James Hammitt

But some have argued that BCA, which uses "willingness to pay" and other measurements to value mortality risks in dollar terms, is immoral and unacceptable. Among these critics are Frank Ackerman and Lisa Heinzerling, co-authors of the new book Priceless: On Knowing the Price of Everything and the Value of Nothing. Ackerman is an economist and research director at the Global Development and Environment Institute at Tufts University. Heinzerling is a professor of law at Georgetown University Law Center.

To discuss these issues, James Hammitt, professor of economics and decision sciences and director of the Harvard Center for Risk Analysis, convened "Priceless: A Round-Table Discussion on the Principles, Practices, and Ethics of Benefit-Cost Analysis for Environmental, Health, and Safety Regulation." The roundtable was held at Harvard Law School, which co-sponsored the event with HSPH.

Participants included Hammitt, Ackerman, Heinzerling, and Joseph Aldy, a staff member on the President’s Council of Economic Advisers from 1997 to 2000 and currently a doctoral student in economics at Harvard University.

BCA helps policymakers distinguish between good and bad decisions, says Hammitt. "Benefit-cost analysis spells out the benefits and harms [inherent in a particular choice]," he says. "It strives to provide a complete accounting of the important consequences of a decision, which offers policymakers more insight into which choices will do the most good and least harm."

As an example, Hammitt cites the complexity of dealing with air pollution generated by electric generating plants.

"Everyone benefits from the use of electricity," he says, "but its production can create air pollution. To achieve cleaner air, we can require power plants to install control equipment or to use different fuels, but that might make electricity more expensive. And the higher cost would cause us to use less electricity or to give up something else we would have spent the money on." BCA helps policymakers compare these effects with the health benefits of controlling pollution, Hammitt says.

Frank Ackerman

In addition to their argument about benefit-cost analysis in principal, Ackerman and Heinzerling criticize how BCA research is done. They charge that flawed methods, such as surveys asking people their willingness to pay for certain risk reductions, can lead to inappropriate values for mortality risk.

Heinzerling also criticizes the "discounting" of future benefits of current regulations, a standard economic approach applied in BCA. When calculating the potential benefits and costs of a policy, economists discount the values of future costs and benefits before comparing them with current values–to account for the fact that future dollars can be produced by investing a smaller number of current dollars. Heinzerling asserts that discounting undervalues future benefits of environmental protection compared with current costs, which she says are exaggerated. "We always overestimate the costs of environmental policy," she says.

Aldy responds that a study cited in Ackerman and Heinzerling’s book has shown that for command-and-control regulations, or requirements on how to comply with specific standards that define acceptable pollution levels, "it’s pretty much a wash about costs. Sometimes we overestimate. Sometimes we underestimate."

Aldy criticizes benefit-cost analyses that fail to include all the benefits of a regulation. The Environmental Protection Agency (EPA), for example, sometimes focuses too much on mortality and does not include morbidity, he says. "It looks at the dead bodies without looking at non-fatal health effects or environmental effects," Aldy asserts.

At the roundtable discussion, Hammitt noted that benefit-cost analysis has additional values. First, it allows for transparent decision-making that is, by definition, apolitical and neutral, he said.

BCA protects against the influence of special-interest groups because it requires an accounting of all the significant effects of a decision, so observers can see the extent to which a particular factor was considered, said Hammitt. Moreover, he said, BCA is democratic because it relies on the public’s preferences to determine the relative importance of health, environmental quality, costs, and other factors in a decision, not the preferences of a politician or bureaucrat.

	Lisa Heinzerling

Hammitt notes that people’s values about the context of a risk should be incorporated into BCA, since the value of reducing mortality risk may depend on context. "How much they are willing to pay to reduce a risk depends on how much they are worried about that kind of risk," says Hammitt. "Part of that is how they feel about that risk and whether it’s controllable or catastrophic or dreadful. People’s values are part of what BCA attempts to measure."

Believing that BCA systematically understates benefits and exaggerates costs, Ackerman and Heinzerling encourage the use of the precautionary principle, or the concept that governments should use aggressive "better safe than sorry" regulations. Although they acknowledge that the approach can sometimes produce regulations that turn out to be too aggressive and wasteful, the precautionary principle, they say, helps prevent disasters.

Joseph Aldy

Hammitt points out that the precautionary principle approach looks only at the identified risks and does not take into account countervailing risks, or ancillary reductions in other risks, that may result from a regulation. "And it doesn’t tell you how much precaution to take," he adds.

He sums up by saying, "There will always be uncertainty and risks on both sides of a decision. We need to recognize that, and to be humble about what benefit-cost analysis can accomplish. The main point is that it provides a neutral, comprehensive, analytic approach that, when carefully applied, can provide important insights into which choices will do us the most good. I don’t know of a better alternative."

--PHC