Reducing the Discount Rate

Abstract:     
Underregulation kills. When a sensible and effective rule is proposed but then not implemented, society loses whatever benefits the regulation would have provided. When those benefits take the form of saved lives — if, for example, the rule would have kept a carcinogen out of the workplace — failing to enact and enforce a regulation means people die. Unfortunately, federal agencies in the United States systematically undercount the benefits of rulemaking, causing regulators to forsake the implementation of lifesaving measures that would have been enacted were benefits estimated more accurately. The result is American lives lost, every year.

This article presents two arguments against the “discounting” of future human lives as part of cost benefit analysis, or CBA. Our first argument is that because CBA has thus far ignored evidence of rising health care expenditures, it underestimates the “willingness to pay” for health and safety that future citizens will likely exhibit, thereby undervaluing their lives. Our second argument is that until recently CBA has ignored the trend of improved material conditions in developed countries, and most agencies continue to ignore it entirely. As time advances, residents of rich countries tend to live better and spend more, meaning that a strict economic evaluation of future lives would discount the relatively impoverished lives of present citizens compared to the projected luxurious and healthy existence of our expected descendents, just the opposite of what happens in agency practice.

Number of Pages in PDF File: 8

Keywords: discount rate, cost benefit analysis, CBA, discounting, human lives, regulation, underregulation, agencies, future benefits

Accepted Paper Series