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OCR for page 23
3
The Politics of Benefi~-Cost Analysis
R. SHEP MEENICK
It is hardly surprising that the use of cost-benefit analysis, quantitative
risk assessment, and similar analytic tools generates substantial political
controversy in the United States. The risks, costs, and benefits under
scrutiny are usually difficult to estimate with precision. As one Environ-
mental Protection Agency (EPA) scientist so colorfully put it, "One of
the nice things about the environmental standard setting business is that
you are always setting the standard at a level where the data is lousy"
(quoted in Melnick, 1983:244~. Moreover, quantitative analysis frequently
spotlights politically and ethically troublesome distributional issues, issues
that pit citizen against citizen, nation against nation, and even generation
against generation. Sometimes the choices involved are "tragic" in that they
require us to decide not just who shall live but who must die (Calabresi
and Bobbitt, 1978~. Such analysis, in short, is never a purely technical
undertaking; it exposes rather than resolves hard political choices. For
this reason, most practitioners insist that benefit-cost analysis is a "decision
helping" rather than a "decision making" tool.
Adding fuel to these regulatory controversies are several beliefs that
are particularly strong and widely shared in the United States. This country
has a strong streak of populism that equates bi~whether it be business
or government-with bad. Indeed, trust in both business and government
decreased precipitously in the 1970s. American political culture also puts a
premium on procedures that offer a wide variety of interest groups and cit-
izens the opportunity to participate in decision making. The United States'
peculiar governmental institutions particularly its independent and ener-
getic legislative and judicial branches-reflect and reinforce these beliefs. It
is not surprising, therefore, that a number of recent studies have shown that
R. Shep Melnick is associate professor of politics at Brandeis University and a member of the
associated staff of the Brookings Institution.
23
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24
THE POLITICS OF BENEFIT-COST ANALYSIS
environmental regulation is much more adversarial and contentious in the
United States than in other advanced industrial democracies (Badaracco,
1985; Brickman, Jasanoff, and Ilgen, 1985; Coppock, 1985; Vogel, 1986~.
What is startling, however, is the extent to which many key actors in
the U.S. environmental regulation arena claim that decision makers should
not even attempt to estimate, compare, or balance risks, costs, and benefits
in making regulatory decisions. This absolutist, moralistic rhetoric is a
uniquely American phenomenon. Much of our public debate focuses not
on such important and difficult questions as how to discount future benefits
or how to estimate cancer rates but on whether it is proper (or, as some
contend, sinful) to "put a price tag on human life." Consider the following
examples.
In 1981-1982 the Subcommittee on Environmental Protection of
the Senate Committee on Environment and Public Works unanimously
defeated a proposal to allow EPA to consider cost in setting primary (health-
based) air quality standards. It even defeated a proposal to allow EPA to
consider cost in setting secondary (welfare-based) air quality standards.
One senator explained that, if these proposals had passed, "[wee would
no longer consider acceptable air quality, but a standard we can afford"
(Environment Reporter~urrent Developments [1982] 12:891~.
· When EPA decided to consider both cost and extent of risk in
setting limits on "hazardous" air pollutants, Congressman Henry Waxman,
chairman of the House subcommittee with jurisdiction over the program,
castigated the agency for "writing off" endangered individuals and "re-
ducting] human lives to statistics" (Environment Reporter Current Devel-
opments [1985115:306~. Environmental groups fought this policy in court,
arguing 'You can't compromise the decision to set standards with cost con-
siderations. You cannot take into account the cost of control and use that
number to argue against controlling pollutants" (Environment Reporter
Current Developments [1985315:865)
· In 1981 the U.S. Supreme Court ruled that the Occupational Safety
and Health Act precluded the use of benefit-cost analysis in setting "per-
missible emission limits" American Textile Manufacturers v. Donovan, 452
U.S. 490 [19813~. Previously, the D.C. Circuit had found that the "legisla-
tive history of the [Clean Air] Act also shows that the Administrator may
not consider economic and technological feasibility in setting air quality
standards" (Lead Industries Association v. EPA, 647 F.2d 1130 [1980] at
1149~.
The implication of each of these illustrations is that nothing should be
allowed to stand in the way of reducing possible health risks-which ulti-
mately means the reduction to zero of human exposure to pollutants linked
to disease.
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R. SHEP MELNICK
25
Those who oppose the use of benefit-cost analysis) of course, are
seldom completely faithful to their "health-only" creed. They tale about
economic feasibility rather than cost; they countenance lax enforcement;
they create exemptions for special classes of polluters; they encourage-
indeed, sometimes even demand-delay, lest the consequences of their
general policy become too apparent. For example, in 1983 the very same
Congressman Wamnan quoted earlier attacked EPA Administrator Anne
Gorsuch Burford for imposing sanctions on areas that failed to meet air
quality standards for ozone (i.e., smog). He called for a more "flexible" ap-
proach and successfully sponsored legislation to extend statutory deadlines
once again (Melnick, 1984~. This incident highlights the central paradox of
the controversy: the widespread hostility to the use of benefit-cost and risk
assessment analysis is based on an absolutist health-only position that virtu-
ally no one is willing to embrace in the real world. 1b put it more bluntly,
almost no one really believes what many informed people emphatically
maintain in public.
Human beings in general and elected officials in particular find it
difficult to admit that the policies they support leave some innocent people
at risk, especially when that risk is potentially lethal. Yet why is it that
health-only legislation and rhetoric are common in the United States but
virtually unknown in Western Europe? One would expect just the opposite.
The United States is generally seen as more sympathetic to free enterprise,
more suspicious of government control, more pragmatic, and more inclined
to act slowly and incrementally than are European nations.
The answer, I will argue, lies above all in the structure of U.S. political
institutions. Political power in this country is remarkably dispersed. Despite
the growth of the national government in recent decades, state and local
governments remain important players in the area of environmental regu-
lation. The U.S. Congress is by far the most powerful and active legislative
body in the world. While other legislatures have become subservient to
the executive, the American Congress underwent a resurgence in the late
1960s and early 1970s. Central to this reassertion of congressional author-
ity was further decentralization of power, commonly known as the rise of
subcommittee government. Nowhere is the influence of Congress or the
extent of decentralization more evident than in environmental protection.
For example, from 1969 to 1979, Edmund Muskie, the chairman of a Sen-
ate subcommittee, had at least as much influence on environmental policy
1 Throughout this paper, I use the term benept-cost analysis as a shorthand for a variety of tech-
niques for quantifying and comparing costs, risks, and benefits. Although the differences among
benefit-cost analysis, cost-effectiveness analysis, and various forms of risk assessment are sub-
stantial, for the purposes of this paper, those differences are of limited importance. The focus
here is the nature of political opposition to any form of explicit consideration of cost or degree
of risk.
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26
THE POLITICS OF BENEFIT-COST ANALYSIS
as Presidents Richard Nixon and Jimmy Carter, or EPA Administrators
William Ruckelshaus and Douglas Costle. In parliamentary systems, few
members of the "loyal opposition" retain so much power.
Much the same can be said of the activity of the judiciary. Hardly any
major environmental policy escapes close scrutiny by the courts. Federal
judges have issued hundreds of decisions shaping regulatory policy. In the
words of Brickman, Jasanoff, and Ilgen (1985:46), "heaven a casual observer
is struck by the vastly lower level of judicial involvement in European
regulatory processes." Several environmental groups, most notably the
Natural Resources Defense Council and the Environmental Defense Fund,
have used their success in litigation to become major participants in national
policy making. In the United States, each level and branch of government
offers access to a wide variety of groups, including corporations, trade
associations, labor unions, professional associations, and intergovernmental
lobbies, as well as environmental groups.
Dispersion of power has three important consequences for environ-
mental policy making. First and foremost is the dispersion of responsibility.
In the United States, it is easy to shift the blame for nearly everything to
someone else (see Weaver, 1987~. Second, because no one controls the
entire policy-making process, each participant tries to squeeze as much as
possible out of the limited portion he or she controls. Third, given the
complexity of the entire process, it is difficult to see the connection between
the decisions of each participant and eventual outcomes.
These factors in turn affect the receptivity of political actors to benefit-
cost analysis. Politicians find it very tempting to take an absolutist, health-
only stance when those who will actually impose restrictions on employers,
employees, and consumers are located in a different branch of govern-
ment. The temptation becomes nearly irresistible when the other branch
is nominally controlled by the rival political party. Moreover, each partic-
ipant reacts to the perceived biases of the others. Congress exaggerates
its goals because it expects the executive branch to water them down; the
executive branch does in fact water them down, in part because it considers
Congress's goals to be hopelessly irrational. Given the distrust created by
these self-fulfilling prophecies, it is hard to engineer compromise, especially
when compromise requires a long sequence of decisions. In addition, the
difficulty of connecting particular governmental decisions with real-world
outcomes makes it hard to convince anyone that exaggerated, absolutist
demands have unfortunate long-term consequences.
These problems by no means prove that the European approach
is superior to ours. The United States spends more on environmental
protection measured both in total dollars and as a percentage of its gross
national product (GNP)-than any other industrial nation. The key unan-
swered question is whether the United States gets more "bang" for these
OCR for page 27
R. SHIP MELNICR
27
environmental '`bucks.'' Most scholars who have addressed this issue have
retreated to agnosticism. For example, in his extensive comparative study
of American and British regulation, David Vogel (1986:146) notes that
"it is difficult to determine the comparative effectiveness of governmental
regulations in different countries"; he concludes that "loin balance, neither
nation's regulatory policies have been significantly more or less effective
than the other's: both have had some notable achievements and some con-
spicuous failures." (See also Brickman, Jasanoff, and Ilgen, 1985:313-314.)
One cannot even say with confidence that moving to a less adversarial
system would increase receptivity to benefit-cost analysis. Indeed, the very
informality of European policy making militates against the use of such
formal analysis. The European example stands not so much as a model for
emulation as a reminder of the peculiarities of American politics.
ALTERNATIVE EXPLANATIONS
Most of this paper is devoted to explaining the incentives and strategies
of congressmen, judges, agency officials, and environmental advocates.
Before delving into this institutional and legal analysis, however, it is
worth considering three simpler, more commonly heard explanations for
the American antipathy to benefit-cost analysis. Each explanation has some
merit, but each is also seriously incomplete.
Thinking Like Lawyers
Benefit-cost analysis is a tool devised by economists. Yet lawyers dom-
inate Congress, the courts, and the upper echelons of most regulatory
agencies. Economists think in terms of opportunity costs and incentives;
lawyers think in terms of rules and penalties and of defeating their ad-
versary (Schultze, 1977; Rhoads, 1985~. Not only are lawyers suspicious
of techniques they do not understand, but they are unwilling to accept a
process they cannot control.
The predominance of lawyers in Congress most likely explains the
heavy reliance on "command and control" regulation throughout the 1970s.
Still, the thinking-like-a-lawyer argument grows less convincing with every
passing year. Congress has embraced the use of benefit-cost analysis for
water projects and other programs. Moreover, most of the key concepts
behind benefit-cost analysis (e.g., opportunity costs and the impossibility of
eliminating all risks) are all too familiar to those who make decisions about
the federal budget. In other words, the language of economists is foreign
neither to the world of politics nor to the world of the law.
Just as importantly, the number and influence of economists and
'~policy analysts" is increasing both in Congress and in the executive branch.
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28
THE POLITICS OF BENEFIT-COST ANALYSIS
As Derthick and Quirk (1985) show, deregulation of airlines, trucking, and
telecommunications occurred in the 1970s largely because congressmen,
presidents, and regulators accepted the arguments presented by this growing
herd of economists. If economists have prevailed elsewhere, why not in the
realm of environmental policy? The answer lies in the nature of political
incentives.
Ravenous Bureaucrats
Many critics of health and safety regulatory policy blame overzealous
bureaucrats for excessive regulation. There is no more common theme
among small businessmen, Republicans, or contributors to Regulation mag-
azine. Environmental protection agencies, according to these critics, attract
people who are single-mindedly committed to protecting the environment.
Bureaucrats seek to expand their empire. Government officials revel in red
tape. And so on.
Regulatory agencies such as EPA and the Occupational Safety and
Health Administration (OSHA) undoubtedly attract personnel who accept
the mission of their organizations. It is not hard to find officials at a variety
of levels who can be described as zealots. At the same time, however, some
regulatory agencies have spawned efforts to expand the use of benefit-
cost analysis and to find other ways to balance environmental protection,
economic growth, and energy production. In several instances, EPA has
turned to benefit-cost analysis despite criticism from Congress.
Most regulatory agencies are internally diverse, numbering economists
and political executives, as well as lawyers, engineers, and scientists, among
their staffs. Political executives must take responsibility for the conse-
quences of agency decisions economic as well as environmental. Agency
economists spend a good deal of their time estimating the economic conse-
quences of regulatory decisions and responding to arguments put forth by
economists outside the agency. These two factors political responsibility
and the professional norms of economists sometimes lead agencies to em-
brace forms of analysis that are heartily disliked by their allies in Congress
and by environmental groups.
Media Hype
A number of recent studies have shown that the alleged anti-business
bias of the press is more than just a figment of Jesse Helms's fertile
imagination. Public perceptions of environmental risks are to a large extent
shaped by the media, which in turn tend to dramatize and exaggerate those
health risks that can be personalized and photographed. Publicizing a new
risk or emphasizing an existing one creates intense political pressure to act.
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R. SHEP MELNICK
29
In a "crisis," few politicians dare ask what the effort will cost. The press
then turns to other matters, but regulations remain in place one part of
the "regulatory ratchet" described by Bardach and Kagan (1982:Chap. 7~.
In his description of press coverage of a haphazardly researched report
on the Love Canal, Marc Landy illustrated how some environmental issues
get placed at the top of the national agenda:
The report's sensational language, coupled with the excellent photo
opportunities presented by mauve lawns, chartreuse basement walls, and
irate residents, aroused the news media from its late summer torpor.
Love Canal became the leading national news story for days on end.
In the following months, documentaries appeared on the networks, Time
did a cover story, and Jane Fonda paid a tearful visit. (1986:60)
Landy pointed out an important asymmetry in press coverage: reports on
health dangers receive considerable attention; more careful examinations
of the reports' reliability do not. Another study of the media and regulation
(Rothman and Lichter, 1987) has shown that, although the general public
views nuclear energy as quite dangerous, most scientists familiar with nu-
clear power (including those with no financial ties to the industry) consider
it relatively safe. The media, Rothman and Lichter argue, have fostered
this public perception by mistakenly implying that the scientific community
is closely divided on the issue, by devoting disproportionate attention to the
most extreme opponents of nuclear power, and by giving more credibility
to scientists affiliated with environmental groups than to those affiliated
with business or government.
In addition to highlighting health risks, the media are eager to discover
scandal. In environmental regulation, scandal usually means exposing "un-
due" industry influence political pressure that results in inadequate pro-
tection of public health. Some reporters interpret any overt consideration of
cost as evidence of undue industry influence. For example, Martin Dolphin,
who covers Congress and regulatory affairs for the New York Times, makes
no effort to hide his contempt for '`the spurious standards of cost-benefit
analysis, a theory whose flaws unfold as soon as they are held up to public
scrutiny" (lblchin and Chin, 1983:124~. "This kind of decision making,"
he and his coauthor assert, "has no place in the public sector" (1983:141~.
The policies and careers of James Watt, Rita Lavelle, and Anne Gorsuch
Burford did not create these deep suspicions of regulatory "capture," but
they did much to confirm them.
Reporters, nonetheless, are equal opportunity scandalmongers. In the
mid-197Os, newspapers were full of OSHA "horror stories." Local papers
are particularly quick to jump on EPA for being too rigid and single-
minded in applying emission rules to local industries and municipalities.
What seems to characterize the press above all is an eagerness to find fault
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30
THE POLITICS OF BENEFIT-COST ANALYSIS
with whoever appears to be powerful. In the words of Walter Cronkite,
"As far as the leftist thing is concerned, that I think is something that
comes from the nature of a journalist's work.... I think they're inclined
to side with humanity rather than with authority and institutions" (quoted
in Rothman, 1979:364~. Thus, regulators have good reason to believe that,
in the eyes of the press they are damned if they do and damned if they
don't. Like nearly everyone else, the press places conflicting demands on
the regulatory system.
Public Opinion and Political Culture
A recent EPA study found that the agency's "overall priorities ap-
pear more closely aligned with public opinion than with estimated risks',
(Environment Reporter-Current Developments [1987317:1823~. Public opin-
ion polls continue to show remarkably strong support for environmental
programs, particularly those that seek to protect public health (Mitchell,
1984~. A 1986 poll, for example, found that 66 percent of its sample agreed
with the statement that `'protecting the environment is so important that
requirements and standards cannot be too high, and continued improve-
ments must be made regardless of cost" (Lipset, 1986~. A 1981 Harris poll
found that 80 percent of the public opposed any relaxation of the Clean
Air Act; 65 percent opposed any cost-based constraints on health standards
(Melnick, 1983:38~. With evidence such as this, it is not surprising that sev-
eral participants in this conference have argued that the public "demands"
strict regulation of environmental hazards.
Why has public support for environmental protection remained so
strong? One reason is that environmental programs offer benefits to a wide
variety of groups: upper-middle-class hikers, workers in hazardous indus-
tries, members of minority groups concentrated in polluted urban centers,
suburbanites hoping to protect property values, and business firms who
benefit in one way or another from pollution control. Equally important
is the fact that the average citizen seldom directly experiences the cost of
environmental regulation. It is comforting to believe that somehow corpo-
rations (such as General Motors) or wealthy families (such as the DuPonts)
rather than consumers and employees will pay for environmental protec-
tion. When costs are imposed on private individuals-as they were with
transportation controls in the mid-1970s, the proposed ban on saccharine,
and interlocking seatbelts-the public response is usually overwhelmingly
negative.
Since the public generally believes that business pays for environmental
protection, it is not surprising that support for environmental regulation
is inversely proportional to confidence in business. Since the mid-1960s,
such confidence, particularly in big business, has plummeted. According to
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R. SHEP MELNICR
31
Lipset and Schneider (1986), in 1966, 55 percent of the public expressed
"a great deal of confidence in the people running our major companies";
in 1984, only 19 percent shared this view. In 1985, 73 percent of the public
believed that "there is too much power concentrated in the hands of a few
large companies for the good of the nation." The United States may have
no socialist tradition, but it has a populist tradition that expresses many of
the same concerns. In his comparative study, David Vogel found that
the debate over environmental regulation represents a contemporary
version of American populism: the interests of "big business" in pro-
duction and pollution were contrasted with those of the "people" in
the preservation of the ecosystem....Threats to the public's health
and safeW have not been seen, as they are in Britain, as an inevitable
component of production and consumption in a highly industrialized
and affluent society; rather they have become identified with the profit
motive of America's largest firms. (1986:254)
The brief "revolt against regulation" experienced during 197~1982 appears
to have resulted more from decreasing trust in government than from
increasing trust in business. Ironically, Ronald Reagan has helped to
build trust in government while Ivan Boesly, Michael MilLken, and their
compatriots have further eroded trust in business.
The public's perception of environmental issues above all, its percep-
tions of the nature and distribution of costs and risks largely determines
its response to polling questions that are often misleadingly simplistic. A1-
though environmentalists often argue that regulatory policy should simply
respond to public demand (jettisoning analysis in the process), proponents
of benefit-cost analysis maintain that the public must be educated about
the true nature of the choices faced by policy makers. As Milton Russell
(in this volume) puts it, "to obfuscate inevitable choices is to violate the
premise of a government based on the consent of the governed...."
Members of Congress, judges, presidents, the public, and the press
all make multiple demands of government. Americans want to avoid war
but stand up to the nation's enemies; to fund a variety of programs but
reduce taxes and the deficit; to encourage broad participation but avoid
regulatory delay; to promote economic growth but refrain from harming the
ecosystem. That government officials would like to avoid the hard choices
necessitated by these conflicting demands is undeniable. Yet in most cases,
certain features of the policy-making system above all, the need to pass
a budget force them to choose. In contrast, regulatory politics has no
such unifying, choice-forcing mechanism readily available. Some writers
have advocated a "regulatory budget" to bring greater coherence and
responsibility to the regulatory process (titan and Nordhaus, 1983:Chap.
6~. One major problem such proposals face is that many participants gain
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32
THE POLITICS OF BENEFIT-COST ANALYSIS
significant benefits from the existing arrangements. The remainder of this
paper focuses on the institutional incentives and strategies of those most
opposed to the use of benefit-cost analysis.
CONGRESS: KEYSTONE OF THE
ENVIRONMENTAL ESTABLISHMENT
The starting point of any discussion of the politics of environmental
protection must be the fact that all of the major environmental statutes
of the 1970s were the product of congressional rather than presidential
initiation. This simple fact has a number of important consequences.
First, members of Congress, especially subcommittee chairmen, con-
sider the Clean Air Act, the Clean Water Act, the Superfund Act, and the
other environmental legislation their laws. They advocated action when the
president was lukewarm or even hostile. 1b such key figures as Edmund
Muskie, Robert Stafford, Paul Rogers, Henry Waxman, and James Florio,
statutory intent means their intent. They have devoted much of their time
to these issues because they consider environmental protection to be a
particularly noble and popular cause. In this respect, they are typical of
nearly all those who have chosen to sit on environmental protection sub-
committees. Here as in many other policy areas self-selection creates
a bias that administrators ignore at their peril (see, for example, Shepsle,
1978:Chap. 10~. John Mendeloff has found that, of the dozens of oversight
hearings on health and safety regulation, "all but four featured criticisms
that agencies had been too lax" (1987:7-59~.
Second, the difficulty of creating broad new programs without presi-
dential leadership requires members of Congress to uncover "crises" that
command media attention and demand immediate action. Presidents can
attract attention for a handful of legislative initiatives simply because they
are president. Members of Congress command media attention only when
they uncover scandals or dramatic, life-threatening problems requiring
tough, comprehensive solutions. Thus, to be bought, environmental pro-
grams must often be oversold.
Third, congressional initiatives on environmental protection are part
and parcel of the broad reassertion of congressional power that began in
the late 1960s. Congress has claimed that it, rather than the `'imperial
presidency," should set national policy. Moreover, Congress has declared
that federal bureaucracy is too slow, too parochial, and too receptive to
the influence of business to deal effectively with environmental problems.
The detailed, `'action-forcing" statutes passed in the 1970s were founded
on a deep distrust of the executive branch and on the conceit that statutory
language could provide definitive answers to almost all policy questions
(see, for example, Florio, 1986~.
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R. SlIEP MELNICK
33
On the latter score, congressional entrepreneurs were clearly mis-
taken. EPA and other regulatory agencies were given little usable guidance
on how to set air quality standards, new source performance standards,
effluent guidelines, and the like. Given the amount of money at stake, it
is not surprising that presidents have sought to have some part in agency
decision making. President Nixon initiated the "Quality of Life Review,"
and President Ford added "Inflation Impact Statements." President Carter
created the Regulatory Analysis Review Group, which provided detailed
analyses of major environmental rules. The Reagan administration's efforts
to increase substantially the power of the Office of Management and Bud-
get (OMB) and to insist on the use of benefit-cost analysis except when
expressly prohibited by law are the latest and most extensive attempts by
the White House to influence regulatory policy. All of these regulatory
review measures received harsh criticism from Capitol Hill.
OMB: The Eye of the Storm
Controversy over the use of benefit-cost analysis is thus intertwined
with more than 20 years of legislative-executive conflict. Members of
Congress understandably associate benefit-cost analysis with hostile OMB
economists seeking to relax environmental standards. They see such analytic
techniques as little more than Trojan horses carrying industry lobbyists.
Conversely, White House and OMB officials view congressional hostility
to benefit-cost analysis as further evidence of congressional demagoguery
and stubbornness, and an unwillingness to admit that it is impossible to
create a risk-free world. Those conducting "regulatory reviews" believe that
benefit-cost analysis partially corrects the unbalanced policies advocated by
influential members of Congress; members of Congress, on the other hand,
see it as a form of regulatory impoundment.
The contrasting perspectives of Congress and the White House spring
from two sources. The first is partisanship: for 17 of the past 21- years, the
Democratic Party has dominated Congress and the Republican Party has
controlled the presidency. (Some Democrats would add that, in the second
half of his term, President Carter acted more like a Republican than a
Democrat.) Republicans tend to be more suspicious of government control
than are Democrats; Democrats see environmental protection as a good
issue to use against Republican presidents. The second cause is institutional.
As noted earlier, the most vocal members of Congress are those who are
most thoroughly devoted to environmental protection. Moreover, given
the broad appeal but low salience of environmental issues for voters, most
members of Congress discover that "a pro-environmental voting record
can only help, not hurt, at reelection time" (Mitchell, 1984:68~. Playing
it safe the strategy of most incumbents means not appearing to favor
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44
THE POLITICS OF BENEFIT-COST ANALYSIS
sent the vinyl chloride standard back to EPIC This second opinion (also
written by Judge Bork) followed the first in rejecting the Natural Resources
Defense Council's argument that EPA must set a standard of zero for a
nonthreshold pollutant. According to the court, "Since we cannot discern
clear congressional intent to preclude consideration of cost and technolog-
ical feasibility . . . we necessarily find that the Administrator may consider
these factors" (~Environment Reporter-Cases [1987] 26:1263 at 1278~. Yet
such considerations can come into play only after the Administrator has
made "an initial determination of what is 'safe"' (p. 1280~. This decision
"must be based solely upon the risk to health. The Administrator can-
not under any circumstances consider cost and technological feasibility at
this stage of the analysis." Cost and feasibility, apparently, can influence
only the size of the "margin of safety." But the court also emphasized
that "safe" cannot mean "risk-free" and that even during the first stage of
analysis the Administrator must use his "expert judgment" to determine
what is an "'acceptable' risk to health." The en bane opinion, in short,
bore all the marks of a report written by a committee. After making a
series of contradictory arguments, the court remanded the standard to EPA
"for timely reconsideration of the 1977 proposed rule consistent with this
opinion" (p. 1281~.
Given the intellectual disarray in the Supreme Court and the D.C.
Circuit, one should not expect too much consistency from the courts.
Although the courts have given EPA and regulatory reviewers more elbow
room in such cases as Sierra Club v. Costle and Natural Resources Defense
Council v. EPA, in a varied of other cases the courts have struck down rules
(or recisions of rules) they consider too lenient.3 In 1985 the D.C. Circuit
heard 19 cases involving deregulation. Agencies won 11 and lost 8. In 6 of
the 8 the agency lost, the court found the agency's explanation for its policy
inadequate (Wald, 1986:537~. This trend indicates that administrators who
admit to using some form of benefit-cost analysis in setting health and
safely standards would be well advised to collect a good deal of support
for their position from legislative histories as well as from more technical
data and to show that they are not merely responding to pressure from
OMB, the White House, or industry. All they can do then is hope to face
a sympathetic panel on the D.C. Circuit.
3These cases include the following: Motor Vehicle Manufacturers Assoc. v. State Farm Mutual
(436 U.S. 29 [1983]), Farmworkers Justice Fund v. Brock, Occupational Safes and Health~ases
(13:1059[D.C. Cir., 1987~), Public Citizen Health Research Group v. Tyson, OccupationalSafety
and Health~ases (12:1905 [D.C. Cir., 1987~), and the large number of cases listed in Garland
(1986) at n.185. Data for 1987 show that the D.C. Circuit approved the ruling of the administra-
tive agency in only 40 percent of the cases it heard (Pierce, 1988:301~.
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REGUI^TORY AGENCIES
No images of regulatory agencies frequently surface in discussions of
health and safety regulation. The first stereotype is that of the regulator
as zealot. The second is the image of the ~`captured'' agency. The first
view encourages the belief that regulators will never voluntarily initiate-or
even implement, in good faith procedures to quantify and compare costs,
benefits, and risks. 1b exaggerate only slightly, this is the view that often
pervades OMB. In contrast, the capture version of the story paints benefit-
cost analysis as little more than a tool of industry lobbyists and agency use
of such analysis as evidence that regulators have "sold out" once again.
Like all stereotypes, these two fail to reflect the complexity of political life.
It is useful to consider at greater length why administrators are sometimes
driven to use benefit-cost analysis and why they remain wary of employing
it more fully.
Derthick and Quirk (1985:Chap. 3) have found that in three agen-
cies administering "economic" regulation (the Civil Aeronautics Board, the
Federal Communications Commission, and the Interstate Commerce Com-
mission), a number of regulators adopted-even preached the 'views of
mainstream microeconomics, even though this analysis threatened the very
survival of their agencies. Derthick and Quirk found two major causes of
this behavior. First, when presidents care to do so, they can usually appoint
political executives who share their political views. These appointees can
have a significant impact on the agencies they head, even when these views
are at odds with the mission of the agency. Second, agencies sometimes
house dissidents who become disillusioned with the performance of the
agency and seek to change its behavior.
The Reagan administration made unprecedented efforts to ensure that
its political appointees were skeptical of or even openly hostile to what it
considered social regulation. In a few instances (especially those involving
Anne Gorsuch Burford but also Raymond Peck at the National Highway
Maffic Safety Administration), the resulting animosity between agency and
chief administrator was destructive of both agency morale and regulatory
reform. In other cases, less abrasive, more-knowledgeable appointees have
succeeded in encouraging the greater use of benefit-cost analysis, in part
by building up the offices responsible for performing economic analysis.
Perhaps the best example of this approach is the Federal Made Commission
under James Miller.
It is important to note, however, that EPA had begun to place greater
emphasis on economic analysis well before 1981. During the Carter years
the Office of Planning and Management under William Drayton increased
both its technical sophistication and its internal political clout. Not only
did it benefit from its position as the unit responsible for countering the
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THE POLITICS OF BENEF1~-COST ANALYSIS
arguments of Regulatory Analysis Review Group economists, but it began
to educate itself and the rest of the agency about the cost and effectiveness
of various programs. The hazardous air pollution policy discussed in the
preceding section, a policy that departs from EPA:s normal health-only
stance, took shape during these years. Very few people at EPA wanted to
mandate hugely expensive hazardous emission controls to reduce already
small risks. Faced with an all-or-nothing choice, most staff viewed nothing
as preferable. Because they remained concerned about some of these
health risks, however, they sought to broaden the array of choices open to
the agency.
There are at least two reasons for believing that regulators, including
those in the civil service, will become increasingly sympathetic to the use of
techniques for estimating and comparing costs and risks. The first reason
is internal. As more and more new jobs are assigned to regulatory agencies
and as the complexity of these tasks becomes apparent, regulators Drill
want some indication that they are addressing important problems rather
than trivial ones. Ordered by Congress to make everything a priority,
regulators must find some non-statutory basis for ranking their tasks. Cost-
effectiveness is an obvious candidate.
The second reason involves the mobilization of political support. Two
decades of experience with environmental regulation show that it is not
easy to change social and economic practices that adversely affect the
environment. As costs mount, Congress becomes more ambivalent, and
opposition from within the executive branch intensifies. When industry
views regulation as ruinous, it pulls out all the stops in its opposition, trying
first to block agency rules and then to avoid complying with them. (The
history of air pollution regulations for steel mills, smelters, and midwestern
utilities clearly illustrates this dreary fact.- enforce pollution rules, EPA
needs the cooperation not just of industry but of state and local governments
and federal district court judges as well (Melnick, 1983:Chap. 7~. Not only
must the agency avoid "going to the well" too often, but it will be severely
hampered if it cannot show each of these actors that costs bear some rough
resemblance to benefits. Faced with abstract policy questions, the public
often advocates paying "any price" for a clean environment; faced with the
prospect of actually bearing these costs, most people change their mind.
There remain two important obstacles to the greater use of benefit-cost
analysis in regulatory agencies. The first obstacle is the problem of image.
In opposing the explicit consideration of cost in setting the ambient standard
for airborne lead, two EPA lawyers argued that "two have billed ourselves
emphatically of late as a health protection agency. This is an instance where
we really need to behave as if we believe our image-making" (quoted in
Melnick, 1983:278~. 1b the extent that an agency appears to forsake its role
as an advocate for the protection of the environment and of public health,
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48
THE POLITICS OF BENEFIT-COST ANALYSIS
want to make standards more reasonable must be willing to show that they
are committed to aggressive enforcement of the revised requirements.
ENVIRONMENTAL GROUPS
Leaders of environmental groups are clearly among the most vocifer-
ous opponents of benefit-cost analysis. Because these groups have, to a
remarkable extent, retained their influence despite the "Reagan Revolu-
tion," their views count. Yet understanding the nature of their opposition
is not always easy. Environmentalists do not distrust all forms of economic
analysis: they have supported the use of benefit-cost analysis for water
projects and timber sales, as well as the application of marginal cost pricing
to electricity. Still, in most other areas, environmentalists have claimed that
benefit-cost analysis inevitably underestimates the environmental benefits
and overstates the economic costs of a policy. One must ask why, if these
mistakes are so clear, environmentalists do not seek to correct them rather
than to reject all efforts to compare costs and risks.
Inhere are several plausible explanations for their behavior. First and
most obviously, environmental leaders need to maintain the viability of
their organizations. Voluntary organizations, especially those depending
on contributions raised through direct mail solicitation, must make simple
moral appeals to their constituents. 'Polluters are killing people and we
must make them stop" has much more pizzazz than "let's raise the cost-
per-life-saved from $1 million to $2 million." No one wants to abandon the
high moral ground. Moreover, as noted earlier, unmet standards provide
opportunities for further crusades and lawsuits.
Second, the environmental groups that are most active at the national
level especially the Natural Resources Defense Council, the Environmen-
tal Defense Fund, and the Sierra Club- have more influence during the
legislation-writing and standard-setting phases of regulation and less influ-
ence in enforcement oversight. In addition, they view their information-
gathering resources as vastly inferior to those of the business community.
Their failure to take an absolutist position in rule making, they fear, will
allow their opponents to overwhelm them with one-sided information. En-
vironmental groups that are convinced they are both seriously outnumbered
and (to use Michael Pertschuk's phrase) "on the side of the angels" will
tend to use every available political resource. The leaders of environmental
groups, after all, are advocates. They push as hard as they can because
they know their opponents will do the same.
Third, for environmental groups the indirect consequences of some
rules are more important than their direct effects. For example, environ-
mentalists pushed transportation control plans in the early 1970s because
they wanted to restructure the transportation systems of major cities, not
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49
because they believed that ozone constituted a monumental health threat.
Similarly, they viewed EPAs prevention of significant deterioration (PSD)
regulations as a way to regulate land use and not just pollution (Melnick,
1983:Chaps. 4 and 9~. The political allies of environmental groups also have
hidden agendas. Eastern coal producers backed the 'Percentage reduction"
requirement for coal-buming power plants for protectionist reasons (Ack-
erman and Hassler, 1982~. According to Bernard Frieden (1979:5), in
California, "[riesistance to growth. . Turned into general hostility toward
homebuilding for the average family, using the rhetoric of environmental
protection in order to look after the narrow interests of people who got
to the suburbs first." The rhetoric of environmental protection-especially
when it is freed from the need to answer such questions as how much
something will cost and who will pay for it can serve many masters.
Finally, environmentalists seek not just to lower pollution levels but
to raise public consciousness. Once the moral juices are drained from the
debate, this job becomes impossible to perform. Similar concerns lie behind
labor unions' insistence on strict occupational and health rules. According
to John Mendeloff,
The frequency with which health and safety topics are discussed in union
newspapers suggests that they are good political issues for union leaders.
More than most issues, they help mobilize a sense of class conflict-of
"us" against "them." For this purpose, it helps to draw the lines sharply:
unions want the "lowest feasible limit" while the companies want to
sacrifice lives for profit. (p. 160)
For some members of the environmental movement, raising public con-
sciousness also means calling into question existing political and economic
structures. For them, benefit-cost analysis "legitimizes" not only a level of
pollution but also the profit-making system that produces it.
The number of people who consider themselves environmentalists is
quite large, and those who are active in environmental organizations are a
varied lot. The environmental "movement" ranges from traditional conser-
vationists to the radical "sectarians" described by Douglas and Wildavsky
(1982~. The issue of benefit-cost analysis may eventually separate those
whose chief interests are health, safety, and prudent use of natural re-
sources from those with a much broader political agenda.
CONCLUSION
No one opposes environmental protection per se. Few sane people
enjoy pollution or despise scenic vistas. Environmental protection seldom
raises troublesome racial issues, and it does not divide people sharply along
class lines. The real political issue is always that of opportunity costs: What
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50
THE POLITICS OF BENEFIT-COST ANALYSIS
is given up in reducing water pollution or protecting the snail darter or
creating a national wilderness area? If environmental benefits were costless,
regulation would generate virtually no controversy.
It took a long time in the United States for environmental issues to
reach the national agenda. Environmental regulation was viewed either
as improper interference with private property or as the bailiwick of state
and local governments. The federal government's position was similar to
that of a parent dealing with a rebellious teenager: "I don't even want to
talk about it." Matthew Crenson (1971) has referred to this phase as `'the
unpolitics of pollution."
For reasons that are not yet entirely clear, environmental protection
suddenly burst upon the national scene in 1969-1970. At this point the
United States' complex system of "separated institutions sharing power" a
system that had previously inhibited action by the federal government
created a bias in favor of stringent regulation. Why? This paper has
suggested that the explanation lies in the fact that the structure of U.S.
governmental institutions makes it relatively easy for many actors to ignore
the only rationale for limiting efforts to protect the environment, namely,
opportunity costs. Both Congress and the courts have taken strong-
indeed, utopian-positions and delegated to others the job of clarifying
and imposing the concomitant costs. Confronted with these legislative
and judicial demands, even the most conscientious administrators have
taken actions they consider extremely unwise. (The classic example is
the transportation control plan EPA announced for Los Angeles in 1973.
Referring to the fact that he acted under court order, EPA Administrator
William Ruckelshaus joked, "Faced with a choice between my freedom and
your mobility, my freedom wins.") Stringent, often unattainable standards
provide political benefits for several groups: congressmen who wish to
embarrass and berate the executive branch; Democrats seeking to show
that Republican presidents have no respect for the environment or for
human life; environmentalists who want to keep industry constantly on the
defensive and in ill repute.
This is not to say, however, that our political system ignores the cost
of environmental regulation. A few laws specifically mandate the balancing
of benefits and costs. EPA has on occasion moved toward an explicit
comparison of costs and risks. Still, the most common techniques for
lowering regulatory demands are "feasibility" requirements and the use
of enforcement discretion. These safety valves eliminate the most visible,
most politically damaging forms of economic cost: plant closings and layoffs.
Another technique is described by John Mendeloff (1986 and 1987~; that
is, refusing to admit that a substance is potentially dangerous because
the regulatory consequences of making this admission are so draconian.
As many commentators have pointed out, each of these political coping
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R. SHEP MELNICK
51
mechanisms generates significant inefficiencies (Ackerman and Hassler,
1981; Harrison and Portney, 1981; Lave and Omenn, 1981; Crandall,
1983~.
Ironically, hostility to the use of benefit-cost analysis may do more
to inhibit the quantification and comparison of regulatory benefits than
it does to inhibit the consideration of economic costs. As former EPA
official Albert Nichols pointed out at the conference, "what was regarded
as illegitimate and regarded with great suspicion was. . Stying to quantifier
the physical benefits, particularly if one were dealing with non-carcinogens"
(conference transcript:l28~. It is quite likely that the current helter-skelter
approach has led us to focus too heavily on certain types of health risks-
especially cancer-and consequently to ignore others. As Nichols also
stated,
tiff you don't have that kind of discipline in the system, there is a
tendency to just make qualitative statements which don't allow you to set
priorities and don't allow you to deal with the most serious environmental
problems. So, we end up diddling away our time with things like Section
112 of the Clean Air Act which involve perhaps dozens of cancer cases a
year as opposed to the big hitters like chlorofluorocarbons. (conference
transcript: 130)
In short, without quantitative evidence, it is difficult to set reasonable
environmental priorities.
Blame avoidance is contagious: agency officials frequently question
why they should admit that some risks are acceptable when no one else
will. Yet responsibility may prove contagious as well. If administrators
(preferably those in regulatory agencies rather than in OMB) are forthright
and explicit about the need to balance costs and risks and if the courts give
them sufficient leeway (as the D.C. Circuit and the Supreme Court now
seem to be doing), then the onus will be on Congress to provide more pre-
cise and honest statutory guidance. This situation was what occurred with
deregulation of the airlines, the trucking industry, and telecommunications.
Administrators acted first, the courts deferred, and Congress was forced to
decide whether to defend regulatory regimes that benefited only a small
group of producers and unions. The status quo crumbled with remarkable
swiftness (Derthick and Quirk, 1985~. The same process may be occurring
with regard to hazardous air pollutants. Once the courts accepted EPAs
policy of balancing costs and risks, the burden developed on Congressman
Waxman and his allies to garner support for a tougher alternative. So far,
Congress has taken no action.
Environmental advocates in Congress and in environmental organiza-
tions should view these developments not as defeats but as opportunities.
As environmental protection programs grow in number and complexity, it
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52
THE POLITICS OF BENEFIT-COST ANALYSIS
is important to weed out those that focus on lesser problems in order to
make scarce resources~xpertise, agency money, public support, corpo-
rate investments available for more important programs. This approach
will make regulatory policy less of a morality play but more successful in
protecting the environment.
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Representative terms from entire chapter:
clean air
