Rethinking Regulatory Reform: Toxics, Politics, and Ethics

Abstract

This note discusses harm allocation in environmental regulation, focusing on the regulation of toxic substances and observes cost/benefit analysis shifts such regulation from a proxy liability rule, with the entitlement given to the bearer of the protected body, to a proxy property rule, with the entitlement held by toxics producers.

In regulating toxics, the Environmental Protection Agency (EPA) and others must set "acceptable" levels of risk posed by toxic substances, i.e., determine how much cancer is worth the benefits of a given toxic substance. Most discussions of toxics regulation, however, focus on the "science" of risk assessment and the politics of risk management, thus missing the heart of EPA's harm allocation effort: the initial decision of how much harm is to be allowed -- how many people are to die.

Part I proposes a new framework for understanding toxic risk allocation with a focus on "risk determination," the process of quantifying "significant" risk. Historically, EPA has usually determined that only de minimis levels of risk (generally defined as one death per million exposed individuals) are acceptable for most toxic substances. This determination, though not one of zero risk, still legitimizes the subterfuge of "good science" -- the myth that EPA is only measuring safety -- and suggests that, when the state controls harm allocation, no nonnegligible amount of death is acceptable. Safety supposedly determines the level of harm allocation.

Cost-benefit based reforms of the regulatory process fundamentally alter this ethical and political orientation, as discussed in Part II. By requiring that regulations "justify their cost," they shift risk allocation from a process of determining a de minimis risk level and measuring how much of a toxin yields that amount, to one of defining acceptable risk itself as the amount that is profitable for industry to produce.

Obviously, this shift creates enormous practical problems; most immediately, EPA would have to decide how to quantify the "benefit" of freedom from cancer. Yet with the analytical framework provided by this Note, it is clear that the problems with such reforms are ethical as well. Cost-benefit analysis used in this way affects risk determination as well as risk assessment and management, thus redirecting the entire risk allocation process. In effect, cost benefit risk determination shifts toxic regulation from a proxy liability rule, with the entitlement given to the bearer of the protected body, to a proxy property rule, with the entitlement held by toxics producers.

This note concludes by suggesting that, as regulatory reform continues to be debated in Washington, such ethical agons may be avoided through less hasty reform of environmental regulation and a clearer understanding of the subtle structural and ethical distinctions within the regulatory process.

Keywords: cost/benefit analysis, cost benefit analysis, toxics, environmental regulation, liability, property, regulatory reform, EPA, toxics regulation

JEL Classification: K32