EPA’s Science Advisory Board offers recommendations to improve cost-benefit analysis.
The U.S. Environmental Protection Agency’s (EPA’s) Science Advisory Board recently issued a report that would significantly advance how EPA estimates the monetary value of small changes in mortality risks. EPA’s current approach is based on studies that are more than 20 years old, and substantially better studies are now available.
While most environmental regulations lead to small changes in individuals’ chances of premature mortality, these changes can be significant when aggregated nationally. For example, a recent analysis of the Clean Air Act estimated that it will reduce the number of deaths from air pollution nationwide by almost 240,000 in 2020. The costs of such regulations are often passed on to the public as increased prices, reducing the money available for purchasing other goods and services. Researching the value individuals place on risk reduction helps decision makers determine whether those affected by a regulation gain more from the risk reduction than they lose by paying higher prices. The aggregate value of mortality risk reductions is often the largest quantifiable benefit of these regulations and can strongly affect whether a policy appears cost-beneficial.
Values of mortality risk reduction have long been controversial. The controversy results in part because economists use the term “value per statistical life,” which can be easily misinterpreted as the value of saving someone’s life with certainty rather than of reducing their risk of dying this year by, for example, 1 in 10,000. For comparison, the Centers for Disease Control and Prevention estimate the average chance of dying in the current year is about 19 in 10,000 for a 40 year-old American. Reducing the risk by 1 in 10,000 would mean that only 18 of every 10,000 40 year olds would die before reaching age 41. But we cannot predict in advance either the 18 who would still die or the one who would then live to 41 (or older).
Most federal agencies use values derived from research that focuses on individuals’ willingness to trade income for small changes in job-related risks. Newer research suggests that individual willingness to pay for small changes in own risk depends on personal characteristics (e.g., income, age), characteristics of the risk (e.g., whether death is immediate or preceded by significant illness), and characteristics of the cause (e.g., whether the risk results from driving a motor vehicle or from air pollution). While more work is needed to better quantify the effects of these factors, available research raises concerns about continuing the current practice of using the same value across different policies.
EPA discussed these issues in a 2010 White Paper that it asked its independent Science Advisory Board to review. The Science Advisory Board recommended that EPA: (1) change the terminology to avoid confusion between the value of small risk reductions and the value of saving an individual’s life; (2) recognize that values vary across contexts and, to the extent possible, use values tailored to the particular risk to be regulated; (3) apply enhanced criteria to determine which valuation studies are of sufficient quality for application in policy analysis; and (4) conduct additional research on topics such as whether individuals are willing to pay more for cancer risk reductions than for other risks, or for reductions that accrue to others rather than only to oneself.
In the near-term, the extent to which these recommendations will significantly change the values used in EPA regulatory analyses is unclear; over the longer term, an ambitious research agenda will be needed to fully meet the challenges raised by the report. The effect of this new approach may extend far beyond environmental regulations as other agencies consider the applicability of this approach to the risks they regulate.