The Equality-Equity Dilemma in Cost-Benefit Analysis

Abstract

The equality-equity dilemma in cost-benefit analysis arises when regulators seek to advance distributional objectives through lifesaving rules. The “equality” side of the equality-equity dilemma refers to the federal regulatory practice of using an equal-dollar “value of a statistical life” (VSL) for all Americans. The “equity” side refers to the goal of improving the welfare of lower income groups. The dilemma is this: To know whether a regulation benefits or burdens members of a particular group on net, regulators must calculate benefits and costs using willingness-to-pay numbers for that particular group. Because willingness to pay for mortality risk reduction varies by income, distributional analysis for mortality risk regulation also must use VSLs that vary by income. Otherwise, the results of distributional analysis would bear little relationship to whether a regulation actually improves the welfare of the group whose interests regulators ostensibly aim to advance. But departing from “VSL equality” raises a serious risk of expressive harms—and more specifically, of sending a message of disrespect to the very people whose interests equitable cost-benefit analysis seeks to vindicate. These potential harms are most acute when regulators analyze costs and benefits across racial lines, as the use of different average VSLs for different racial groups inevitably echoes the United States’ long and ugly history of devaluing non-white lives.

Daniel Farber’s enormously generative article, “Inequality and Regulation: Designing Rules to Address Race, Poverty, and Environmental Justice,” brings cost-benefit analysis’s equality-equity dilemma to the fore. Farber praises the regulatory practice of VSL equality while also calling on regulators to pursue racial equity through cost-benefit analysis. Using Farber’s article as a jumping-off point, this comment considers the tension between VSL equality and racial equity when regulations yield life-or-death consequences. After explaining why the equality-equity dilemma is so difficult to avoid, the comment sketches out several possible regulatory responses. It concludes by drawing lessons from the equality-equity dilemma for the overall cost-benefit analysis enterprise.

Keywords: cost-benefit analysis, equality-equity dilemma, value of a statistical life

JEL Classification: K23, K32, K38, Q51, Q58, R51