Reconciling Cost-Benefit Analysis with the Principle that Safety Matters More than Money
76 Pages Posted: 9 Apr 2001 Last revised: 6 May 2009
Date Written: 2001
Some environmental, health and safety laws emphasize safety over cost considerations by invoking the principle that safety matters more than money. Others rely on cost-benefit analysis (CBA) that equates safety and money. Despite their apparent inconsistency, the two regulatory approaches can be reconciled. The safety principle most plausibly stands for a distributive claim that in the context of nonconsensual risky interactions among strangers, the safety interests of potential victims deserve greater weight than the ordinary economic interests of potential injurers. To determine whether the safety principle is inconsistent with CBA, cost-benefit outcomes must be evaluated in light of the safety principle. The tort system, with its confluence of risk regulation and injury compensation, provides a good institutional setting for such an analysis. Evaluating cost-benefit tort rules in this light reveals that potential victims are inadequately compensated for certain types of nonconsensual risks threatening death, an inequity that can be quantified with cost-benefit methodology. The inequity is defensibly remedied by altering the duty of care to give safety interests greater weight than economic interests, the weighting sanctioned by the safety principle. The more exacting safety requirement reduces risk below cost-benefit levels. The added risk reduction is a form of compensation for potential victims that eliminates a windfall potential injurers would otherwise receive from cost-benefit legal rules. As compared to conventional cost-benefit outcomes, modified CBA yields welfare levels for potential injurers and victims that more closely approximate the welfare levels they would attain under conditions of actual consent or ideal redistributive institutions. Redressing the distributive inequity characteristic of some cost-benefit outcomes therefore produces a well-defined decision rule that modifies CBA in a manner that corresponds to the safety principle. Modified CBA satisfies the requirements of modern welfare economics and can accommodate a wide range of normative concerns. The approach also closely conforms to important tort practices, suggesting that it implements a version of the safety principle closely corresponding to the version adopted by the tort system. The value of modified CBA is illustrated by the structure it gives to the precautionary principle, a vague regulatory norm based on the safety principle that has become increasingly important and controversial in international law. The rationale for modified CBA shows how cost-benefit methodology can operationalize the version of the precautionary principle adopted by the Commission of the European Communities.
Keywords: Cost-Benefit Analysis, Environmental, Health and Safety Regulations, The Precautionary Principle, The Safety Principle
JEL Classification: D6, K1, K2, Q2, Q3
Suggested Citation: Suggested Citation