Regulation is Risky Business
How much should the government spend to save a life?
by Kenneth Green, D.Env.
At the end of the 20th Century it became obvious that industrial development had created some severe environmental consequences around the world: the dying lakes and opaque urban air were hard to miss. The risks to human health were equally obvious. Fortunately, our resources also grew large enough to address the problems, and the environment in developed countries is in vastly better shape.
We still face challenges of course, but today’s environmental risks are subtle and hard to quantify – e.g. low-level air pollution, low-dose chemical exposure, low-level water contamination, and so on. The subtlety of these risks, and the high-cost of going after the last bits of pollution creates a dilemma: it’s often unclear whether the benefits of further driving down these levels of pollution offer a net benefit to society, or simply consume resources that could be better used elsewhere to protect human health and the environment.
Activists tend to disdain the idea of basing policy on traditional risk analysis and benefit-cost analysis, preferring to invoke the “precautionary principle” as a rationale for addressing every risk with every possible resource at all times. It’s a high-minded ideal. But common sense tells us that it also isn’t possible. With finite resources and competing demands, there will be some selection process that allocates resources to risk-reduction efforts. The only question is whether or not it will be a rational one - that is - one that avoids waste.
So far, evidence suggests that “precautionary” policies lead to wasted resources and irrational investment patterns. In the United States, where the data is best, risk analysts Tammy Tengs and John Graham, of the Harvard Center for Risk Analysis, demonstrated that public policy priorities bear little relationship to any rational ranking of risks and potential risk-reduction investments of tax dollars.
For example, in their 1996 study of US risk management policy, Graham and Tengs showed that the US spent $1.5 million to save a year of a child’s life by regulating the flammability of children’s clothing, while some 30 percent of those children were living in homes without smoke alarms, an investment that would have cost about $200,000 per year of life saved. While the US spent about $21.4 billion in 1994 on 185 life-saving interventions to avert about 57,000 premature deaths (good!), spending the same amount of money based on priorities to maximize effectiveness could have saved an additional 60,000 people (better!).
In another study, Tengs and her colleagues examined the cost-effectiveness of risk-reduction measures undertaken by various governmental agencies, and discovered that not all investments in risk reduction are equally fruitful. Tengs found, for example, that while the US could save a person’s life for an additional year at the cost of $23,000 for aviation safety regulations, or $68,000 with a consumer product regulation, it cost over $7.5 million to extend someone’s life for a year through an environmental regulation.
If we’re going to infuse common sense into risk policy, several policy guidelines are necessary: First, we must limit risk-reduction investments to addressing validated risks. Confusing real risks from spurious scares diverts resources away from where it’s really needed. Consider the recent bans on so-called “ornamental pesticides.” Government agencies spent resources to ban them – an economic value lost, for no gain. Numerous environmental and health agencies have found that such pesticides are not only safe, but offer health benefits by controlling pests.
Second, we must learn to accept the constraints of uncertainty. While we may be able to identify a potential risk, we may not be able to anticipate a remedy’s adverse costs and effects. As noted policy analyst Aaron Wildavsky observed, it’s hard to intercept risks when you have little quality information. Consider if a power plant owner knew that a particular part would burn out every 150 days, a strategy of replacing the part every 149 days to prevent the risk would make sense. But where less information exists, more adaptive strategies are needed.
If a power plant had 8,000 critical pieces of equipment that, upon failure, would create a fire, but the plant owner did not know the failure rates of each piece, trying to intercept the risk by replacing pieces before they failed would be impossibly costly. Trying to have backup systems on all 8,000 pieces would be technologically difficult and probably infeasible financially. Instead, a strategy of resilience, such as having a sophisticated fire-response system, is more likely to be a feasible and efficient way of dealing with uncertain risks.
Third, we must account for risk tradeoffs and transfers. Generally, we address risk issues by sectioning them off into risk areas: environmental risk, transportation risk, food safety, and so on. But the tendency to section off risks into easily manageable categories increases vulnerability to risks of unintended consequences. For example, regulations mandating higher levels of fuel economy in cars might spare some people a smog-induced asthma attack, but because such cars are also less safe, other people might be injured or killed in a traffic accident who otherwise would not have been. Furthermore, risk tradeoffs may occur within the same risk area, for example with airbag regulations, which saved some people, but endangered others.
Fourth, we must protect economic prosperity, which is the engine that generates our baseline safety, health, and environmental quality. As many analysts have pointed out, prosperity, far from being destructive to health and the environment, is actually the primary producer of safety in market economies. When one looks around the world one finds that life expectancy, years of good health, access to safer and better nutrition and medical care all increase as prosperity increases.
Finally, we must focus on maximizing the return on our risk-reduction investments. Though it’s popular these days for environmental activists to disdain anything involving prioritization, common-sense risk management is all about priorities, and for a very good reason. With fixed resources - and nearly unlimited risks to apply them to – failure to prioritize leads to fewer lives saved.
Kenneth Green, D.Env., is Chief Scientist and Director of the Risk and Environment Centre at The Fraser Institute.