Cost-Benefit Analysis and the Environment

This review-essay explores the uses and limits of cost-benefit analysis in the context of environmental protection, focusing on three recent books: Priceless, by Frank Ackerman and Lisa Heinzerling; Cellular Phones, Public Fears, and A Culture of Precaution, by Adam Burgess; and Catastrophe: Risk and Response, by Richard A. Posner. The review-essay emphasizes three principal limitations on the use of costbenefit analysis. First, it is important to distinguish between the easy cases for costbenefit analysis, in which the beneficiaries of regulation pay all or almost all of its cost, from the harder cases, in which the beneficiaries pay little for the environmental protection that they receive. In the harder cases, net welfare gains and distributional advantages are possible even if environmental regulation fails cost-benefit analysis. Second, there are possible uses, in the environmental context, of maximin rather than cost-benefit analysis, especially when regulators are attempting to control catastrophic risks where probabilities cannot be assigned. An Anti-Catastrophe Principle makes sense for such situations. Third, human beings are citizens, not merely consumers, and this point requires abandonment of the willingness to pay criterion in some contexts. In the United States, cost-benefit analysis (CBA) is in the ascendancy. For over twenty years, American presidents have required agencies to perform CBA for major regulations; indeed, they have told agencies to regulate only if the benefits of regulation justify its costs. Congress has also shown considerable interest in CBA, most prominently in the Safe Drinking Water Act, which asks agencies to produce quantitative assessments of both costs and benefits. For their part, federal courts have adopted a series of principles that promote CBA, saying that if Congress has not been clear, agencies may consider costs, take account of the substitute risks introduced by regulation, and exempt trivial risks from governmental control. * I am grateful to Elizabeth Emens, Charles Larmore, Martha Nussbaum, and Richard Posner for extremely valuable comments on an earlier draft of this review. 1 The developments discussed in this paragraph are traced in Cass R. Sunstein, Risk and Reason (Cambridge: Cambridge University Press, 2002). In its enthusiasm for cost-benefit analysis, the United States provides a sharp which has shown inte e interest in a quite different organizing principle for environmental protection: the Precautionary Principle. According to the Precautionary Princip entific uncertainty— even if it is not yet clear that environmen l risks are serious. A central point of the Precautionary Principle is to reco ons of existing knowledge and to protect against harm that cannot yet be established as such.