Lisa Heinzerling’s Posts

• Cost-benefit environmentalism: an oxymoron

  Lisa Heinzerling responds to Richard Revesz on cost-benefit analysis 38

  Posted 1 year, 5 months ago

  The efficient wasteland

  In his essay, Richard Revesz argues in favor of a "cost-benefit environmentalism" that embraces economic analysis and "uses both reason and compassion to justify strong environmental rules." It is wonderful to have such a prominent fan of cost-benefit analysis explicitly embrace environmental values; this doesn't happen every day. The trouble is, however, that cost-benefit analysis is at odds with fundamental premises of environmentalism, and it's not particularly good at either reason or compassion.

  Environmentalism has many subtleties and variations, but I think most environmentalists share certain core beliefs. They are convinced that the future matters --… Read More

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Lisa Heinzerling’s Recent Comments

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  scarcity and opportunity costs

  Several comments have argued that we need cost-benefit analysis because of the reality of scarcity and opportunity costs.

  I don't agree:

  1. It's true that available funding for environmental protection is limited, as naturescene says. But it isn't fixed at some set amount. The amount we spend to protect the environment depends on how important we think environmental protection is. I believe that the more we come to embrace the cost-benefit mindset, the less important we will come to think environmental protection is. If the question is whether to save a "statistical" life, won't you open your wallet less readily than if you realize that actual lives hang in the balance?

  2. Cost-benefit analysis won't ensure that our money is spent on worthy endeavors. Of late, it has only ensured that the money is not spent at all. When OMB sends a rule back to an agency because it fails the cost-benefit test, OMB doesn't tell the agency to regulate something else instead. It just tells the agency not to regulate.

  3. Cost-effectiveness analysis is (as J.S. suggests) really what you're all after. But cost-effectiveness analysis works well only when you have a unidimensional regulatory goal -- when you can ask, for example, whether Policy A or Policy B saves more human lives at a lower cost. If you have multiple goals -- which is usually the case in environmental law -- cost-effectiveness analysis is no longer tractable. And even if you do have just one goal, watch out for discounting's sting here, too. Several well-known studies purporting to show that we could save thousands more lives if we redirected our regulatory resources from environmental protection to other life-saving measures turned almost entirely on the discount rate they used.

  4. The idea that if you are choosing among worthy goals, you MUST be engaged in CBA (DR's comment), is one of the most persistent fallacies in the debate over cost-benefit analysis.  Cost-benefit analysis, as used in regulatory policy today, is a highly stylized decisionmaking framework in which the advantages and disadvantages of a regulatory initiative are quantified, then monetized, then (if they occur in the future) discounted (usually at a rate consistent with prevailing rates of return in financial markets). This is not the only or even the ordinary way of making decisions among goals.

  Several years ago, I read an essay by a well-known fan of cost-benefit analysis who was describing his decision not to undergo a common screening procedure for cancer. He explained that he had decided that his personal willingness to pay to avoid a risk of 1 in 1 million was $12. Comparing the cost of the screening to the benefit of avoiding the risk of cancer, this fellow decided that the screening wasn't worth it. The importation of cost-benefit analysis into this personal decision didn't make the man seem rational; it made him seem, in all candor, just a little crazy.On Lisa Heinzerling responds to Richard Revesz on cost-benefit analysis posted 1 year, 5 months ago 38 Responses

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  You've got a point, but...

  I completely agree with you, GreenMom, when you say that cost-benefit analysis rarely drives the regulatory decision. I'd even go further and say that one's priors -- prior environmental commitments, philosophical perspective, political attitudes, etc. -- themselves drive the cost-benefit analysis. To give a concrete example: if one believes the future matters, one will not accept a discount rate of 7 percent; if one believes the future is unimportant, one will not accept a discount rate of zero. One's attitudes are built into the cost-benefit process.

  One might be tempted to say, then, that a President with environmentalist leanings could use cost-benefit analysis to justify proregulatory positions. This is undoubtedly true. Put together higher values for human life and health, higher values for ecosystems, a discount rate of zero, no deregulatory bias, and a healthy sense of humility about what we do not know, and one could justify a whole lot of regulation through cost-benefit analysis. But, before doing the analysis, one would already have decided regulation was a good idea. (Otherwise the assumptions would have been different.) So what does cost-benefit analysis get us, other than a false aura of objectivity? Isn't it possible we've had enough of that in the past few years?On Lisa Heinzerling responds to Richard Revesz on cost-benefit analysis posted 1 year, 5 months ago 38 Responses

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  other options?

  Thanks to "egbooth" for these thoughtful comments.

  One of the biggest successes of the cost-benefit movement has been convincing people that there is no alternative to cost-benefit analysis. This is just not so. In fact, all one needs to do to find alternatives is to look at the parts of the United States Code that contain our environmental laws. You'll find that every single one of them, save one (the Safe Drinking Water Act) relies on decisionmaking frameworks other than formal cost-benefit analysis.

  If you don't believe me, just look at the cases Dean Revesz cited in his essay as important landmarks in the environmental movement. Each one of these cases -- including, most obviously, TVA v. Hill, the Supreme Court case rejecting cost-benefit balancing for protection of endangered species -- is at odds with cost-benefit principles. We can make cost-benefit the official test for environmental policies in this country, but we'll have to shove aside a whole lot of law in the process. This is, in fact, exactly what OMB has been up to in the past few years.

  I agree with you about getting people outside and educating them about ecosystem services. I also agree that the discount rate is crucial. I'm willing, as you suggest, to change this parameter in cost-benefit analysis. How about changing the discount rate to zero?On Lisa Heinzerling responds to Richard Revesz on cost-benefit analysis posted 1 year, 5 months ago 38 Responses

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  Monetization

  I agree, Alexandre, that many economists like to speak in monetary terms and that other currencies -- life, health, the natural world -- seem to put them at a loss. But why must economics be the official language of U.S. regulatory policy?On Lisa Heinzerling responds to Richard Revesz on cost-benefit analysis posted 1 year, 5 months ago 38 Responses