Weighing the Costs and Benefits of Cost-Benefit Analysis

I have previously posted about Cass Sunstein’s efforts to bring cost-benefit analysis to government regulation.  On Friday, E&E News reported on Sunstein’s new book, Simpler:  The Future of Government, noting that Sunstein has been subject to “scathing” criticism from Lisa Heinzerling.  It will probably not surprise you to learn that I’m with Sunstein on this one.

Heinzerling has three principal criticisms.

  1. Organic statues give agencies – not the White House – the authority to make rules.  This argument raises form over substance.  The Constitution gives the Executive Branch the authority to implement laws passed by Congress and most people still think that that means the President, not agency heads.  Besides, if the President can fire agency heads, why can he not tell them how he wants the law implemented?
  1. Cost-benefit analysis is not permitted by some of EPA’s organic statutes.  My response?  Fine.  Sue the agency and win.  The issue here isn’t whether EPA or the White House is making the decisions, but whether those decisions comport with law.  That’s what judicial review is for.
  1. Even where the statutes may give agencies discretion to consider cost-benefit analysis, the White House shouldn’t be forcing agencies to do so.  To do so, Heinzerling and other critics of cost-benefit analysis argue, would

spell [environmental rules’] doom, as these rules produce benefits – in human health, in longer life, in cleaner air and water and land – that are hard to quantify and even harder to monetize.

This is really the heart of the issue and where, I think, the criticism falls apart.  The point is that, whether we allow agencies to perform explicit cost-benefit analysis or not, we’re doing it implicitly every time a rule is issued.  If a clean air rule will save 1,000 lives a year and cost $1B annually to implement, we are, as a society, making a decision that it’s worth at least $1M to save a life.  Isn’t it better to make those decisions explicitly, rather than to pretend that we’re not doing it?

Beyond that, in a world of limited resources, shouldn’t we fully understand those costs and benefits, so we can allocate our resources towards those activities that provide the most benefits and the fewest costs?

One thought on “Weighing the Costs and Benefits of Cost-Benefit Analysis

  1. Seth, I’m with you until the last paragraph, which seems to me an oversimplification. I agree that we should be doing the cost/benefit analyses (rigorously), but then should use the results to “do the right thing”, whatever that may be on a case-by-case basis. Here are two examples of why “fully understanding”, “most benefits” and “fewest costs” aren’t always easy to account for in driving an outcome:

    1. Isolated but “highly valued” benefit–As an ecologist, I probably would think it’s worth a whole lot more to save an endangered species than many others would.

    2. Actions to slow the rate of climate change–We may agree they are worthwhile despite far from full understanding of costs, benefits, etc.

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