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On Balance: "Right Enough" Numbers for Air Pollution Policy

Exposure to air pollution continues to be a major health risk, including worsening health risks related to COVID-191. Thus, accounting for these benefits of these avoided health risks is critical in the evaluation of policies that focus on improving air quality and also play an important role in the anticipated climate policies, where improving air quality should be considered as a major co-benefit. However, compared to the scrutiny that has been given to the relationship between exposure to air pollution and adverse health effects, modeling the transport and fate of air pollutants from the emission source to the ambient concentrations to which we are exposed is often given more limited consideration in the modeling chain from emissions to monetary valuation for air pollutants. 

 

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On Balance: Efficiency without Apology: Consideration of the Marginal Excess Tax Burden and Distributional Impacts in Benefit–Cost Analysis

An important and difficult issue in benefit-cost analysis is how to deal with the distributional impacts of policies. An approach to this issue is described in a recent article published in the fall 2020 issue of the Journal of Benefit-Cost Analysis by Anthony Boardman, Aidan Vining, David Weimer, and me. This blog summarizes our analysis.

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On Balance: When All Lives Matter Equally: Equity Weights for BCA by Combining the Economics of VSL and US Policy

If the Value of a Statistical Life (VSL) is observed to be a function of income and policy fixes VSL as a constant, then policy has defined welfare weights over income.

Few topics are as controversial between the public and benefit-cost analysts as placing a value on a statistically lost or shortened life, the VSL.  Recent public discourse and civil unrest are in part driven by whether some classes of lives matter more than others.  Yet with the dry logic of economists it is possible to combine evidence based VSLs that change with income, the less money you have the lower the VSL, with the public policy VSL that is chosen to be constant. 

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On Balance: Handbook on Wellbeing, Happiness, and the Environment

Happiness Economics (HE) is concerned with the utility consequences of economic choices, while Experimental Economics (EE) studies choice behavior. Both HE and EE are branches of Behavioral Economics (BE) and they often lead to similar conclusions, which are at odds with assumptions of the Standard Economic Model (SEM). In the SEM the decisions maker maximizes a utility function with complete, transitive and self-regrading preferences, which are affected only by the levels of one’s own payoffs (the payoffs of other individuals and other generations are not considered). The SEM has no ethical underpinnings and no distributional concerns. For many economists, as well as scientists from other disciplines that endeavor to develop interdisciplinary frameworks and systems, which include socio-economic considerations, the SEM is unsatisfactory.

 

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On Balance: Forming Covid-19 Policy under Uncertainty

In a recent paper in the Journal of Benefit-Cost Analysis (Manski, 2020), I observed that formation of COVID-19 policy must cope with many uncertainties about the nature of the disease, the dynamics of the pandemic, and behavioral responses. I noted that these uncertainties have been well-recognized qualitatively but not satisfactorily characterized quantitatively. I argued that credible measurement of uncertainties would improve prediction of policy impacts and promote reasonable policy decisions.

 

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On Balance: Regulatory Benefit-Cost Analysis--Advice for a New Presidential Term

In January, SBCA organized its first panel as an affiliate society for the Allied Social Sciences Association/American Economic Association annual meetings.1 The session, titled “Regulatory Benefit-Cost Analysis -- Advice for a New Presidential Term,” featured a panel dispensing advice to the incoming administration on improving and expanding the use of benefit-cost analysis.SBCA Vice President Glenn Blomquist chaired the panel discussion that included three former SBCA presidents (Susan DudleyDon Kenkel, and Clark Nardinelli) as well as Professors Michael Greenstone and Howard Shelanski. Dudley (the George Washington University) and Shelanski (Georgetown University) served as administrators of the Office of Information and Regulatory Affairs (OIRA) in the Bush and Obama administrations. Kenkel (Cornell University) and Greenstone (University of Chicago) served on the staff of the Council of Economic Advisors in the Trump and Obama administrations. Nardinelli served as the Senior Economist at the Food and Drug Administration.

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On Balance: Extending Executive Order 12866 to Independent Regulatory Agencies

The Department of Justice recently released an opinion on “Extending Regulatory Review Under Executive Order 12866 to Independent Regulatory Agencies.”1 The memorandum, dated October 8, 2019, concludes that “The President may direct independent regulatory agencies to comply with the centralized review process prescribed in Executive Order 12866.” The opinion means that the President can require the independent agencies to perform benefit-cost analyses of all significant regulations and submit the regulations for review to the Office of Information and Regulatory Affairs in the Office of Management and Budget. The opinion is the latest development in a 40-year-old debate over whether executive orders on benefit-cost analysis of administrative rules could or should be extended to rules issued by the independent regulatory agencies. A typical independent agency differs from executive agencies in that it is headed by a commission or a board appointed by the President. Their members have staggered terms and cannot be removed except for cause, such as (in the case of the Federal Trade Commission) “inefficiency, neglect of duty, or malfeasance in office.” 

 

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On Balance: Publication Selection Biases in Stated Preference Estimates of the Value of a Statistical Life

International studies valuing mortality risk changes often rely on stated preference estimates of the value of a statistical life (VSL). Because labor market data in most countries are not as reliable as the fatality rate statistics in the United States, stated preference evidence for the VSL provides a popular research strategy for obtaining country-specific estimates. Unfortunately, this article finds that this literature is subject to rampant publication selection effects, leading to huge biases in the estimated VSL levels.

 

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On Balance: Costs and Benefits of School Shutdowns

In Volume 11 of The Journal of Benefit-Cost Analysis, Thunström, Newbold, Finnoff, Ashworth, and Shogren presented their findings on the national benefits and costs of physical (or social) distancing measures. Their benefit-cost analysis shows a net benefit of $5.6 Trillion to the US economy over 30 years. However, work on the economics of education and family by Hanushek, Boyd, and others suggests that the long-term impacts on present and future productivity of one aspect of physical distancing policies, virtual learning and school shutdowns, may be more severe than this initial model supposes. 

 

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On Balance: Revealed Preference Methods for Nonmarket Valuation: An Introduction to Best Practices

For over 50 years, economists have developed and refined methods to value environmental and other nonmarket goods to provide benefit estimates that are commensurate with goods that are exchanged in markets. Without these estimates, benefit cost analysis of environmental regulations risk erroneous conclusions regarding the net benefits of a regulation. The methods can be broadly categorized into revealed preference (that infer values from behavioral clues) and stated preference (which directly elicit values through surveys). Despite their longer history and the many documented shortcomings, revealed preference methods have not been subject to the intense validity and reliability challenges as their stated preference counterparts. And, unlike stated preference methods (see Johnston et al.2017), there has not previously been an effort for scholars of the approaches to develop a set of “best practice” guidelines for the implementation and reporting of these analyses.

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On Balance: A New Rationale for Not Including Certain Impacts in Benefit-Cost Analysis

This post is a summary of a paper I’ve written called “What’s in, what’s out? Towards a rigorous definition of the boundaries of benefit-cost analysis,” forthcoming in Economics and Philosophy. Students are typically told that benefit-cost analysis is an application of the potential Pareto criterion, which defines net benefit as the difference between the willingness to pay of winners for their gains from a policy and the willingness to accept of losers for their losses. If the difference is positive, the policy is a potential Pareto improvement, and we say that it generates positive net benefits. Economic philosophers have presented many objections to this definition, but none of these objections refutes the basic logic.

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On Balance: The Persistence of Appraisal Optimism in Benefit-Cost Analysis

In my paper for this journal earlier this year (Abelson, 2020), I discussed how seven official guides to benefit-cost analysis (BCA) and the leading international text on BCA (Boardman et al., 2018) deal with eight contentious issues: the issue of standing, core valuation principles, the scope of CBA, changes in real values over time, the marginal excess tax burden, the social discount rate, the use of benefit-cost ratios, and the treatment of risk. I did not discuss, however, arguably the most potent cause of poor BCA studies: appraisal optimism, which is sometimes referred to less courteously as appraisal bias. Indeed, appraisal optimism receives little attention in most BCA textbooks and official guides. I will attempt here a partial rectification of these omissions.

 

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On Balance: Recent Developments in the Market for Vaping Products and the Implications for Benefit-Cost Analysis

Since electronic cigarettes were introduced, in 2007, they have presented controversial public health tradeoffs. E-cigarettes provide users with the addictive chemical nicotine but without exposing them to the harmful combustion-generated toxicants in cigarette smoke. On the one hand, because smoking combustible cigarettes is estimated to lead to almost 500,000 deaths each year, e-cigarettes have great potential as a harm reduction strategy. In particular, evidence from randomized clinical trials shows that vaping e-cigarettes helps adult smokers quit. On the other hand, the growing popularity of vaping among teens raises concerns about nicotine addiction, the possibility that vaping is a gateway to smoking, and unknown future health consequences. More teens now vape e-cigarettes than smoke cigarettes. In the National Youth Tobacco Survey, the fraction of high school students reporting vaping within the past 30 days increased from 11.7 percent in 2017 to 27.5 percent in 2019, before dropping to 19.6 percent in 2020.  Some public policies – increasing the legal purchase to 21 and banning e-cigarette flavors popular with teens – try to target teen vaping. Other policies, most notably e-cigarette excise taxes, discourage both adult and teen vaping.

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On Balance: Should We Believe Willingness to Pay to Remove Novel Environmental Threats?

Novel threats call us to action. Witness the response to the 9/11 attack and more recently to the coronavirus. Such risks may be particularly compelling if citizens do not understand how to deal with the harm or because of ambiguity around the probability that the threat will be realized. 

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On Balance: Professional Principles for Benefit-Cost Analysts

Benefit-cost analysts essentially ask for a lot of trust. They look to inform policy decision-making by using a tool that boils very complex choices down to a seemingly simple comparison of the relative values of benefits and costs. If an analyst’s work is to be taken seriously, the decision makers must have confidence that the analyst is objective and competent, that the results being provided accurately capture what is known about any choice’s implications. The decision makers may have their own biases and interests and many choices will require decisions from a wide array of people with varying perspectives. But through the whole policy-making process, decision makers do not want to have to worry about hidden agendas, skewed data, or sloppy analysis in the information intended to inform their decisions.

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On Balance: New Editor, Same Mission

What a year it has been. Between the unfolding of a global pandemic and nationwide protests around the topic of police brutality, 2020 has already been a jam-packed year for public policy, and we haven’t even made it into election season.

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On Balance: COVID-19 Benefit-Cost Analysis and the Value of Statistical Lives

Reducing COVID-19 risks requires making extraordinarily difficult decisions that trade-off saving lives and economic damages. Benefit-cost analysis is well-suited for investigating these trade-offs and informing these decisions. However, interpreting and using the results requires understanding the framework and addressing its limitations, including the uncertainties in the value of mortality risk reductions and the distribution of impacts across those who are advantaged and disadvantaged. For related information, view JBCA Editor Tom Kniesner's conversation with W. Kip Viscusi.

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On Balance: Matthew D. Adler, Measuring Social Welfare: An Introduction, Oxford University Press, 2019. Review by James K. Hammitt, Harvard University

Benefit-cost analysis (BCA) is loosely interpreted as a method for determining whether a policy is ‘in the public interest’. More formally, BCA measures the effect of a policy change on each individual’s wellbeing as a monetary value and sums these values over the population. If the sum is positive, the policy change is declared a potential Pareto improvement, meaning the change plus some set of cost-free money transfers would be Pareto superior to the status quo (or other comparator).

 

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On Balance: Evaluating Policy Responses to the Opioid Epidemic

More than 450,000 Americans died of an opioid overdose between 1999 and 2018. There were fifteen fatal opioid overdoses for every 100,000 individuals in 2018, a ratio five times greater than in 1999. While public health researchers and policymakers have rightly turned their attention toward remedying the global coronavirus pandemic, the U.S. opioid epidemic continues to take lives. In my dissertation, An Empirical Analysis of Policy Responses to the Opioid Epidemic, I analyzed the effect of various state and federal interventions to reduce opioid abuse and overdoses. This analysis can contribute to the benefit-cost analysis of policies that aim to decrease opioid consumption and overdose deaths.

 

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On Balance: We Need a Proper Analysis of the Economic Costs of Social Distancing and Other COVID-19 Containment Measures

Economic management in Australia has effectively been outsourced to health experts. Political and business leaders are deferring exclusively to public health advice about how to contain the COVID-19 virus with no serious public discussion of the economic costs.

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