By Mark D. White

The final two posts at the "Cost-Benefit Analysis at the Crossroads" symposium at the LPE Project are more practical, focusing on the impact of CBA techniques in health care and the environment. (Kudos to the LPE Project for this fascinating and provocative collection of essays.)

In "The 'Value of a Statistical Life': Reflections from the Pandemic," Mark Silverman (Franklin & Marshall College) questions the validity of the concept of willingness-to-pay (WTP) on which most CBA calculations are based, especially insofar as they are taken to reflect risk-reward trade-offs, which are at the center of policymaking during the pandemic. He identifies two specific problems in particular:

The first is specific to the notion of worker rates of substitution between income and risk. In the pandemic-induced recession of 2020, with a restricted range of job opportunities, and little publicly provided material support, newly-acknowledged “essential” workers had little choice to but to accept increasingly risky jobs with little or no hazard pay. In fact, the worse the bargaining position for workers, the less they will “value” their lives – lest they risk their livelihood.

The second criticism focuses on the endogeneity of the underlying preferences. Even assuming away the question of worker bargaining power, we are still left with the question of whether, as a matter of policy, our social willingness to pay for mortality risk should be defined exclusively in terms of agents’ WTP as revealed by the market.

In "The Shaky Legal and Policy Foundations of Cost-Benefit Orthodoxy in Environmental Law," Amy Sinden (Temple University) surveys the numerous difficulties with using CBA to screen environmental policies, given the difficulty of quantifying (or monetizing) environmental improvements. Sinden lays out the implications of this failure:

If important benefits are left out of the equation the vast majority of the time, then CBA operates at best as an informal screening tool, telling us, if we’re lucky, whether the benefits of a regulation in a rough sense exceed the costs. (When you’re not so lucky and your partial benefits estimate comes out lower than your cost estimate, it doesn’t tell you much of anything.) 

Once demoted from a formal optimization tool to a rough screening tool, CBA loses its normative pedigree in welfare economics and joins the ranks of the other perhaps less theoretically beguiling but highly pragmatic cost screening tools that Congress has so often relied on in crafting our environmental statutes. These are the scrappy, street-smart tools of regulatory decision-making, like feasibility analysis, cost-effectiveness analysis, and multi-factor balancing—tools that arguably make up for in pure pragmatic effectiveness what they lack in theoretical elegance. Once your goal is no longer to reach the mythical state of economic efficiency, but rather to ensure that costs are not in some general sense unreasonable, these other tools may actually get you there more quickly, easily, and—dare I say—efficiently. 

She concludes that, rather than doubling down on CBA, the federal government should defer to individual agencies, who

should decide how to most appropriately account for costs and benefits by choosing among the wide array of tools available. This choice should be tailored to the particular context in which the rulemaking arises, giving particular attention to the feasibility of quantifying and monetizing relevant costs and benefits, along with the agency’s statutory mandates.

By Mark D. White

There have been some new contributions posted to the symposium at the Yale Journal of Regulation I posted about last week on Livermore and  Revesz's book Reviving Rationality: Saving Cost-Benefit Analysis for the Sake of the Environment and Our Health (Oxford, 2021).

"OIRA the Angel; OIRA the Devil," by Bridget C.E. Dooling

"Reviving More Than Rationality," by Stuart Shapiro

"Cost-Benefit Analysis as Policy and as Dialectics," by Shi-Ling Hsu

While Dooling and Shapiro focus in on the nature and politics of the Office of Information and Regulatory Affairs (OIRA) itself, Hsu's contribution is more abstract, addressing the possibility of alternative values and principles to welfarism in public policy and acknowledging the difficulties with balancing these different conceptions of what is good or right:

Perhaps the most serious objection to a welfarist, cost-benefit state, is that welfarism is just another value. Welfarism should stand alongside, and not above, other values such as equality, nondiscrimination, liberty, or freedom. Welfarism might even be subservient to some of these other values. Even welfarists acknowledge the importance of distributional issues, while they work to incorporate them into welfarist frameworks. President Biden has called for changes to CBA to account for distributional issues. Liberty and freedom are obviously fundamental to Americans, as well as other Western societies, as the Brexit vote may well indicate. So perhaps government isn’t even supposed to maximize welfare. It is supposed to reflect the values of a moral individual.

But this line of thinking then leaves unanswered the difficult and obvious question of what government is supposed to do about conflicts in values. What, indeed, is government to do to balance say, public health and safety against liberty and freedom? Personal responsibility against equality? Fairness against prosperity?

They join the first three entries in the symposium:

"Saving Cost-Benefit Analysis for the Sake of the Environment and Our Health," by Timothy Brennan

"Why this is still an important book after the 2020 elections," by E. Donald Elliott

"Cost as the Ultimate Regulatory Restraint," by Jonathan H. Adler

By Mark D. White

The Law and Political Economy (LPE) Project's "Cost-Benefit Analysis at the Crossroads" symposium, which I blogged about earlier, continues, adding two new contributions.

First, in "Equity in Regulatory Cost-Benefit Analysis," Zachary Liscow (Yale Law School) considers three ways to include distributional effects into CBA—incorporate mesaures of distributional impact in CBA estimates, "cleanse" cost and benefitm measures to account for distributional impacts, and use differential weights in CBA—and acknowledges that, at the end of the day, this is a political decision:

Which of these distributional strategies to adopt ultimately boils down to a political choice. Imposing distributional weights might be controversial politically, not to mention legally. It might be that the public finds explicit weighting quite problematic. We have no direct evidence on this, but the US tends to have strong legal and social norms of formal equality. And explicitly weighting the benefits conferred to some individuals more than others could violate those norms. On the other hand, it could be that the public would pay almost no attention to such procedures of government bureaucrats—or that they would like it if they did pay attention. Ultimately, this choice brings up deep questions of democratic theory: How, if at all, does it matter normatively what the public thinks? Or, alternatively, is this just a question of political feasibility, which depends on the difficult-to-predict reception of a new policy?

Continuing on this theme is "Let's Politicize Cost-Benefit Analysis" by Elizabeth Popp Berman (University of Michigan), author of the forthcoming book Thinking Like an Economist: How Efficiency Replaced Equality in U.S. Public Policy (a book I'm certain will be a topic of discussion on this blog upon its release in March 2022). Berman reviews the different ways the two major American political parties have used (and abused) CBA for their own ends, but instead of arguing for CBA as an idealized and "objective" evaluative standard, she sees it for what it is,

a convenient fiction that exists to coordinate action and facilitate decision-making. Our methods for estimating, say, the Value of a Statistical Life are arbitrary. They put a patina of rationality on what is essentially a moral choice. We accept them because they give us a consistent way to produce a number that roughly accords with our sense of what is reasonable—but a dozen other numbers could be similarly justified. Our actual estimates of costs and benefits are often lucky to be correct within an order of magnitude. And minor changes in assumptions—for example, about the appropriate discount rate—can lead to dramatically different assessments of the benefits of a project or decision. [Emphasis added.]

She concludes that, in practice, CBA should (continue to) serve the goals of those using it, and technical improvements to it should be made for the same reasons:

The primary goal of CBA reform should not be to produce the best, most morally defensible analysis. It should be to introduce technical changes that tilt the playing field toward outcomes we think are good. And in areas where CBA seems likely to be irredeemably biased against action, our aim should be to push for alternative forms of evaluation.

Of course, this would negate any independent evidentiary value that CBA may have, but that is Berman's point—it shouldn't be regarded in that way at all. (Again, I eagerly await the publication of her book for more thinking along these lines.)

By Mark D. White

There must be something in the water... a symposium began recently at the Notice & Comment Blog of the Yale Journal of Regulation on Michael Livermore and Richard Revesz's book Reviving Rationality: Saving Cost-Benefit Analysis for the Sake of the Environment and Our Health (Oxford, 2021).

From Christopher Walker's introduction:

Reviving Rationality is the sequel to Livermore and Revesz’s seminal 2008 book Retaking Rationality, which advances a powerful call for progressives to embrace cost-benefit analysis—or at least to take their seat at the table in regulatory policymaking that involves cost-benefit analysis. Retaking Rationality framed much of the debate on regulatory policymaking and centralized White House review of regulations during the Obama Administration.

Reviving Rationality picks up where Retaking Rationality ends, focusing on the process and quality of regulatory policymaking in the Trump Administration. Livermore and Revesz’s bottom line is, unsurprisingly, scathing of the Trump Administration’s approach, with in-depth case studies from a broad range of regulatory actions over the last four years. But Reviving Rationality is also hopeful and optimistic in how it charts the path forward for how the Biden Administration can rebuild the guardrails for economic analysis and revive rationality in regulatory policymaking.

The contributions so far include:

"Saving Cost-Benefit Analysis for the Sake of the Environment and Our Health," by Timothy Brennan

"Why this is still an important book after the 2020 elections," by E. Donald Elliott

"Cost as the Ultimate Regulatory Restraint," by Jonathan H. Adler (previewed here at The Volokh Conspiracy)

By Mark D. White

The Law and Political Economy (LPE) Project recently launched a symposium that promises to examine cost-benefit analysis (CBA) under the critical lens of political science, law, and philosophy. The introductory post by legal scholar Frank Pasquale can be found here, and after surveying a number of the issues with CBA, summarizes the symposium's intent and future participants in its final paragraph:

The challenge to CBA is now clear. If it is to be a tool of policy evaluation worth supporting, we must embed it in political frameworks that make CBA just as prone to catalyzing regulation, as to derailing it. Moreover, the limits of quantification must be squarely addressed. Posts in this symposium demonstrate a way forward on both fronts, enriching CBA with both immanent and transcendent critiques of past OIRA missteps. We will be thrilled to welcome the symposiasts over the coming weeks: Beth Popp Berman, James Goodwin, Lisa Heinzerling, Zachary Liscow, Melissa Luttrell, Jorge Romano-Romero, Mark Silverman, Amy Sinden, and Karen Tani. Each has done important work in the field, and LPE Blog is honored to host their contributions.

The first full post, by legal scholar Lisa Heinzerling, discusses CBA in the context of the dual concerns of racial justice and climate change. She asks whether CBA can adequately appreciate the true benefits of action on these fronts, given its reliance on discounting of future benefits (which is highly sensitive to the specific discount rate chosen) and monetary valuation of benefits (which does not apply well to issues involving dignity and rights). She concludes by suggesting an alternative evaluative approach to these policy issues:

Discounting and monetary valuation are so central to the cost-benefit method that it is hard to imagine cost-benefit analysis without them. Happily, though, it is easy to imagine White House regulatory review without cost-benefit analysis. The vast majority of federal regulatory statutes do not require cost-benefit analysis. Many do not even allow it. Instead of evaluating major rules by asking whether they satisfy the test of formal cost-benefit analysis, the White House could ask whether the rules faithfully follow the relevant statutory framework and whether the agencies have rigorously analyzed the evidence in front of them. This simple reform would not only avoid the conundrums posed by cost-benefit analysis. It would also close the gap that has opened between the regulatory standards set by Congress and the cost-benefit metric that recent presidents have preferred.

This symposium is shaping up to be a valuable and fascinating survey of the numerous moral, legal, and political issues with cost-benefit analysis, and we'll likely be highlighting more contributions here as it continues.