Politics of Environmental Issues
Risk Benefit Analysis and Politics
I. Why the accountancy approach does not work for evaluating costs and benefits of environmental issues.
A. Consumption. People value consumption- the vacation, the good meal. These values should be taken into account by the regional government, but they will not be reflected in the assets of either the persons or the governments after the consumption has taken place
B. Leisure. When a person decides to stop working and to live off his savings, his assets will decline. the person is, however, rating his leisure - not reflected in the set of accounts more highly than working and earning.
C. Externalities. When a factory pollutes the air, breathers suffer. Suppose that this pollution occurs for five years, then stops. after that time, there will be no effect on property values (these would reflect only lasting damage or future pollution) yet those who suffered would strongly have preferred to breathe clean air.
D. Distributional concerns. A policy might reduce the assets of the poor by $10 million and increase those of the rich by $11 million. Despite the overall increase in value, society may deem such policies unwise on the grounds of equity.
II. Because consumption, leisure, externalities, nor distributional concerns are adequately reflected in an aggregated set of accounts, the accountancy approach to benefit-cost analysis is not good enough for most public decisions.
III. Monetary and Nonmonetary effects
A. A benefit occurs whenever a person is favorably affected by a program.
B. Cost (or disbenefit) occurs whenever a person is unfavorably affected (costs are sometimes distinguished from disbenefits: costs being money the government pays for a program and disbenefits being unfavorable effects on private people).
C. Monetary effects are readily valued as the amounts of money gained or lost by those affected.
D. Nonmonetary effects (which are sometimes called intangibles) present more of a problem: We would like to express them in monetary terms, which would then make various nonmonetary effects commensurable not only with monetary effects, but also with each other. This would enable appropriate comparisons among the many types of effects and would accord each its due importance in decision making. But monetary valuation of all effects if far from easy.
IV. Strategies for treating nonmonetary effects.
A. Nonquantification. Many analysts take the attitude that non-monetary effects are so difficult to value that it is better not to quantify them. One can describe the effects, mention their manifestations and consequences, while avoiding placing numbers on them.
B. Shadow prices. The original definition of a shadow price was the value that should be attributed to a constrained commodity in order to achieve optimal allocations. Increasingly, shadow prices are taken to be any tenuously reasonable ascription of value to a good not traded in the market. In this vein, the value of clean water might be somehow related to what people spend on bottled water or filtration devices. The dangers of this approach are seen in considering the value of assuring a continued clean water supply to a city. In fact, most cities pay little for their water. If deprived of it, the true value of water would be revealed by the vastly greater prices cities would pay to obtain it. True values are no the actual prices paid for similar goods in different situations - as shadow pricing assumes- but what people would pay for the goods in the situation in question.
C. Compensating variations. The optimal theoretical solution to valuation is the compensating variation. A compensating variation (CV) is:
1. For a person who benefits from a program: The amount of money he could pay so that, with the program but having paid his money, he would be just as well off as without the program and without the payment.
2. For a person made worse off from a program: The amount of money he would have to be paid so that, with the program and the payment, he would be just as well off as without the program and the payment.
D. There are problems with determining compensating variations.
1. They are difficult to measure. People have not thought through how much they would pay for nonmonetary effects, and if questioned, give haphazard, inconsistent answers.
2. A second drawback is the insensitivity of CVs to distributional issues. rich people would generally pay more for the same benefits than would the poor- implying that public services should be overwhelmingly directed to affluent neighborhoods and thus achieve greater benefits (as measured by Cvs).
Valuing Human Lives
V. Why do we need to value human lives?
A. Many programs affect the lengths of human lives.
1. For such programs as disease control and highway safety, life-saving is a primary goal.
2. For other policy decisions, such as the choice of primary energy sources, differential impacts on lives (coal miner deaths weighed against lives shortened by radiation exposure) are important peripheral effects.
B. Somehow, the importance of shortening or extending lives must be reflected in the analysis of programs with such effects.
1. For example: the government contemplates requiring more stringent emissions standards for factories. These standards would cost the factories $1,700,000 but would extend an estimated 10 lives from 55 to 75. In making this decision, the decision maker will reveal whether he considers the average value of each life extension to be worth more or less than $170,000.
VI. Why we should not place money values on lives.
A. The most direct way for a decision maker to help resolve policy decisions is to place dollar values on specific types of life extensions.
B. The cost-benefit analyst may attempt to set these figures by asking what the compensating variations of the life extensions are: how much the persons whose lives would be extended and others affected by the extensions would pay for them.
1. This approach has many shortcomings. Even if a decision makers values swimming pools and roads by what people are willing to pay to use them, it does not follow that life-saving should be similarly valued. In many ways to many people, the life-saving effects of programs are different from other effects.
C. Morality. For no other program effect are moral questions as important as for life-extending effects. To many people, it is not a question of what people are willing to pay for life extensions but whether it is simply right for any government to take any life-extending or life-shortening actions.
D. Magnitude. When a program costs a person money or degrades his environment, benefit-cost analysis measures this harm as the amount of money that would have to be given to the person to make him as well off as if the program were not implemented.
1. For a program that figures to cost some people their lives, this approach may not work because, in general, no amount of money will make dead persons as well off as if they were alive.
2. Conversely, when a program would save lives, the positive compensating variations (what people would pay for the life extensions) will reflect not so much the value of the lives to the people but rather how much money they can put their hands on.
E. Symbolism. To put a dollar value on a human life is to say that dollars and lives are commensurable when our moral feeling may tell us that they are basically incommensurable. The symbolic effect of this may lead policymakers to equate lives to numbers of dollars and, in a callous way, to lose sight of their human dimensions.
VII. Why we should place money values on lives.
A. Notwithstanding the previous arguments, values are implicitly and inevitably placed on lives every day:
1. by governments deciding that only certain measures can be taken to control environmental hazards;
2. by individuals buying or not buying cars with certain safety devices or deciding whether or not to accept hazardous employment.
B. Modern technological dangers and possibilities enable policymakers to extend lives in many ways and at many costs.
C. The entire gross national product could be devoted to life-saving which implies that a line must be drawn somewhere to limit public life-saving.
D. Such a line might be drawn by deciding, for instance, to obtain certain kinds of life extensions if they cost less than $185,000 but not if they cost more than that.
E. If such a line is not drawn and if life-saving decisions are made more randomly, then however much public money is spent on life-saving will not save as many lives at it could.
F. The limits for spending on life-saving could be taken as life values. (Persons worried about symbolism might, however say that using such limits as guides to increase life-saving is permissible, but it is best not to publicize the limits; that these limits should not be described or thought of as values; and that it might even be better to have suboptimal life-saving policies than to start thinking of lives as commensurable with dollars.)
G. Another way of looking at these limits for spending on life-saving is in terms of risks for individuals.
1. For them, money can go toward enhancing the quality of their lives (better food, better housing, better leisure) or toward extending them by reducing risks.
2. In either case, money enhances the value they expect to get from live. If they can in their own judgement get more value by putting money toward consumption rather than by reducing risks, they should do so.
3. Such individual decisions should guide public decisions: Governments should devote money to life-saving if and only if this will enhance life values more than alternative spending.
4. As the costs of reducing risks rise, there comes a point at which people are better off if money that could go toward reducing risks is instead spent on enhancing lives (for instance, through private consumption or through other public programs).
5. The most expensive life extensions society is willing to pay for (calculated by dividing dollar costs by the expected number of lives saved) might be taken as the value of the extended life. But we have to be careful: This is not the value of a life in any intrinsic sense; it is instead the most that a given society with its limited resources and its perceptions of its own tastes and values is willing to pay to extend lives.
VIII. Complications. If we are going to measure program effects on life-saving by placing dollar values on certain types of life extensions, several complexities must be dealt with.
A. Double counting voluntarily incurred risks. If we were to clean up a lake for example, the number of swimming and boating deaths would increase. Each swimmer or boater however, should take this risk into account in deciding how much to use the lake. The greater the risks the less one should use the lake. To value the lake as the amount of money a swimmer or boater would be willing to pay to use the lake less the dollar amount of the associated fatalities is to double count the risk.
B. Public and private monies. The usual distinction should be maintained between public and private monies. The dollars a government might spend on health care are not the same as dollars individuals might spend on consumer goods.
C. Discounting. Due to inflation and discounting we should probably amortize the value of extending a life.
D. Distributional equity. Rich people can spend more than poor people to extend their lives. A society may wish for equity's sake to treat rich and poor lives equally. to do this, it need only determine how much it would spend to extend the life of the person of average means, then apply the same policy to rich and poor alike.
E. Aspects of lives. Societal decisions often reflect whether the lives affected are identified rather than statistical and whether the risks incurred are voluntary rather than involuntary. The policy debate is likely to be more charged for the identified life (for example, a person needing a heart transplant) than for the statistical life (such as a marginal reduction in lung cancer mortality). Society tends to be more concerned (per life endangered) about risks involuntarily incurred (such as through siting of toxic waste disposal) than about voluntarily accepted risks (for example, smoking).
IX. Amounts that might be spent to extend lives.
A. Example: Medical Treatment. A government can subsidize treatment for a medical condition that strikes people at age 55. Without such treatment, the condition kills; with the program the people would survive on average until 75. What is the most the government should pay, per life extended for this program? To answer this question, we will consider a variety of ways in which the government might assign a dollar value to a life.
1. Savings. The diseased person may spend his accumulated savings on the therapy.
2. Earnings less consumption. All future earning of the person less the amount of them he would consume could be used to pay for the therapy.
3. Life. A friend or relative might be willing to spend the money to keep the person alive. this might be paid for the benefits of friendship or merely for the satisfaction of knowing that he person lives.
4. Livelihood. Dependents and heirs may receive greater financial support from the diseased person if his life is extended and would be willing to pay up to the present value of the support for the treatment. A youth will typically associate with the life extension of his father both a value of life ("I want him to live because I love him and his companionship") and a value of livelihood ("I also want him to live to earn money to pay my tuition").
5. Indirect effects. The person's death will affect many who may never have known him in a variety of ways.
a. If the person creates a greater economic product than he receives in wages, the difference may be split up among such people as the stockholders of the corporation in which he works. This difference disappears when he dies, as do the multiplier effects of his consumption.
b. Society as a whole loses these indirect effects when he dies and should therefore be willing to contribute at least this much to keeping him alive. Some people may sense a global benefit just in knowing that their society is humane enough to provide certain types of life extensions to all needing them.
c. This global benefit does not require actually knowing those whose lives are extended. These are positive indirect effects. Negative indirect effects are contributions to environmental pollution.
d. The effects of a person's continued life on wages, prices, and other rates are also indirect effects. While difficult to calculate, indirect effects may be sizable and should be included in conceptualizing the value of life.