Anti-Regulation Under the Guise of Rational Regulation: The Bush Administration's Approaches to Valuing Human Lives in Environmental Cost-Benefit Analyses

Abstract:     
The primary benefit of many important environmental regulations, as determined by the dollar value assigned by cost-benefit analysis, is the human lives that are saved. Thus, the methodology used to determine the value assigned to the lives that would be saved by an environmental program is central to the determination of whether such a program is justifiable on cost-benefit grounds. In 2000, the U.S. Environmental Protection Agency published guidelines that set forth the primary means by which it would value human lives, and determined that each life should be valued at $6.3 million (in 2000 dollars).

The use of this $6.3 million figure for the valuation of a human life is being challenged by the current administration. Through the inclusion of alternative benefit calculations in recent environmental cost-benefit analyses, the administration has introduced four questionable techniques that inappropriately lower the value assigned to human lives. Following public outcry, the administration suspended using techniques that undervalued the lives of the elderly relative to those of younger individuals, but it continues to employ other techniques that undervalue all lives, regardless of age. This anti-regulatory approach systematically underestimates the health benefits of environmental regulations.

This Article analyzes the flaws in the administration's techniques, showing that they are inconsistent with sound economic theory. Cost-benefit analysis currently enjoys considerable support in political and academic circles. It is therefore critically important that the methodology be used in a way that makes regulation more rational, not unjustifiably lax.

Keywords: environment, cost-benefit analysis, regulation

Working Paper Series