Well-being analysis vs. Cost-benefit analysis

Duke Law Journal

Volumn 62, Issue 8, 2013, Pages 1603-1689

  Bronsteen, John ^a   Buccafusco, Christopher ^b   Masur, Jonathan S ^c  

^a LOYOLA UNIVERSITY CHICAGO   (United States)

^b CHICAGO KENT COLLEGE OF LAW   (United States)

^c UNIVERSITY OF CHICAGO LAW SCHOOL   (United States)

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[No Author keywords available]

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EID: 84878628638     PISSN: 00127086     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (190)

1. The reason is that businesses may have to spend more money to produce their products in a way that avoids polluting. If so, then someone must bear that cost and have less buying power as a result. It might be consumers (via higher prices), employees (via lower wages or job cuts), or business owners (via lower profits); but it must be someone. Economic analysis of the effect of price increases on welfare can be complicated, because the effect may depend upon how consumers are likely to react to an increase in a specific context. Whether income effects or substitution effects predominate will vary. For simplicity, we refer here to reductions in buying power as an example of a potential cost or negative consequence of regulation, without specifying the complications from possible substitution effects.
2. This question is typically the first step in analyzing a law, but other steps may follow. We use the terms "costs" and "benefits" to refer to a law's effects on people's quality of life, and such effects may not be the only consideration in evaluating a law. For example, there may be moral reasons to support a law even if it would decrease human welfare. Thus, this Article concerns one step in the decisionmaking process, the step of assessing a law's effects on the quality of human life. It is an important step, but not necessarily the only one.
3. Exec. Order No. 13,563, 3 C.F.R. 215 (2012).
4. Exec. Order No. 12,291, 3 C.F.R. 127 (1982), reprinted in 5 U.S.C. § 601 note at 431 (1982), revoked by Exec. Order No. 12,866, 3 C.F.R. 638.
5. Exec. Order No. 12,866, 3 C.F.R. 638.
6. Exec. Order No. 13,563, 3 C.F.R. 215.
7. See, e.g., Steven Kelman, Cost-Benefit Analysis: An Ethical Critique, REGULATION, Jan./Feb. 1981, at 33, 33 ("In areas of environmental, safety, and health regulation, there may be many instances where a certain decision might be right even though its benefits do not outweigh its costs.").
8. See, e.g., Alexander Volokh, Rationality or Rationalism?: The Positive and Normative Flaws of Cost-Benefit Analysis, 48 HOUS. L. REV. 79, 82 (2011).
9. See, e.g., David M. Driesen, The Societal Cost of Environmental Regulation: Beyond Administrative Cost-Benefit Analysis, 24 ECOLOGY L.Q. 545 (1997)
10. Robert H. Frank, Why Is Cost-Benefit Analysis So Controversial?, 29 J. LEGAL STUD. 913 (2000) (evaluating the various objections to cost-benefit analysis)
11. Daniel Kahneman & Jack Knetsch, Valuing Public Goods: The Purchase of Moral Satisfaction, 22 J. ENVTL. ECON. & MGMT. 57 (1992)
12. Duncan Kennedy, Cost-Benefit Analysis of Entitlement Problems: A Critique, 33 STAN. L. REV. 387 (1981)
13. Thomas O. McGarity, A Cost-Benefit State, 50 ADMIN. L. REV. 7 (1998) [hereinafter McGarity, A Cost-Benefit State]
14. Thomas O. McGarity, Media-Quality, Technology, and Cost-Benefit Balancing Strategies for Health and Environmental Regulation, 46 LAW & CONTEMP. PROBS. 159, 179-91 (1983)
15. Richard L. Revesz, Environmental Regulation, Cost-Benefit Analysis, and the Discounting of Human Lives, 99 COLUM. L. REV. 941 (1999)
16. Amy Sinden, Cass Sunstein's Cost-Benefit Lite: Economics for Liberals, 29 COLUM. J. ENVTL. L. 191 (2004).
17. See, e.g., MATTHEW D. ADLER & ERIC A. POSNER, NEW FOUNDATIONS OF COSTBENEFIT ANALYSIS (2006)
18. ECONOMIC ANALYSES AT EPA: ASSESSING REGULATORY IMPACT (Richard D. Morgenstern ed., 1997)
19. REFORMING REGULATORY IMPACT ANALYSIS (Winston Harrington, Lisa Heinzerling & Richard D. Morgenstern eds., 2009)
20. RICHARD L. REVESZ & MICHAEL A. LIVERMORE, RETAKING RATIONALITY: HOW COST-BENEFIT ANALYSIS CAN BETTER PROTECT THE ENVIRONMENT AND OUR HEALTH (2008)
21. Matthew D. Adler & Eric A. Posner, Rethinking Cost-Benefit Analysis, 109 YALE L.J. 165 (1999)
22. Robert H. Frank & Cass R. Sunstein, Cost-Benefit Analysis and Relative Position, 68 U. CHI. L. REV. 323 (2001)
23. Robert W. Hahn & Cass R. Sunstein, A New Executive Order for Improving Federal Regulation? Deeper and Wider Cost-Benefit Analysis, 150 U. PA. L. REV. 1489 (2002)
24. Cass R. Sunstein, Cognition and Cost-Benefit Analysis, 29 J. LEGAL STUD. 1059 (2000).
25. In ultimate policymaking decisions, CBA is very often combined with non-monetized qualitative considerations-as authorized by the executive orders themselves. But it is the monetization that primarily differentiates CBA from mere intuitionistic decision analysis, because the monetization constitutes an attempt to directly and fully commensurate negative and positive consequences. This is the foundation of CBA's appeal, and it is the thing to which we offer an alternative here.
26. Daniel Kahneman, Peter Wakker & Rakesh Sarin, Back to Bentham? Explorations of Experienced Utility, 112 Q.J. ECON. 375, 379 (1997) ("The view that hedonic states cannot be measured because they are private events is widely held .").
27. Roger Cohen, Op-Ed., The Happynomics of Life, N.Y. TIMES, Mar. 13, 2011, at 12.
28. Henry Samuel, Nicolas Sarkozy Wants To Measure Economic Success in 'Happiness,' TELEGRAPH (Sept. 14, 2009, 6:24 PM BST), http://www.telegraph.co.uk/news/worldnews/europe/france/6189530/Nicolas-Sarkozy-wants-to-measure-economic-successin-happiness.html.
29. They are Joseph Stiglitz, Amartya Sen, and Daniel Kahneman
30. See JOSEPH E. STIGLITZ, AMARTYA SEN & JEAN-PAUL FITOUSSI, REPORT BY THE COMMISSION ON THE MEASUREMENT OF ECONOMIC PERFORMANCE AND SOCIAL PROGRESS 16 (2009), available at http://www.stiglitz-sen-fitoussi.fr/documents/rapport_anglais.pdf
31. Daniel Kahneman & Robert Sugden, Experienced Utility as a Standard of Policy Evaluation, 32 ENVTL. & RESOURCE ECON. 161, 178 n.11 (2005).
32. DEREK BOK, THE POLITICS OF HAPPINESS: WHAT GOVERNMENT CAN LEARN FROM THE NEW RESEARCH ON WELL-BEING 45 (2010). In legal scholarship, Adam Kolber has done pioneering work in elucidating the value that experiential measures can bring to the law
33. See, e.g., Adam Kolber, The Experiential Future of the Law, 60 EMORY L.J. 585, 588 (2011) ("My central claim is that as new technologies emerge to better reveal people's experiences, the law ought to do more to take these experiences into account."). Kolber has focused more on neuroscientific measures than on those of hedonic psychology, and more on the civil- and criminal-justice systems than on administrative rulemaking, but he places the same emphasis on experiential measurement that we endorse here and throughout our work.
34. OFFICE OF MGMT & BUDGET, OFFICE OF INFO. & REGULATORY AFFAIRS, REPORT TO CONGRESS ON THE BENEFITS AND COSTS OF FEDERAL REGULATIONS AND UNFUNDED MANDATES ON STATE, LOCAL, AND TRIBAL ENTITIES 46 (2011), available at http://www.whitehouse.gov/sites/default/files/omb/inforeg/2011_cb/2011_cba_report.pdf ("OMB continues to investigate the relevant [hedonic] literature and to explore, in a preliminary way, its possible implications for improving regulatory policy in ways that promote the goals of economic growth, innovation, competitiveness, and job creation.")
35. Wendy Koch, If Money Doesn't Buy Happiness, USA TODAY, Aug. 1, 2012, available at http://usatoday30.usatoday.com/NEWS/usaedition/2012-08-02-Gross-national-happiness_CV_U.htm (listing several cities and states that have begun to consider using hedonic data in governmental decisionmaking).
36. This is due to the advantages of WBA, discussed throughout this Article, that stem from its use of a better proxy for welfare than CBA uses. Of course, the accuracy of any given CBA or WBA will depend in part upon the quality of the methods used, which may vary according to the available data and other considerations.
37. Examples of such considerations would be pleasing their constituents and campaign donors, even in cases in which doing so is at odds with the public good
38. At a minimum, it is useful to know what the best policy would be before deciding how to weigh that consideration against others
39. See, e.g., Mark Seidenfeld, A Civic Republican Justification for the Bureaucratic State, 105 HARV. L. REV. 1511, 1514 (1992) (describing the civic republican model as one in which "government's primary responsibility is to enable the citizenry to deliberate about altering preferences and to reach consensus on the common good").
40. We know of no such Pareto-optimal regulations
41. See, e.g., Douglas A. Kysar, Climate Change, Cultural Transformation, and Comprehensive Rationality, 31 B.C. ENVTL. AFF. L. REV. 555, 586 (2004) ("[W]hatever preferences individuals seem to reveal through their market behavior are taken to be the best measure of true 'wants' or 'desires' and, therefore, also are taken exclusively to provide the valuation inputs that in critical part determine the policy outputs of CBA.").
42. Avoiding the risk is worth $600, but the regulators know that a certain number of people are likely to actually die without the regulation. Therefore, they need to know how much society is willing to pay to save those lives. If avoiding a 1-in-10,000 risk is worth $600, then avoiding an actual death (that is, a 1-in-1 "risk") is worth $6 million ($600 × 10,000).
43. E.g., W. Kip Viscusi, How To Value A Life, 32 J. ECON. & FIN. 311, 312-14 (2008)
44. see also, e.g., U.S. ENVTL. PROT. AGENCY, EPA 815-R-00-026, ARSENIC IN DRINKING WATER RULE: ECONOMIC ANALYSIS 5-28 (2000) (estimating the value of a statistical life at $6.1 million).
45. E.g., John B. Loomis & Douglas S. White, Economic Benefits of Rare and Endangered Species: Summary and Meta-Analysis, 18 ECOLOGICAL ECON. 197, 203 (1996).
46. See, e.g., Daniel T. Gilbert & Timothy D. Wilson, Prospection: Experiencing the Future, 317 SCI. 1351, 1354 (2007)
47. Timothy D. Wilson & Daniel T. Gilbert, Affective Forecasting: Knowing What To Want, 14 CURRENT DIRECTIONS PSYCHOL. SCI. 131, 131 (2005).
48. See Exec. Order No. 13,563, 3 C.F.R. 215 (2012).
49. Daniel Kahneman, Ed Diener & Norbert Schwarz, Preface to WELL-BEING: THE FOUNDATIONS OF HEDONIC PSYCHOLOGY, at ix, xii (Daniel Kahneman, Ed Diener & Norbert Schwarz eds., 1999).
50. In Part IV we describe the differences between QALYs and WBUs and the advantages of the latter
51. See Richard R. Layard, G. Mayraz & S. Nickell, The Marginal Utility of Income, 92 J. PUB. ECON. 1846, 1848 tbl.1 (2008) (collecting examples of well-being studies). Scales from 0 to 7 are also common.
52. Converting from one scale to another is also possible by using studies that pose the same questions to the same (or comparable) individuals on different scales
53. This requires that the scale be intrapersonally cardinal
54. This requires that the scale be interpersonally cardinal. We discuss the issues raised by this cardinality requirement in greater detail in Part II.B.4.
55. We discuss the many possible shortcomings of CBA's attempts to do so in Part III
56. CBA could, in theory, use contingent valuation studies to estimate in monetary terms these hedonic consequences, but this does not currently happen as a matter of standard practice. In addition, such studies would suffer from the same kinds of problems, notably affective forecasting errors, that affect contingent valuation generally.
57. Peter A. Ubel, George Loewenstein & Christopher Jepson, Disability and Sunshine: Can Hedonic Predictions Be Improved by Drawing Attention to Focusing Illusions or Emotional Adaptation?, 11 J. EXPERIMENTAL PSYCHOL.: APPLIED 111, 111 (2005) ("One of the most commonly replicated 'happiness gaps' is that observed between the self-rated quality of life of people with health conditions and healthy people's estimates of what their quality of life would be if they had those conditions ." (citation omitted))
58. Peter A. Ubel et al. Do Nonpatients Underestimate the Quality of Life Associated with Chronic Health Conditions Because of a Focusing Illusion?, 21 MED. DECISION MAKING 190, 197 (2001).
59. Daniel Kahneman & Angus Deaton, High Income Improves Evaluation of Life but Not Emotional Well-Being, 107 PROC. NAT'L ACAD. SCI. 16,489, 16,492 (2010).
60. E.g., David Colander, Retrospectives: Edgeworth's Hedonimeter and the Quest To Measure Utility, J. ECON. PERSP., Spring 2007, at 215, 215-16.
61. For a review of well-being measures, see ED DIENER, RICHARD LUCAS, ULRICH SCHIMMACK & JOHN HELLIWELL, WELL-BEING FOR PUBLIC POLICY 46-66 (2009)
62. See William Pavot & Ed Diener, Review of the Satisfaction with Life Scale, 5 PSYCHOL. ASSESSMENT 164, 164 (1993) (discussing the strength of the Satisfaction with Life Scale and referring to the fact that it is a "judgmental process, in which individuals assess the quality of their lives on the basis of a unique set of criteria").
63. See, e.g., Andrew E. Clark, Ed Diener, Yannis Georgellis & Richard E. Lucas, Lags and Leads in Life Satisfaction: A Test of the Baseline Hypothesis, 118 ECON. J. F222, F231 (2008)
64. Richard E. Lucas, Yannis Georgellis, Andrew E. Clark & Ed Diener, Reexamining Adaptation and the Set Point Model of Happiness: Reactions to Changes in Marital Status, 84 J. PERSONALITY & SOC. PSYCHOL. 527, 528 (2003)
65. Richard E. Lucas, Time Does Not Heal All Wounds: A Longitudinal Study of Reaction and Adaptation to Divorce, 16 PSYCHOL. SCI. 945, 947-48 (2005).
66. Andrew J. Oswald & Nattavudh Powdthavee, Death, Happiness, and the Calculation of Compensatory Damages, 37 J. LEGAL STUD. S217, S232 (2008).
67. See Alan B. Krueger, Daniel Kahneman, David Schkade, Norbert Schwarz & Arthur A. Stone, National Time Accounting: The Currency of Life, in MEASURING THE SUBJECTIVE WELL-BEING OF NATIONS: NATIONAL ACCOUNTS OF TIME USE AND WELL-BEING 9, 29 (Alan B. Krueger ed., 2009).
68. See Daniel Kahneman, Alan B. Krueger, David A. Schkade, Norbert Schwarz & Arthur A. Stone, A Survey Method for Characterizing Daily Life Experience: The Day Reconstruction Method, 306 SCI. 1776, 1776 (2004).
69. For example, a bathroom scale may provide highly reliable data-the same readout every time-but those data are probably not a very good measure of your well-being
70. See Samuel Messick, Validity of Psychological Assessment: Validation of Inferences from Persons' Responses and Performances as Scientific Inquiry into Score Meaning, 50 AM. PSYCHOLOGIST 741, 741 (1995) ("Validity is an overall evaluative judgment of the degree to which empirical evidence and theoretical rationales support the adequacy and appropriateness of interpretations and actions on the basis of test scores or other modes of assessment." (citation omitted)).
71. Michael Eid & Ed Diener, Global Judgments of Subjective Well-Being: Situational Variability and Long-Term Stability, 65 SOC. INDICATORS RES. 245, 245-46 (2004).
72. Ulrich Schimmack, The Structure of Subjective Well-Being, in THE SCIENCE OF SUBJECTIVE WELL-BEING 97, 97 (Michael Eid & Randy J. Larsen eds., 2007).
73. See Heidi Lepper, Use of Other-Reports To Validate Subjective Well-Being Measures, 44 SOC. INDICATORS RES. 367, 367 (1998) ("Objective reports allow researchers to evaluate whether the level of SWB reported by the individual is an enduring state and/or observable to others.")
74. Ed Sandvik, Ed Diener & Larry Seidlitz, Subjective Well-Being: The Convergence and Stability of Self-Report and Non-Self-Report Measures, 61 J. PERSONALITY 317, 322 (1993) ("The reports of informants are likely to summarize emotional information expressed by subjects over time .").
75. See Andrew J. Oswald & Nattavudh Powdthavee, Does Happiness Adapt? A Longitudinal Study of Disability with Implications for Economists and Judges, 92 J. PUB. ECON. 1061, 1066 (2008). This sensitivity to degree is in contrast to findings that people's responses to contingent valuation surveys used in CBA display considerable scope neglect, that is, they are willing to pay the same amount of money to save 2000, 20,000, or 200,000 endangered birds. William H. Desvousges, F. Reed Johnson, Richard W. Dunford, Sara P. Hudson & K. Nicole Wilson, Measuring Natural Resources with Contingent Valuation: Tests of Validity and Reliability, in CONTINGENT VALUATION: A CRITICAL ASSESSMENT 91, 113 (Jerry A. Hausman ed., 1993).
76. This would be the case if no comparable ESM or DRM studies had yet been done for the relevant conditions
77. See generally Betsey Stevenson & Justin Wolfers, Bargaining in the Shadow of the Law: Divorce Laws and Family Distress, 121 Q.J. ECON. 267 (2006).
78. There is some reason to believe that citizens of different nations with vastly different cultures will treat happiness surveys systematically differently
79. See Ed Diener & Eunkook M. Suh, Measuring Subjective Well-Being To Compare Quality of Life of Cultures, in CULTURE AND SUBJECTIVE WELL-BEING 1, 3 (Ed Diener & Eunkook M. Suh eds., 2000) ("If societies have different sets of values, people in them are likely to consider different criteria relevant when judging the success of their society."). Empirical studies have found, however, that similarly situated individuals in different countries have similar levels of life satisfaction. Betsey Stevenson & Justin Wolfers, Economic Growth and Happiness: Reassessing the Easterlin Paradox, BROOKINGS PAPERS ECON. ACTIVITY, Spring 2008, at 1, 67, 69. This suggests that subjective well-being measures may even be comparable across countries. If that is the case, they will very likely be comparable across regions or communities within a given country.
80. See, e.g., Ed Diener & Carol Diener, The Wealth of Nations Revisited: Income and Quality of Life, 36 SOC. INDICATORS RES. 275, 279-81 (1995) ("[F]or lower levels of income, there is a rapid rise in meeting physical needs as income increases, but for much of the income distribution there is a ceiling effect")
81. Robert H. Frank, The Frame of Reference as a Public Good, 107 ECON. J. 1832, 1834-35 (1997) (discussing variation in the significance of income's role in satisfaction across income levels).
82. See PER-OLOV JOHANSSON, AN INTRODUCTION TO MODERN WELFARE ECONOMICS 40 (1991)
83. ROBERT L. NADEAU, THE WEALTH OF NATURE 115-16 (2003).
84. Uncertainty concerning individual welfare functions is especially problematic when attempting to make interpersonal comparisons of utility, which are likely possible in only limited circumstances
85. See, e.g., John C. Harsanyi, Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparisons of Utility, 63 J. POL. ECON. 309, 315-19 (1955).
86. Twenty-five people have each gained 0.1, for a total gain of 2.5, and 1 person has lost 1.0, for a net of 1.5.
87. This is true if Person A and Person B have different welfare functions, such that the project might diminish overall welfare-again, the problem we address in Part IV.B.2-but it is also true even if they have identical welfare functions and aggregate welfare will increase.
88. A Kaldor-Hicks efficient outcome is one in which the parties that benefit from a project "could fully compensate those who stand to lose from it and still be better off." Amy Sinden, In Defense of Absolutes: Combating the Politics of Power in Environmental Law, 90 IOWA L. REV. 1405, 1415 (2005). Or, put another way, a project is Kaldor-Hicks efficient if it would be possible to make a transfer of wealth that would leave all parties better off than before the project was implemented. ANTHONY E. BOARDMAN, DAVID H. GREENBERG, AIDAN R. VINING & DAVID L. WEIMER, COST-BENEFIT ANALYSIS: CONCEPTS AND PRACTICE 32 (1996).
89. See Laura L. Myers, Same-Sex Couples Wed in Washington State for First Time, REUTERS, Dec. 9, 2012, available at http://www.reuters.com/article/2012/12/09/us-usagaymarriage-idUSBRE8B801S20121209. We thank Lior Strahilevitz for raising this point and suggesting this issue.
90. See Lior Jacob Strahilevitz, "How's My Driving?" for Everyone (and Everything?), 81 N.Y.U. L. REV. 1699, 1732-37 (2006) (suggesting that similar algorithms could screen malicious feedback in "How's My Driving" programs).
91. See Richard T. Carson & W. Michael Hanemann, Contingent Valuation, in 2 HANDBOOK OF ENVIRONMENTAL ECONOMICS 821, 883 (Karl-Gran Maler & Jeffrey R. Vincent eds., 2005) ("[P]eople only try to tell the truth when it is in their economic interest to do so."). Well-conducted contingent valuation studies attempt to control for these issues, but doing so is difficult
92. See John C. Whitehead & Glenn C. Blomquist, Benefit-Cost Analysis, in HANDBOOK ON CONTINGENT VALUATION 92, 103-04 (Anna Alberini & James R. Kahn eds., 2006).
93. See generally Don Bradford Hardin, Jr. Comment, Why Cost-Benefit Analysis? A Question (and Some Answers) About the Legal Academy, 59 ALA. L. REV. 1135 (2008) (providing a general history of cost-benefit analysis).
94. Although our examples in the Introduction and Parts I and II have focused on clean-air and clean-water regulations for the sake of clarity and consistency, everything we say in this Article applies more generally to all regulations. We broaden our pool of examples in Parts III, IV, and V.
95. Clean Water Act, 33 U.S.C. §§ 1251-1387 (2006 & Supp. V 2012).
96. U.S. CENSUS BUREAU, MONEY INCOME IN THE UNITED STATES, at v (1998), available at http://www2.census.gov/prod2/popscan/p60-206.pdf.
97. Nattavudh Powdthavee & Bernard van den Berg, Putting Different Price Tags on the Same Health Condition: Re-evaluating the Well-Being Valuation Approach, 30 J. HEALTH ECON. 1032, 1038 tbl.3 (2011).
98. To arrive at this number, we begin by noting that the average American lifespan is 78 years. U.S. CENSUS BUREAU, STATISTICAL ABSTRACT OF THE UNITED STATES 77 (2012). If anglers were evenly distributed across age categories, then the average angler would be 39 years old, meaning that saving such a person from death would save them nearly 40 years of life. In recognition that our well-being numbers may be criticized for valuing life much more heavily than does CBA, we "round down" to make a very conservative estimate of 30 years.
99. We do not include any benefits to the family or friends of individuals who do not develop cancer because CBA typically does not include these third-party benefits
100. See Sean Williams, Statistical Children, 30 YALE J. ON REG., 101, 103 (2013).
101. See BUREAU OF LABOR STAT., U.S. DEP'T OF LABOR, HOUSEHOLD DATA: ANNUAL AVERAGES, at tbl.30 (2012), available at http://www.bls.gov/cps/cpsa2012.pdf (showing that the median duration of unemployment for full-time workers was 24.1 weeks in 2011 and 21.8 weeks in 2012).
102. For a review of the extensive literature, see Ed Diener & Robert Biswas-Diener, Will Money Increase Subjective Well-being? A Literature Review and Guide to Needed Research, 57 SOC. INDICATORS RES. 119, 120-51 (2002). These findings are also congruent with the emphasis that advocates of feasibility analysis have long placed on job loss, as opposed to other types of monetary costs
103. See, e.g., David Driesen, Distributing the Costs of Environmental, Health, and Safety Protection: The Feasibility Principle, Cost-Benefit Analysis, and Regulatory Reform, 32 B.C. ENVTL. AFF. L. REV. 1, 36-37 (2005).
104. Amartya Sen, The Discipline of Cost-Benefit Analysis, 29 J. LEGAL STUD. 931, 945 (2000) ("In mainstream cost-benefit analysis, the primary work of valuation is done by the use of willingness to pay."). Some cost-benefit studies instead examine subjects' willingness to accept money in exchange for sacrificing a benefit or bearing a cost. These willingness-to-accept (WTA) measures often yield different results than do WTP measures, but the methodologies used to determine them are effectively identical, and the problems that affect WTP similarly plague WTA
105. See generally John K. Horowitz & Kenneth E. McConnell, A Review of WTA/WTP Studies, 44 J. ENVTL. ECON. & MGMT. 426 (2002). Accordingly, we use WTP here as shorthand to mean WTP or WTA.
106. Richard H. Pildes & Cass R. Sunstein, Reinventing the Regulatory State, 62 U. CHI. L. REV. 1, 76 (1995) ("[P]eople reveal the values they attach to various goods through their actual behavior in market or market-like settings. If we attend to the choices people actually make, we will be able to infer from them the valuations assigned to various goods.").
107. See, e.g., W. KIP VISCUSI, RATIONAL RISK POLICY 46-47 (1998) ("[R]isky jobs must be attractive in some other way, such as higher pay, for workers to be willing to bear the risk.").
108. Frank Ackerman & Lisa Heinzerling, Pricing the Priceless: Cost-Benefit Analysis of Environmental Protection, 150 U. PA. L. REV. 1553, 1557 (2002) ("Since there are no natural prices for a healthy environment, cost-benefit analysis requires the creation of artificial ones.")
109. Miriam Montesinos, Comment, It May Be Silly, but It's an Answer: The Need To Accept Contingent Valuation Methodology in Natural Resource Damage Assessments, 26 ECOLOGY L.Q. 48, 49-50 (1999) ("The problem with placing values on natural resources is that natural resources are not market commodities and therefore do not have market prices.").
110. See, e.g., Edna T. Loehman, Sehoon Park & David Boldt, Willingness To Pay for Gains and Losses in Visibility and Health, 70 LAND ECON. 476, 479-85 (1994) (examining how much people would pay for improved air quality).
111. See Frank B. Cross, Natural Resource Damage Valuations, 42 VAND. L. REV. 269, 315 (1989) ("Contingent valuation is controversial, however, because it is entirely hypothetical and because it assumes that people respond to the survey as they would to a marketplace transaction Economists are much more comfortable measuring revealed preferences in genuine market sales.").
112. See Jonathan S. Masur, Probability Thresholds, 92 IOWA L. REV. 1293, 1331-37 (2007) ("Study after study has demonstrated that individuals experience great difficulty, purely as a matter of estimation and intuition, when dealing with high-magnitude, low-probability threats.").
113. Young Sook Eom, Pesticide Residue Risk and Food Safety Valuation: A Random Utility Approach, 76 AM. J. AGRIC. ECON. 760, 769 (1994)
114. M.W. Jones-Lee, M. Hammerton & P.R. Philips, The Value of Safety: Results of a National Sample Survey, 95 ECON. J. 49, 65-66 (1985)
115. Michael W. Jones-Lee, Graham Loomes & P.R. Philips, Valuing the Prevention of Non-Fatal Road Injuries: Contingent Valuation vs. Standard Gambles, 47 OXFORD ECON. PAPERS 676, 688 (1995)
116. C.T. Jordan Lin & J. Walter Milon, Contingent Valuation of Health Risk Reductions for Shellfish Products, in VALUING FOOD SAFETY AND NUTRITION 83, 96-97 (J.A. Caswell ed., 1995)
117. V. Kerry Smith & William H. Desvousges, An Empirical Analysis of the Economic Value of Risk Changes, 95 J. POL. ECON. 89, 100 tbl.2 (1987).
118. Cass R. Sunstein, Probability Neglect: Emotions, Worst Cases, and Law, 112 YALE L.J. 61, 73-74 (2002) ("For most of us, most of the time, the relevant differences-between, say, 1/100,000 and 1/1,000,000-are not pertinent to our decisions, and by experience we are not well equipped to take those differences into account.").
119. See Maureen Cropper, James K. Hammitt & Lisa A. Robinson, Valuing Mortality Risk Reductions: Progress and Challenges, 3 ANN. REV. RESOURCE ECON. 313, 317 (2011) ("[E]stimates of VSL based on hedonic wage equations assume that the measure of job risk used by the researcher matches workers' risk perceptions.").
120. See, e.g., Janusz R. Mrozek & Laura O. Taylor, What Determines the Value of Life? A Meta-Analysis, 21 J. POL'Y ANALYSIS & MGMT. 253, 266-70 (2002) ("Restricting the sample of workers to 100 percent unionized workers resulted in larger VSL estimates ."). Some studies attempt to control for unionization
121. See, e.g., W. Kip Viscusi, The Value of Life: Estimates with Risks by Occupation and Industry, 42 J. ECON. INQUIRY 29, 36 (2004).
122. The reason is the declining marginal value of money. See, e.g., Adam J. Kolber, The Comparative Nature of Punishment, 89 B.U. L. REV. 1565, 1599 n.88 (2009) ("Even rights denominated in dollars cannot meaningfully be compared to each other without considering how people value those dollars. Due to the declining marginal value of money, most people value the liberty to spend $100,000 less than 100 times the amount that they value the liberty to spend $1000.")
123. Andrew P. Morriss & Roger E. Meiners, Borders and the Environment, 39 ENVTL. L. 141, 155 n.64 (2009) ("Of course, richer people lose more money when they miss a day of work due to illness than do poor people, but the declining marginal value of money means that what they lose may not be as valuable as the smaller in magnitude losses incurred by the poorer people.").
124. See Anup Malani, Valuing Laws as Local Amenities, 121 HARV. L. REV. 1273, 1276-80 (2008) (describing such a methodology and using it to value certain legal changes).
125. In addition, if the agency chose the second-best solution and located the project in the wealthy area, residents of that neighborhood could conceivably bargain with residents of the poorer neighborhood to have the project moved in exchange for a side payment. This bargain is of course unlikely; transaction costs or legal barriers might prevent it. But it is at least possible. No such Coasean bargain is possible if the project is located in the poor neighborhood because the poorer people do not have the funds to pay off the wealthier people.
126. See Matthew D. Adler, Equity by the Numbers: Measuring Poverty, Inequality, and Injustice (2013) (unpublished manuscript) (on file with the Duke Law Journal) (proposing a means of attempting to assign equity weights to costs and benefits experienced by populations at different levels of wealth).
127. See Marjorie E. Kornhauser, Equality, Liberty, and a Fair Income Tax, 23 FORDHAM URB. L.J. 607, 617 (1996) (explaining that there is no way to determine an individual's marginal utility of money).
128. As we have discussed, some of these problems also implicate WBA, though not to the same degree
129. See Jennifer Gerarda Brown, The Role of Hope in Negotiation, 44 UCLA L. REV. 1661, 1666 (1997) (analyzing a hypothetical "suggest[ing] that a [homeowner]'s hopes or aspirations influence negotiation analysis and behavior").
130. See Paul Boudreaux, An Individual Preference Approach to Suburban Racial Desegregation, 27 FORDHAM URB. L.J. 533, 547 (1999) ("Housing prices are affected by buyers' desires for certain amenities, such as air conditioning, a large kitchen or a driveway. Housing prices will vary when certain features rise or fall in desirability. Housing prices are also affected by whether the location of housing is near desirable or undesirable metropolitan features." (footnote omitted)).
131. See Dylan M. Smith, Ryan L. Sherriff, Laura Damschroder, George Loewenstein, & Peter A. Ubel, Misremembering Colostomies? Former Patients Give Lower Utility Ratings Than Do Current Patients, 25 HEALTH PSYCHOL. 688, 691 (2006) (describing difficulties with remembering affective states).
132. We explain other problems with value-of-life calculations in Part IV
133. Lisa Heinzerling, Markets for Arsenic, 90 GEO. L.J. 2311, 2315 (2002) ("The valuation is 'contingent' because the valuation produced is contingent upon the hypothetical market that was contrived. A famous example is the large-scale survey taken in the wake of the Exxon Valdez oil spill, which sought to elicit the monetary value citizens around the country placed on avoiding another comparable spill.").
134. See, e.g., Matthew D. Adler & Eric A. Posner, Implementing Cost-Benefit Analysis When Preferences Are Distorted, 29 J. LEGAL STUD. 1105, 1117 (2000) ("Textbook CBA, as generally understood, directs agencies to translate people's moral attitudes about the environment into CVs for the existence of environmental goods that they do not directly enjoy, usually called 'existence value' or 'nonuse value.'").
135. See Peter A. Diamond & Jerry A. Hausman, Contingent Valuation: Is Some Number Better Than No Number?, J. ECON. PERSP., Fall 1994, at 45, 49 (discussing the recurrent problems with contingent valuation surveys and providing an overview of alternative explanations for the responses given in willingness-to-pay questions).
136. Anna Alberini, Maureen Cropper, Alan Krupnick & Nathalie B. Simon, Does the Value of a Statistical Life Vary with Age and Health Status? Evidence from the US and Canada, 48 J. ENVTL. ECON. & MGMT. 769, 782 tbl.6 (2004).
137. CBA's less common alternative for valuing life, contingent valuation surveys, is inferior to WBA on grounds that we discuss in Part III.B.
138. Had the person lived, she would have experienced many moments that were, instead, extinguished by her death. WBA would aggregate the expected number and average level of positivity of those moments to determine how much positive life experience her early death deprived her of.
139. See, e.g., David Weisbach, Toward a New Approach to Disability Law, 2009 U. CHI. LEGAL F. 47, 90 n.90 (stating the common assumption that welfare is quasi-linear in consumption, or linear with respect to all goods other than medical care).
140. See generally Louis Kaplow & Steven Shavell, Why the Legal System Is Less Efficient Than the Income Tax in Redistributing Income, 23 J. LEGAL STUD. 667 (1994) (arguing that the tax system is more efficient at redistributing wealth than are legal rules such as agency regulations).
141. See Lee Anne Fennell & Richard H. McAdams, Introduction to FAIRNESS IN LAW AND ECONOMICS (Lee Anne Fennell & Richard H. McAdams eds., forthcoming 2013) (manuscript at 5) (on file with the Duke Law Journal) ("Any proposed distributive change, whether accomplished through legal rules or through tax policy, elicits a certain amount of political resistance. This resistance may impede movement to a preferred distributive position, or cause great welfare losses in the process of achieving such movement.")
142. Edward J. McCaffery, Bifurcation Blues: The Perils of Leaving Redistribution Aside 2-3 (N.Y. Univ. Sch. of Law Colloquium on Tax Policy & Pub. Fin., Working Paper No. 2), available at http://www.law.nyu.edu/ecm_dlv4/groups/public/@nyu_law_website_academics_colloquia_tax_policy/documents/documents/ecm_pro_074659.pdf (suggesting that "real-world tax policy is not up to the burdens that the bifurcation strategy places on it-it is not, that is, situated to redistribute in any meaningful way")
143. cf. Share of GDP for Bottom 99th, 95th, and 90th, VISUALIZING ECON. (Oct. 17, 2006), http://visualizingeconomics.com/blog/2006/10/17/share-ofgdp-99th-95th-90th (showing that the proportion of wealth held by the richest Americans has risen over the past 35 years and implying that wealth transfers from wealthy to poor have become less common over time)
144. See generally MANCUR OLSON, THE LOGIC OF COLLECTIVE ACTION: PUBLIC GOODS AND THE THEORY OF GROUPS (1965) (setting forth an interest-group theory of politics)
145. We thank Eric Posner for suggesting this point to us
146. We thank Michael Livermore for suggesting this point to us
147. Of course, as we explained above, even CBA's ability to measure increases and decreases in wealth is compromised when the prices it relies upon are distorted. Nonetheless, the results generated by CBA are almost certainly highly correlated with changes in wealth.
148. There may certainly be non-welfarist grounds for promulgating regulations, but these are separate from what either CBA or WBA tries to measure
149. Some may find it distasteful to place a value on saving a life, but when policy choices must be made and trade-offs are necessary, there is no alternative. Any decision will involve such a valuation, so it is a virtue that CBA and WBA make their valuations explicit rather than hidden.
150. Recent tweaks to CBA have, on occasion, made slight ameliorations to this problem. But as we discuss in Part IV.B, these improvements are far less effective than is WBA at solving the problem.
151. Endless arguments could be made on each side about the moral validity of equating the deaths of the young with those of the old, but CBA cannot avail itself of those arguments. Like WBA, CBA is simply a tool for measuring aggregate welfare. Its conclusions, like those of WBA, purport to tell us whether a regulation increases or decreases quality of life on the whole. Once that verdict is in, policymakers can decide what to do with it, and their decision may well involve making welfare-independent moral judgments. But when analyzing aggregate welfare alone, as CBA does, it is indefensible to equate preserving one year of life with preserving 70 years of life. The latter unquestionably increases welfare more than does the former, for precisely the reason that saving a life at all increases welfare: it grants more time to live.
152. E.g., STEPHEN BREYER, BREAKING THE VICIOUS CIRCLE: TOWARD EFFECTIVE RISK REGULATION 61-63 (1993)
153. John D. Graham, Making Sense of Risk: An Agenda for Congress, in RISKS, COSTS, AND LIVES SAVED 183, 193-95 (Robert W. Hahn ed., 1996)
154. Timur Kuran & Cass R. Sunstein, Availability Cascades and Risk Regulation, 51 STAN. L. REV. 683, 753 (1999)
155. Neil D. Weinstein, Optimistic Biases About Personal Risks, 245 SCIENCE 1232, 1232 (1989).
156. Robert W. Hahn, The Cost of Antiterrorist Rhetoric, 19 REGULATION 51, 54 (1996).
157. Paul Slovic, The Perception of Risk, 236 SCI. 280, 282 (1987).
158. Lisa Heinzerling, Environmental Law and the Present Future, 87 GEO. L.J. 2025, 2036- 37 (1999).
159. MICHAEL EDELSTEIN, CONTAMINATED COMMUNITIES: THE SOCIAL AND PSYCHOLOGICAL IMPACTS OF RESIDENTIAL TOXIC EXPOSURE 44-46 (1988)
160. See generally KAI ERIKSON, A NEW SPECIES OF TROUBLE: EXPLORATIONS IN DISASTER, TRAUMA, AND COMMUNITY 226-42 (1994)
161. Paul Slovic, Perceived Risk, Trust, and Democracy, 13 RISK ANALYSIS 675, 677-80 (1993)
162. As we explain in the next Section, no regulation actually saves lives; it merely prolongs them. To the extent CBA focuses on saving lives, it is measuring the value of lives that presumably would have ended more or less immediately without the regulation.
163. We do not here discuss other extra-welfarist goals of regulation
164. Cass R. Sunstein, Lives, Life-Years, and Willingness To Pay, 104 COLUM. L. REV. 205, 208 (2004)
165. see also James K. Hammitt, Valuing Changes in Mortality Risk: Lives Saved Versus Life Years Saved, 1 REV. ENVTL. ECON. & POL'Y 228, 229-31 (2007) (discussing differences between VSL and VSLY measures).
166. Milton C. Weinstein, George Torrance & Alistair McGuire, QALYs: The Basics, 12 VALUE HEALTH S5, S5 (2009).
167. Amiram Gafni, Economic Evaluation of Health-Care Programmes: Is CEA Better Than CBA?, 34 ENVTL. & RESOURCE ECON. 407, 408 (2006).
168. Am. Trucking Ass'ns v. EPA, 175 F.3d 1027, 1039 (D.C. Cir. 1999) (suggesting that QALYs may be used by agencies to develop tools for judging harm), rev'd in part sub nom. Whitman v. Am. Trucking Ass'ns, 531 U.S. 457 (2001).
169. Medical Devices; Patient Examination and Surgeons' Gloves; Test Procedures and Acceptance Criteria, 68 Fed. Reg. 15,404, 15,411 (proposed Mar. 31, 2003) (codified at 21 C.F.R. pt. 800 (2012)).
170. See generally John Broome, Qalys, 50 J. PUB. ECON. 149 (1993).
171. How To Use EQ-5D, EUROQOL GRP., http://www.euroqol.org/about-eq-5d/how-touse-eq-5d.html (last visited Apr. 7, 2013).
172. Cam Donaldson, Stephen Birch & Amiram Gafni, The Distributional Problem in Economic Evaluation: Income and the Valuation of Costs and Consequences of Health Care Programmes, 11 HEALTH ECON. 55, 60-61 (2002).
173. See Richard A. Hirth, Michael E. Chernew, Edward Miller, A. Mark Fendrick & William G. Weissert, Willingness To Pay for a Quality-Adjusted Life Year: In Search of a Standard, 20 MED. DECISION MAKING 332, 333 (2000).
174. See Daniel Kahneman, A Different Approach to Health State Valuation, 12 VALUE HEALTH S16, S16 (2009)
175. See Daniel M. Hausman, Valuing Health, 34 PHIL. & PUB. AFF. 246, 256 (2006).
176. For a review, see Paul Dolan & Daniel Kahneman, Interpretations of Utility and Their Implications for the Valuation of Health, 118 ECON. J. 215, 221-22 (2008).
177. See, e.g., David L. Sackett & George W. Torrance, The Utility of Different Health States as Perceived by the General Public, 31 J. CHRONIC DISEASES 697, 702 (1978) (reporting QALYs for dialysis treatment of 0.39 and 0.56 for healthy subjects and patients, respectively). Often, patients are willing to sacrifice no or very little life, resulting in QALY scores at or near 1.0 for a variety of diseases
178. See Erik Nord, Norman Daniels & Mark Kamlet, QALYs: Some Challenges, 12 VALUE HEALTH S10, S10-11 (2009) (noting that "unwillingness to trade lifetime in elicitations of experienced utility" is an issue)
179. Donald A. Redelmeier & Daniel Kahneman, Patients' Memories of Painful Medical Treatments: Real-Time and Retrospective Evaluations of Two Minimally Invasive Procedures, 116 PAIN 3, 7 (1996).
180. Lisa Heinzerling, Risking It All, 57 ALA. L. REV. 103, 107-08 (2005) (explaining the concept of a discount rate).
181. See, e.g., Cass R. Sunstein & Arden Rowell, On Discounting Regulatory Benefits: Risk, Money, and Intergenerational Equity, 74 U. CHI. L. REV. 171, 180 (2007) (using the regulation of arsenic as an example of a government program that would impose present costs but provide benefits in the form of reduced cancer rates decades in the future).
182. See Chronic Obstructive Pulmonary Disease, NAT'L CTR. FOR BIOTECHNOLOGY INFO. (May 1, 2011), http://www.ncbi.nlm.nih.gov/pubmedhealth/PMH0001153
183. See Jonathan S. Masur & Eric A. Posner, Climate Regulation and the Limits of Cost-Benefit Analysis, 99 CALIF. L. REV. 1557, 1561.
184. See Overview of BLS Statistics on Inflation and Prices, BUREAU OF LABOR STAT., U.S. DEP'T OF LABOR, http://www.bls.gov/bls/inflation.htm (last updated Mar. 1, 2012).
185. See BUREAU OF LABOR STAT., U.S. DEP'T OF LABOR, CPI DETAILED REPORT: DATA FOR DECEMBER 2012, at 78 tbl.24 (2013), available at http://www.bls.gov/cpi/cpid1212.pdf. The average inflation rate between 2002 and 2012 was calculated by the authors based upon the data provided by the Bureau of Labor Statistics.
186. See generally Paul A. Samuelson, An Exact Consumption-Loan Model of Interest With or Without the Social Contrivance of Money, 66 J. POL. ECON. 467 (1958).
187. See OFFICE OF MGMT. & BUDGET, EXEC. OFFICE OF THE PRESIDENT, CIRCULAR A-94, GUIDELINES AND DISCOUNT RATES FOR BENEFIT-COST ANALYSIS OF FEDERAL PROGRAMS 9 (1992), available at http://www.whitehouse.gov/omb/circulars_a094 ("Constantdollar benefit-cost analyses of proposed investments and regulations should report net present value and other outcomes determined using a real discount rate of 7 percent. This rate approximates the marginal pretax rate of return on an average investment in the private sector in recent years.").
188. OFFICE OF MGMT. & BUDGET, EXEC. OFFICE OF THE PRESIDENT, CIRCULAR A-4, REGULATORY ANALYSIS 33-34 (2003), available at http://www.whitehouse.gov/ omb/ circulars_a004_a-4.
189. 10 = $11,161.41.
190. 10 = $7,625.24.