Via Yglesias, here’s a very intriguing article arguing that cost-benefit analysis doesn’t actually make much sense for some environmental issues. (It’s authored by by Frank Ackerman and Lisa Heinzerling.)
I’m not sure I’m persuaded by every element in their argument but, it does makes some extremely important points. For example, on the much-debated subject of “discounting”:
Second, the use of discounting systematically and improperly downgrades the importance of environmental regulation. While discounting makes sense in comparing alternative financial investments, it cannot reasonably be used to make a choice between preventing harms to present generations and preventing similar harms to future generations. Nor can discounting reasonably be used even to make a choice between harms to the current generation; choosing between preventing an automobile fatality and a cancer death does not turn on prevailing rates of return on financial investments. In addition, discounting tends to trivialize long-term environmental risks, minimizing the very real threat our society faces from potential catastrophes and irreversible environmental harms, such as those posed by global warming and nuclear waste.
If you’re into environmental economics, it really is worth a look.
A better link to the Heinzerling/Ackerman article is http://www.progressivereform.org/perspCostbenefit.cfm. The Center for Progressive Reform overhauled its website in the last month. The article’s the same, of course.
The monetization & discounting of life and the environment – not much raises my hackles more. I am a big fan of Frank & Liz’s work, and while I haven’t read this variant of “Pricing the Priceless”, the title and theme date back to this article from ’02, which is much more thorough. In ’04, they published a book length version of these ideas, with essentially the same title (they keep changing the sub title around). From the article I linked to, one of my favorite excerpts (in part because it’s easy to remember and so ridiculous) is how “the consulting group Arthur D. Little, in a study for the Czech Republic, concluded that encouraging smoking among Czech citizens was beneficial to the government because it caused citizens to die earlier and thus reduced government expenditures on pensions, housing, and health care”. To my amusement, Ackerman & Heinzerling continue, “In another study, analysts calculated the value of children’s lives saved by car seats by estimating the amount of time required to fasten the seats correctly and then assigning a value to the time based on the mothers’ actual or imputed hourly wage. These studies are not the work of some lunatic fringe; on the contrary, they apply methodologies that are perfectly conventional within the cost-benefit framework”.Of course, my selections over simplify and the authors most trenchant accusations lay elsewhere. Good stuff—the topic is almost worth a quarter-long study by itself.Long live the market.