Cascading Conservatism in Benefit-Cost Analysis: The Case of EPA’s Reports to Congress on the Benefits and Costs of the Clean Air Act. R. B. Belzer, Washington University; and R. Lutter, American Enterprise Institute
Careful economic analysis can identify policy reforms that improve the efficiency of federally-mandated environmental protection efforts. It changes the political landscape from a mythological quest for perfection at any price to a debate over how much sacrifice we should bear to obtain the next incremental improvement in air quality. Benefits assessment will yield misleading results if its inputs are biased; hence the longstanding objections from economists to risk assessments based on conservative, reasonable worst-case assumptions. In particular, cascading conservatism in risk assessment can lead to a significant overstatement of both the value of baseline risks and the likely benefits from regulatory intervention. How much benefits are overstated will depend on the degree of conservatism in risk assessment and how much cascading is permitted. This paper analyzes EPA’s 1997 and 1998 reports to Congress on the benefits and costs of the Clean Air Act. We identify a small set of possible but highly implausible assumptions which, when combined, explain EPA’s remarkably high estimates of both the baseline risks from fine particles and the benefits of PM control. We show how the reliance on conservative, reasonable worst-case assumptions undermines the credibility of both benefit-cost analysis and risk assessment.
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