Retaking Rationality: How Cost-Benefit Analysis Can Better Protect the Environment and Our Health

Abstract

Since in 1981, the federal Office of Management and Budget and the federal courts have used cost-benefit analysis extensively to determine which environmental, health, and safety regulations are approved and which are sent back to the drawing board. However, cost-benefit analysis is ill-understood both by the public affected by these regulatory decisions and many of the interests groups - such as environmentalists, consumer groups, and labor organizations - that tend to advocate for stronger regulations. Industry and other antiregulatory interests, however, have embraced cost-benefit analysis as a tool to justify deregulation and weak regulation. The result is that cost-benefit analysis has come to have an antiregulatory bias, tending to over-count costs and under-count benefits.

Retaking Rationality: How Cost-Benefit Analysis Can Better Protect the Environment and Our Health argues that cost-benefit analysis can be a neutral tool of policy analysis, but only if proregulatory interests - and the broader public - join the debate over how cost-benefit is conducted and how it is used. The book sets out the historical origins of antipathy toward cost-benefit analysis, discusses eight "fallacies" that tend to bias cost-benefit analysis against strong regulation and shows how the institutional arrangements of regulatory review lead to antiregulatory bias. For each of the problems that are identified, concrete solutions are offered, giving those interested in joining the debate over cost-benefit analysis a clear agenda for reform. Authors Richard L. Revesz and Michael A. Livermore offer an optimistic vision for a more balanced approach to cost-benefit analysis, as well as a clear roadmap for how to get there.

JEL Classification: K32, L50, Q20, Q30