November 1984 RESEARCH AND DEMONSTRATION OF IMPROVED METHODS FOR CARRYING OUT BENEFIT-COST ANALYSES OF INDIVIDUAL REGULATIONS

ii EXECUTIVE SUMMARY Environmental regulations are notoriously difficult to assess. Both the unregulated environmental assault and the protective regulation involve complicated scientific and economic relationships that make it difficult for the regulator to determine the overall effects of any intervention. Benefit-cost analysis is one useful tool developed by economists to assess the overall attractiveness of public programs. Although benefit-cost analysis cannot reduce the complexity of the scientific matters, the framework permits the analyst to put them in perspective. The U.S. Environmental Protection Agency (EPA) now performs benefit-cost analysis on its major regulations, both for internal purposes and because of the requirements of Executive Order 12291. Although the EPA has developed sophisticated methodologies, there is a continuing need for research to improve the empirical and methodological foundations for these benefit-cost analyses, particularly for the regulations involving toxic pollutants. The public has only recently become aware of toxic pollutants and the potential health and ecological dangers they pose. As a result, the benefits of controlling toxics typically involve a great deal of uncertainty. The purpose of this study is to develop improved methods for carrying out benefit-cost analyses of individual environmental regulations. Because the range of potential research topics is broad-indeed, the EPA has an extensive and integrated research program of which this study is one part-we have chosen to iii focus on the benefits of controlling toxic pollutants. Thus, we do not address the methodological issues associated with estimating the costs of regulations. The choice to focus on toxic pollutants was partly the result of the research support our project received within the EPA and partly the result of our belief that issues of controlling toxic pollutants had been studied less than the conventional air and water pollutants and that these pollutants would become increasingly important to the EPA in the years ahead. Although this is a methodological study, we make extensive use of case studies of individual pollutants. Using actual examples is the most productive means of integrating theory and empirical issues. However, these case studies are not designed to be policy analyses. Our major objective is not to endorse specific policy choices or comment on regulatory alternatives. Indeed, since the data underlying the case studies have undoubtedly changed since we completed our empirical studies, we caution the reader about using the results reported in this study to make his or her own judgments. The study is organized around four …