidents Ford, Carter, Reagan and Clinton, have attempted to inject similar common sense into the regulatory oversight process. Unfortunately, the Congressional mandates given to government agencies are often silent on the subject of cost-benefit analysis, and recent Supreme Court cases have held that regulatory agencies are not obligated to even consider the costs of their proposals. I will explore several legislative reform bills that are aimed at overriding Congressional mandates, but to date, none have been successful. Finally, this paper will address certain common criticisms to which a marginal cost benefit, risk-risk approach to responsible regulatory reform would be subject. Most notably, the measurement of costs and benefits is not an exact science, and using "willingness to pay" as a marker of individual and social utility has its limitations. Regulatory reform also faces challenges on moral grounds, as scholars openly decry the explicit tradeoff between human lives and financial resources. While these criticisms contain merit, this paper concludes that to ignore a sensible cost-benefit analysis of federal safety regulations is to divert resources from their most beneficial uses and to settle for second best. In a world of scarcity, we must make regulatory tradeoffs as efficiently as possible in order to do the greatest good for the greatest number, and to save the most lives we can. It would be unethical to do anything less.
... For example, in the early part of the 20th century, the aviation industry demanded safety regulations, resulting in better weather services, radio communication protocols, and flight management, contributing to development of a robust aviation industry (Dempsey, 2017). Similarly, regulation to advance the well-being of humans emerged in a wide range of other industries such as food production, automobiles, and air pollution (Calandrillo, 2001). ...
... Overall, application of the 4IR affordances proposed herein in the context of developing safety regulations may broaden their scope, clarify their principles, and enhance their effectiveness. If regulatory efforts to promote human safety in the prior industrial and information eras are any indication (Calandrillo, 2001), such regulations may promote safer digital and physical environments, especially for vulnerable and under-resourced populations. In this way, application of the 4IR affordance conceptualization may enhance humanistic outcomes over the long run. ...
The current technology epoch—sometimes called the fourth industrial revolution (4IR)—involves the innovative application of rapidly advancing digital technologies such as artificial intelligence. Societal implications of the 4IR are significant and wide‐ranging, from life‐saving drug development to privacy loss and app addiction. A review of the information systems literature, however, reveals a narrow focus on technology‐enabled business benefits. Scant research attention has been paid to the role of humans and humanistic outcomes. To spur new research addressing these issues, formalised affordance theory is employed to develop a new 4IR conceptualization. Four groupings of affordances that capture salient 4IR action possibilities are developed within two categories: machine emulation of human cognition (expansive decision‐making and creativity automation) and machine emulation of human communication (relationship with humans and intermachine teaming). Implications are explored in the context of human‐machine coworking and the development of artificial intelligence safety regulations. Overall, the affordance conceptualization of the 4IR advances a new sociotechnical lexicon of action possibilities and their joint enactment in achieving humanistic and instrumental outcomes, enabling alignment of the scope of 4IR research with the scope of 4IR phenomena—and bringing humans back into the loop.
... For example, in the early part of the 20th century, the aviation industry demanded safety regulations, resulting in better weather services, radio communication protocols, and flight management, contributing to development of a robust aviation industry (Dempsey 2017). Similarly, regulation to advance the well-being of humans emerged in a wide range of other industries such as food production, automobiles, and air pollution (Calandrillo 2001 These efforts are laudable given the magnitude of the problem. At the same time, regulatory efforts suffer from a common limitation: they focus on technologies rather than action possibilities. ...
... Overall, application of the 4IR affordances proposed herein in the context of developing safety regulations may broaden their scope, clarify their principles, and enhance their effectiveness. If regulatory efforts to promote human safety in the prior industrial and information eras are any indication (Calandrillo 2001), such regulations may promote safer digital and physical environments, especially for vulnerable and under-resourced populations. In this way, application of the 4IR affordance conceptualization may enhance humanistic outcomes over the long run. ...
The current technology epoch-sometimes called the fourth industrial revolution (4IR)-involves the innovative application of rapidly advancing digital technologies such as artificial intelligence. Societal implications of the 4IR are significant and wide ranging, from life-saving drug development to privacy loss and app addiction. A review of the information systems literature, however, reveals a narrow focus on technology-enabled business benefits. Scant research attention has been paid to the role of humans and humanistic outcomes. To spur new research addressing these issues, formalized affordance theory is employed to develop a new 4IR conceptualization. Four groupings of affordances that capture salient 4IR action possibilities are developed within two categories: machine emulation of human cognition (expansive decision-making and creativity automation) and machine emulation of human communication (relationship with humans and intermachine teaming). Implications are explored in the context of human-machine coworking and the development of artificial intelligence safety regulations. Overall, the affordance conceptualization of the 4IR advances a new sociotechnical lexicon of action possibilities and their joint enactment in achieving humanistic and instrumental outcomes, enabling alignment of the scope of 4IR research with the scope of 4IR phenomena and bringing humans back into the loop.
... For example, in the early part of the 20th century, the aviation industry demanded safety regulations, resulting in better weather services, radio communication protocols, and flight management, contributing to development of a robust aviation industry (Dempsey 2017). Similarly, regulation to advance the well-being of humans emerged in a wide range of other industries such as food production, automobiles, and air pollution (Calandrillo 2001 These efforts are laudable given the magnitude of the problem. At the same time, regulatory efforts suffer from a common limitation: they focus on technologies rather than action possibilities. ...
... Overall, application of the 4IR affordances proposed herein in the context of developing safety regulations may broaden their scope, clarify their principles, and enhance their effectiveness. If regulatory efforts to promote human safety in the prior industrial and information eras are any indication (Calandrillo 2001), such regulations may promote safer digital and physical environments, especially for vulnerable and under-resourced populations. In this way, application of the 4IR affordance conceptualization may enhance humanistic outcomes over the long run. ...
The current technology epoch—sometimes called the fourth industrial revolution (4IR)—involves the innovative application of rapidly advancing digital technologies such as artificial intelligence. Societal implications of the 4IR are significant and wide ranging, from life-saving drug development to privacy loss and app addiction. A review of the scholarly literature, however, reveals a narrow focus on technology-enabled business benefits. Scant research attention has been paid to the role of humans, humanistic outcomes, and action possibilities. To spur new research addressing these issues, formalized affordance theory is employed to develop a new 4IR conceptualization. Four groupings of affordances that capture defining 4IR dynamics are developed and organized into two categories: machine emulation of human cognition (expansive decision making and creativity automation) and machine emulation of human communication (relationship with humans and machine teaming). Implications for humanistic outcomes and the role of human agency are explored in the context of human-machine coworking and the development of artificial intelligence safety regulations. Overall, the affordance conceptualization of the 4IR advances a new sociotechnical lexicon of action possibilities and their joint enactment in achieving humanistic and instrumental outcomes, thereby aligning the scope of 4IR research with the scope of 4IR phenomena—and bringing humans back into the loop.
Skeptics recognize that there are important ‘legitimacy gaps’ in open world discourse, gaps that require a searching inquiry into the limits of foundationalism, scientific rationality and reflective equilibrium. Open world policies are designed to promote human flourishing, but the most dominant models of human flourishing—fairness / primary goods and welfarism / utility—often ignore pockets of persistent suffering and under-performance in the open world, while mischaracterizing the appeal of self-defense and self-help strategies to individuals operating in open world zones.
The analysis herein arises from the collision course between the sweeping reforms mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and a single sentence of the U.S. Code, adopted nearly fifteen years earlier and largely forgotten ever since. Few were likely thinking of Section 106 of the National Securities Market Improvement Act when the Dodd-Frank Act was enacted on July 21, 2010. As applied by the D.C. Circuit less than a year later in Business Roundtable v. SEC, however, that provision's peculiar requirement of cost-benefit analysis could prove the new legislation's undoing. To help navigate this potential impasse, the Article that follows suggests the need to more carefully analyze the function and form of the cost-benefit analysis mandate in Section 106 and develops a generally applicable framework for doing so. Discussions of cost-benefit analysis have traditionally approached it as a fairly singular phenomenon-with broad aspirations of "efficiency" as its purpose and with its application in environmental and risk regulation understood to capture its form. In reality, cost-benefit analysis is both more ad hoc-and more systematically varied-than this account suggests. The framework proposed herein thus makes an important contribution to our understanding of the complexities and varieties of cost-benefit analysis generally. In the particular case of Section 106, meanwhile, it counsels a distinct function and particular characteristics of form that will better direct its application-both to the myriad regulations mandated by the Dodd-Frank Act and beyond. Properly understood, Section 106 is designed to encourage SEC attention to substantive considerations that might otherwise be neglected, given the Commission's traditional focus on investor protection. As to form, Section 106 constitutes a true mandate and one properly subject to judicial review. Contrary to the analysis in Business Roundtable, however, that mandate is procedural rather than substantive in nature. By comparison with formal cost-benefit analysis, it is less rigidly quantitative. It does, however, demand careful attention to the distributional impacts of relevant rulemaking. To such particularized ends and in such tailored form, ultimately, cost-benefit analysis has the potential to generate significant insight-both under Section 106 and for financial regulation as a whole.
No subject prompts greater disagreement among baseball fans than the designated hitter rule, which allows teams to designate a player to hit for the pitcher. The rule increases the number of hit batsmen, and some have suggested this effect is a result of "moral hazard," which recognizes that persons insured against risk are more likely to engage in dangerous behavior. Because American League pitchers do not bat, they allegedly are not deterred by the full cost of making risky, inside pitches namely, retribution during their next at bat. Using a law-and-economics approach, this Article concludes that the designated hitter rule creates some moral hazard, but finds that recent structural changes to the game have largely overshadowed this effect. Moreover, the benefits of the rule including increased offense and attendance likely outweigh its costs in the American League. This is not necessarily true in the National League, however, due to differences in fan preferences. Thus, the current hybrid system (in which the American League allows designated hitters while the National League does not) best effectuates these fan preferences, maximizing social welfare.
This paper explores the reasons for and the implications of the failure of the Securities and Exchange Commission to engage in meaningful cost-benefit analysis of its proposed rulemakings. While most government agencies are required by statute or executive order to demonstrate that their major policy decisions increase societal welfare, the SEC is relatively free of such constraints. As a result, the Commission has, in many instances, promulgated regulations whose benefits do not clearly exceed their costs. Focusing on three rules issued in response to recent mutual fund scandals, including the controversial fund-governance rules struck down by the D.C. Circuit, this paper explores how the failure to utilize the methods of cost-benefit analysis harmed the rulemaking process. While this paper is ultimately agnostic on the merits of the regulations discussed, it concludes that the SEC's failure to explain its actions in economic terms undermines the credibility of those regulations in the eyes of Congress, the courts, and the public.
Current estimates of regulatory benefits are too low and possibly far too low. This is because the standard economic approach to measuring costs and benefits, which attempts to estimate people's willingness to pay for various regulatory benefits, ignores a central point about valuation, thus producing numbers that systematically understate those benefits. Conventional estimates tell us the amount of income an individual, acting in isolation, would be willing to sacrifice in return for, say, an increase in safety on the job. But while these estimates are based on the implicit assumption that economic well-being depends only on absolute income, considerable evidence suggests that relative income is also an important factor. When an individual buys additional safety in isolation, he experiences not only an absolute decline in the amounts of other goods and services he can buy, but also a decline in his relative living standards. In contrast, when a regulation requires all workers to purchase additional safety, each worker gives up the same amount of other goods, so no worker experiences a decline in relative living standards. If relative living standards matter, an individual will value an across the board increase in safety more highly than an increase in safety that he alone purchases. Where the government currently pegs the value of a statistical life at about 4.7 million and $7 million. A conservative reading of the evidence is that when government agencies are unsure how to value regulatory benefits along a reasonable range, they should make choices toward or at the upper end.
A distinctive and pervasive problem arises when government regulation designed to diminish one health risk actually increases other health risks. For example, bans on the use of asbestos may lead companies to use other, more dangerous substitutes. This essay explores health-health tradeoffs, including those that arise because regulatory expenditures increase poverty and unemployment and in that way increase poor health. The essay proposes institutional changes designed to ensure aggregate risk reduction rather than mere risk redistribution. It includes some general remarks about individual and collective rationality in the context of health risks.
The concept of market failure was originally presented by economists as a normative explanation of why the need for government expenditures might arise. Gradually, the concept has taken on the form of a full-scale diagnostic tool frequently employed by policy analysts to determine the exact scope and nature of government intervention. For some time, economists have known that the market failure idea is conceptually flawed. The authors of this article demonstrate why this is so, employing concepts drawn from the perspective of transaction costs. In a review of empirical studies, they further show how the market failure diagnostic leads analysts to make generalizations that are not supported by facts. Transaction cost analysis helps to explain the underlying processes involved. © 1999 by the Association for Public Policy Analysis and Management.
Benefit/cost analysis is a technique for evaluating programs, procedures, and actions; it is not a moral theory. There is significant controversy over the moral justification of benefit/cost analysis. When a procedure for evaluating social policy is challenged on moral grounds, defenders frequently seek a justification by construing the procedure as the practical embodiment of a correct moral theory. This has the apparent advantage of avoiding difficult empirical questions concerning such matters as the consequences of using the procedure. So, for example, defenders of benefit/cost analysis (BCA) are frequently tempted to argue that this procedure just is the calculation of moral Tightness – perhaps that what it means for an action to be morally right is just for it to have the best benefit-to-cost ratio given the accounts of “benefit” and “cost” that BCA employs. They suggest, in defense of BCA, that they have found the moral calculus – Bentham's “unabashed arithmetic of morals.” To defend BCA in this manner is to commit oneself to one member of a family of moral theories (let us call them benefit/cost moral theories or B/C moral theories ) and, also, to the view that if a procedure is (so to speak) the direct implementation of a correct moral theory, then it is a justified procedure. Neither of these commitments is desirable, and so the temptation to justify BCA by direct appeal to a B/C moral theory should be resisted; it constitutes an unwarranted short cut to moral foundations – in this case, an unsound foundation. Critics of BCA are quick to point out the flaws of B/C moral theories, and to conclude that these undermine the justification of BCA. But the failure to justify BCA by a direct appeal to B/C moral theory does not show that the technique is unjustified. There is hope for BCA, even if it does not lie with B/C moral theory.
Economic analysis of law usually proceeds under the assumptions of neoclassical economics. But empirical evidence gives much reason to doubt these assumptions; people exhibit bounded rationality, bounded self-interest, and bounded willpower. This article offers a broad vision of how law and economics analysis may be improved by increased attention to insights about actual human behavior. It considers specific topics in the economic analysis of law and proposes new models and approaches for addressing these topics. The analysis of the article is organized into three categories: positive, prescriptive, and normative. Positive analysis of law concerns how agents behave in response to legal rules and how legal rules are shaped. Prescriptive analysis concerns what rules should be adopted to advance specified ends. Normative analysis attempts to assess more broadly the ends of the legal system: Should the system always respect people's choices? By drawing attention to cognitive and motivational problems of both citizens and government, behavioral law and economics offers answers distinct from those offered by the standard analysis.
Elderly adults' preferences for life-sustaining treatment are known to vary by type of medical condition and treatment. Less is known about how treatment preferences vary based on underlying health dimensions, such as the nature of the impairment, prognostic information, and the experience of pain. Fifty elderly adults stated preferences for 4 life-sustaining treatments in response to 4 pairs of health state scenarios. Overall, life-sustaining treatments were preferred less in response to (a) cognitive versus physical impairment, (b) when the prognosis described no chance versus a very slight chance of recovery/improvement, and (c) if pain was present. These findings have implications for the way in which preferences for life-sustaining treatments are recorded in advance directives. Historically, advance directives have been limited by overly broad or overly specific statements about treatment preferences. Recording underlying health dimensions that guide treatment decisions may allow decision makers to generalize and apply patient preferences to novel health conditions.
In this article, Professor Biais examines the role of economic analysis in the formulation of environmental law and policy. More specifically, she documents the era of pervasive governmental regulation that began in the 1970s with the enactment of the Clean Air, Clean Water, and Endangered Species Acts and the promulgation of their implementing regulations. This era of regulation constituted a sea change in environmental protection in that the common law balancing approach was rejected in favor of a regulatory framework that consciously eschewed cost/benefit analysis. In the decades following the adoption of this scheme, however, policymakers and courts introduced cost/benefit analysis and quantitative risk assessment into most environmental regulations. Professor Biais counsels against overreliance on quantifying costs, benefits, and risks. Instead, environmental policy should incorporate developing economic and sociology data that demonstrates how people really respond to traditional economic factors. Furthermore, Professor Biais notes that the values embedded in environmental protection statutes cannot be casually reduced to an economic formula. Because market-based reforms are based primarily on economic cost/benefit and risk assessments, she argues that such reforms should be reconsidered. The next step, according to Professor Blais, is to develop a new approach to environmental protection as intuitively appealing as the market-based reforms but incorporating newly developed economic and behavioral theories as well as the idea that environmental protection cannot be measured in economic terms.
This paper analyzes cost-benefit analysis from legal, economic, and philosophical perspectives. The traditional defense of cost-benefit analysis is that it maximizes a social welfare function that aggregates unweighted and unrestricted preferences. Professors Adler and Posner follow many economists and philosophers who conclude that this defense is not persuasive. The view that the government should maximize the satisfaction of unrestricted preferences is not plausible. However, the authors disagree with critics who argue that cost-benefit analysis produces morally irrelevant evaluations of projects and should be abandoned. On the contrary, cost-benefit analysis, suitably constrained is consistent with a broad array of appealing normative commitments, and it is superior to alternative methods of project evaluation. It is a reasonable means to the end of maximizing overall welfare when preferences are undistorted or can be reconstructed. And it both exploits the benefits of agency specialization and constrains agencies that might otherwise evaluate projects improperly.
Some health and safety laws emphasize safety over cost considerations by invoking the principle that safety matters more than money. Other laws rely on cost-benefit analysis (CBA) that equates safety and money. In this Article, Professor Mark Geistfeld argues that, despite their apparent inconsistency, the two regulatory approaches can be reconciled. He first explains why the safety principle most plausibly stands for a distributive claim that in the context of nonconsensual risk impositions, the safety interests of potential victims deserve greater weight than the ordinary economic interests of potential injurers. Although this claim seems to be inconsistent with CBA, Professor Geistfeld analyzes cost-benefit tort rules to demonstrate how potential victims are inadequately compensated for certain types of nonconsensual risks threatening death, an inequity that can be quantified with cost-benefit methodology. He shows that the inequity is defensibly remedied by altering the duty of care to give safety interests greater weight than economic interests (the weighting sanctioned by the safety principle), which ultimately yields a well-defined decision rule that modifies CBA for certain types of nonconsensual risks threatening serious physical injury. Subsequently, he contends that modified CBA (1) satisfies the requirements of modern welfare economics, (2) can accommodate a wide range of normative concerns, and (3) closely conforms to important tort practices, suggesting that it implements a version of the safety principle closely corresponding to the version adopted by the tort system. Finally, Professor Geistfeld concludes that the value of modified CBA is illustrated by the structure it gives to the precautionary principle, a vague regulatory approach based on the safety principle that has become increasingly important and controversial in international law.
An analysis of several agencies' risk assessments reveals that the present conservative approach through several stages of estimates of amounts of regulated substances, the exposure levels, and cancer risks often tends to distort the actual final regulation. Changes in this process are desirable and possible and would reduce overestimation of cancer risk assessments. These possible changes are discussed.
Current estimates of regulatory benefits are too low, and likely far too low, because they ignore a central point about valuation-namely, that people care not only about their absolute economic position, but also about their relative economic position. We show that where the government currently pegs the value of a statistical life at about 4.7 million and $7 million. A conservative reading of the relevant evidence suggests that when government agencies are unsure how to value regulatory benefits along a reasonable range, they should make choices toward or at the upper end.We begin by showing that the nation is nearing the end of a first-generation debate about whether to do cost-benefit analysis, with a mounting victory for advocates of the cost-benefit approach. The second-generation debate, now underway, involves important issues about how to value costs and benefits. Conventional estimates tell us the amount of income an individual, acting in isolation, would be willing to sacrifice in return for, say, an increase in safety on the job. But these estimates rest on the implicit, undefended, and crucial assumption that people's well-being depends only on absolute income. This assumption is false. Considerable evidence suggests that relative income is also an important factor, suggesting that gains or losses in absolute income are of secondary importance unless they alter relative income. When a regulation requires all workers to purchase additional safety, each worker gives up the same amount of other goods, so no worker experiences a decline in relative living standards. The upshot is that an individual will value an across-the-board increase in safety much more highly than an increase in safety that he alone purchases. Regulatory decisions should be based on the former valuation rather than the latter. When the former valuation is used, dollar values should be incre
In September 1998, the Judicial Conference of the United States abandoned its latest attempt to regulate the timing of interviews and offers in the law clerk selection process. This paper surveys the further unraveling of the market since then, makes comparisons with other entry level professional labor markets, and evaluates some possibilities for reform.
Cost-benefit analysis (CBA) is often touted as providing not just an important base of information useful in evaluating government programs, but a general standard of public choice that will help insure the wise and intelligent use of our limited resources. This article argues that (wholly apart from its deficiencies in other respects) CBA cannot provide such a standard. Intelligent deliberation is shown to require a willingness and ability to refashion aims in light of new information that comes in. Cost-benefit analysis, both in general and as a possible standard of choice in the context of democratic lawmaking, makes no room for this crucial aspect of intelligent deliberation. Calling its standard "stupid" for this want of intelligence would be unwarranted if no more intelligent mode of political decision making were available, but there is. The article closes by sketching this superior mode. Copyright 2000 by the University of Chicago.
Cost-benefit analysis is a general discipline, based on the use of some foundational principles, which are not altogether controversial, but have nevertheless considered plausibility. Divisiveness increases as various additional requirements are imposed. There is a trade-off here between easier usability (through locked-up formulae) and more general acceptability (through allowing parametric variations). The paper examines and scrutinizes the merits and demerits of these additional requirements. The particular variant of cost-benefit approach that is most commonly used now is, in fact, extraordinarily limited, because of its insistence on doing the valuation entirely through an analogy with the market mechanism. This admits only a narrow class of values, and demands that individuals be unconcerned about many substantial variations, ignored in the procedure of market valuation. The use, instead, of a general social choice approach can allow greater freedom of valuation and can also accommodate more informational inputs. Copyright 2000 by the University of Chicago.
The cost-benefit principle says we should take those actions, and only those actions, whose benefits exceed their costs. For many, this principle's commonsensical ring makes it hard to imagine how anyone could disagree. Yet critics of cost-benefit analysis are both numerous and outspoken. Many of them argue that cost-benefit analysis is unacceptable as a matter of principle. I begin by noting why many find this argument largely unpersuasive. I then examine several conventions adopted by cost-benefit analysts that do appear to yield misleading prescriptions. Finally, I consider the possibility that the cost-benefit principle may itself suggest why we might not always want to employ cost-benefit analysis as the explicit rationale for our actions. Copyright 2000 by the University of Chicago.
In this comment on the conference papers, Judge Posner argues for a pragmatic construal and defense of cost-benefit analysis, demonstrating the benefit of such analysis; responding to specific criticisms of, and suggested changes in, the analysis; and emphasizing that the value of such analysis as an evaluative and decision tool for social and economic policy making does not depend on the resolution of philosophical problems. Copyright 2000 by the University of Chicago.
This comment discusses the importance of politics in understanding cost-benefit analysis. Economists frequently rely on a social planner model, under which cost-benefit analysis has a straightforward role, but a better model is the interest group competition model. In this model, cost-benefit analysis can be used to explain why some regulations are adopted and others are not. Further, cost-benefit analysis may also be useful for undermining misleading claims of self-interested political pressure groups. Copyright 2000 by the University of Chicago.
This essay considers two problems in the justification of cost-benefit analysis. First, it argues that because cost-benefit analysis values policies, variation in imputed "values of life" are not, in theory, cause for concern. Second, it argues that the current framework of justification, which focuses on the moral justification of the formal theory of cost-benefit analysis, is inadequate because it ignores (1) the institutional context in which cost-benefit analyses occur, (2) the comparative nature of the justification, and (3) the fact that justification might be indirect rather than direct. Copyright 2000 by the University of Chicago.
In all situations of choice, we face a question that I call "the obvious question": what shall we do? But sometimes we also face, or should face, a different question, which I call "the tragic question": is any of the alternatives open to us free from serious moral wrongdoing? Discussing cases of tragic conflict from literature, philosophy, and contemporary life, I argue that it is valuable to face the tragic question where it is pertinent, because facing it helps us think how we might design a society where such unpalatable choices do not confront people, or confront them less often. Cost-benefit analysis helps us answer the obvious question; but it does not help us either pose or answer the tragic question, and it frequently obscures the presence of a tragic situation, by suggesting that the obvious question is the only pertinent question. I apply these reflections to thinking about basic entitlements of citizens, such as might be embodied in constitutional guarantees. Copyright 2000 by the University of Chicago.
Risk regulations directly reduce risks, but they may produce offsetting risk increases. Regulated risks generate a substitution effect, as individuals' risk-averting actions will diminish. Recognition of these effects alters benefit-cost criteria and the value-of-life estimates pertinent to policy analysis. Particularly expensive risk regulation may be counterproductive. The expenditure level that will lead to the loss of one statistical life equals the value of life divided by the marginal propensity to spend on health. Regulations with a cost of 70 million per life saved will, on balance, have a net adverse effect on mortality because of these linkages.
The potential usex of public resources and powers to improve the economic stuius of economic groups (such as industries and occupations) are analyzed to provide a scheme of the demand for regulation. The characteristics of the political process which allow relatively small groups to obtain such regulation is then sketched lo provide elemenls of a theory of supply of regulation. A variety of empirical evidence and illustration is also presented. W The state—the machinery and power of the state—is a potential resource or threat to every industry in the society. With its power to prohibit or compel, to take or give money, the state can and does selectively help or hurt a vast number of industries. That political juggernaut, the petroleum industry, is an immense consumer of political benefits, and simultaneously the underwriters of marine insurance have their more modest repast. The central tasks of the theory of economic regulation are to explain who will receive the