Can Cumulative Impact Analysis Improve Cost-Benefit Analysis?

As frequent readers know, I am a big fan of cost-benefit analysis.  The basic idea is that, when we make a decision to regulate at a certain level, we are by definition deciding that regulating to that level is “worth” the costs that the regulation will impose.  We might as well make such calculations explicitly. 

However, that doesn’t mean that CBA cannot consider the distributional impacts of federal regulations.  Indeed, OMB Circular A-94, which largely governs how federal agencies conduct CBA, has a section on distributional effects.  While I’ve long been aware of the issue, several recent events have driven home its import – and also suggested both how CBA can be improved and how it can strengthen, rather than weaken, the case for regulations.

The first was an article by Kelly McGee on how the flawed way we conduct CBA to determine how FEMA distributes funds for flood mitigation projects biases FEMA decision-making to short-change those who most need FEMA’s help.  In short, the “benefits” of these projects are calculated based on the property value saved by the mitigation.  Of course, by definition, projects in wealthier areas are going to have a higher value under that calculation than those in poorer areas.

Oops! Can you say “environmental injustice”?

Second, Inside EPA (subscription required) reported earlier this month that Jim Tozzi, OIRA director under Ronald Reagan (!) has apparently written to the Council of Economic Advisors, suggesting that the CEA “become involved in establishing the principles and methodologies to address equity considerations in the rulemaking process.”

Hear, hear! Who could be against it?

Finally, an EPA workgroup recently posted a report titled “Cumulative Impacts Research:  Recommendations for EPA’s Office of Research and Development.”  Figuring out how to conduct robust cumulative impact analyses is a primary focus of current EJ efforts.  However, while the report talks a lot about quantifying cumulative costs and benefits associated with different environmental issues, the report doesn’t say a single word about research into how developments in cumulative impacts research can feed directly into the the way cost-benefit analyses are conducted.

Opportunity missed!

Figuring out how to incorporate cumulative impact analysis into cost-benefit analysis has to be the holy grail.  If we can do that, we might be able to persuade open-minded environmentalists and EJ advocates that cost-benefit analysis is a good thing.  If we can do that, we might be able to persuade open-minded market enthusiasts that environmental regulation is a good thing.

And that would be a good thing.

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