Project Whitewash

EPA's Guidelines for Preparing Economic Analyses

Here is a brief outline of some major drawbacks of the Guidelines.

1. They monetize things that should not be monetized, strikingly the value of human life. But in fact, many other impacts, such as illness and environmental degradation, are even more difficult to obtain dollar values for, a fact explicitly recognized in the Guidelines (in the context of encouraging analysts to go ahead and use the human life estimate).

There is a big question here that the EPA scrupulously avoids: if it makes sense to value human life based on market behavior, why isn't a poor person's life worth less than a rich person's? In fact, the Guidelines say that it would be "ideal" to calculate the willingness to pay of the affected community in particular, which would value rich people's lives more than poor people's, but the actual recommended adjustments do not include socioeconomic adjustment.

2. Estimated net benefits, or ranges, will be seized upon by policy makers, whereas many other factors are likely to be discussed only qualitatively in the reports. These include inter-generational concerns and various environmental and health benefits which are difficult to monetize.

3. Analyses are done by considering the no-regulation scenario as a baseline. Thus, valuations are done starting from the assumption that a polluter has the right to pollute, rather than the assumption that people have a right to a pollution-free environment. In fact, which baseline would be appropriate may depend on a lot of factors, and there should be no property right in pollution that affects others.

This has real effects on valuations. The Guidelines recommend a Willingness to Pay approach for valuing damages, despite recognizing that this is the correct approach when property rights rest with the polluter, not with the public. They prefer WTP over Willingness to Accept on the grounds that it is more reliably measured, which is plausible, but is not sufficient grounds for completely ignoring the fact that WTP underestimates the correct value.

In the section on Environmental Impacts Analysis, the Guidelines recommend focusing on groups that would be hurt rather than those who would be helped by intervention. Since the baseline is the pollution scenario, this will lead to a bias against regulation. In many cases, of course, the baseline should be the no-pollution scenario. In the section on Equity, however, the Guidelines do explicitly discuss the need to look at disproportionate harm from pollution activity as well as from regulation.

4. The value of human life is underestimated even according to the Guidelines' own logic. In addition to the WTP vs. WTA problem discussed above, the $4.8 million estimate ignores various factors known to affect valuation, many of which would be expected to systematically increase the value of a statistical life in the context of environmental regulation. Environmental dangers tend to be "involuntary", "catastrophic", "man-made", new", "uncontrollable [by the individual]" and "unnecessary". The Guidelines suggest that these could be incorporated, at least in a qualitative fashion, but since the Guidelines themselves have failed to adjust their estimate of a statistical life based on these systematic factors, it is unlikely that individual analysts will attempt to adjust the numbers.

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