Matthew D. Adler

Implementing Cost-Benefit Analysis when Preferences are Distorted

Cost-benefit analysis is routinely used by government agencies in order to evaluate projects, but it remains controversial among academics. This paper argues that cost-benefit analysis is best understood as a welfarist decision procedure and that use of cost-benefit analysis is more likely to maximize overall well-being than is use of alternative decision procedures. The paper focuses on the problem of distorted preferences. A persons preferences are distorted when his or her satisfaction does not enhance that persons well-being. Preferences typically thought to be distorted in this sense include disinterested preferences, uninformed preferences, adaptive preferences, and objectively bad preferences; further, preferences may be a poor guide to maximizing aggregate well-being when wealth is unequally distributed. The paper describes conditions under which agencies should correct for distorted preferences, for example, by constructing informed or nonadaptive preferences, discounting objectively bad preferences, and treating people differentially on the basis of wealth. Copyright 2000 by the University of Chicago.

Rethinking Cost-Benefit Analysis

This paper analyzes cost-benefit analysis from legal, economic, and philosophical perspectives. The traditional defense of cost-benefit analysis is that it maximizes a social welfare function that aggregates unweighted and unrestricted preferences. We follow many economists and philosophers who conclude that this defense is not persuasive. Cost-benefit analysis unavoidably depends on controversial distributive judgments; and the view that the government should maximize the satisfaction of unrestricted preferences is not plausible. However, we disagree with critics who argue that cost-benefit analysis produces morally irrelevant evaluations of projects and should be abandoned. On the contrary, cost-benefit analysis, suitably constrained, is consistent with a broad array of appealing normative commitments, and it is superior to alterative methods of project evaluation. It is a reasonable means to the end of maximizing overall welfare when preferences are undistorted or can be reconstructed. And it both exploits the benefits of agency specialization and constrains agencies that might otherwise evaluate projects improperly.

Well-Being and Fair Distribution: Beyond Cost-Benefit Analysis

Well-Being and Fair Distribution provides a rigorous and comprehensive defense of the “social welfare function” as a tool for evaluating governmental policies. In particular, it argues for a “prioritarian” social welfare function: one that gives greater weight to well-being changes affecting worse-off individuals. In doing so, the book draws on many literatures: in theoretical economics, applied economics, philosophy, and law. Topics addressed include the following: the nature of well-being and the possibility of interpersonal comparisons; the measurement of well-being via “utility” numbers; why a “prioritarian” social welfare function is more appealing than alternative forms (for example, a utilitarian, leximin, or “sufficientist” function); whether fair distribution should be conceptualized on a lifetime or sublifetime basis; and social choice under uncertainty.The book also compares the social welfare function to other, more familiar policy-evaluation methodologies — traditional cost-benefit analysis, inequality metrics, poverty metrics, and cost-effectiveness analysis. Only the “social welfare function” provides a unified, implementable, and normatively plausible methodology that respects the most basic welfarist principles (such as the Pareto principle) and is sensitive to distributive considerations.

Using and improving the social cost of carbon

Regular, institutionalized updating and review are essential The social cost of carbon (SCC) is a crucial tool for economic analysis of climate policies. The SCC estimates the dollar value of reduced climate change damages associated with a one-metric-ton reduction in carbon dioxide (CO2) emissions. Although the conceptual basis, challenges, and merits of the SCC are well established, its use in government cost-benefit analysis (CBA) is relatively new. In light of challenges in constructing the SCC, its newness in government regulation, and the importance of updating, we propose an institutional process for regular SCC review and revision when used in government policy-making and suggest how scientists might contribute to improved SCC estimates.

QALYs and Policy Evaluation: A New Perspective

This Article presents a new, welfarist defense of the use of QALYs (quality adjusted life years) in policy evaluation. It challenges both the conventional wisdom among health economists that QALY-based analysis is dominated by traditional cost-benefit analysis (i.e., the sum of willingness-to-pay amounts) as well as the standard view of public health researchers that QALYs should function as the effectiveness metric in a cost-effectiveness analysis. Instead, the Article defends a nontraditional form of cost-benefit analysis, where QALYs are multipled by a conversion factor, for example

Fear Assessment: Cost-Benefit Analysis and the Pricing of Fear and Anxiety

100,000 per QALY, and added to the monetized non-health effects of a policy. Part I of the Article surveys the current literature on QALYs. Part II shows that QALYs can be a more accurate measure of overall well-being than WTP amounts, under certain conditions, and argues that cognitive difficulties interfering with the measurement of WTP amounts can be circumvented by QALYs. Part III describes the limitations of QALYs. Part IV discusses the role that QALYs should play in welfarist policy analysis, given their strengths and limitations. In particular, it presents a pragmatic approach to determining the QALY-to-dollar conversion factor, and sheds new light on the controversy about pricing whole lives versus life-years.

Extended Preferences And Interpersonal Comparisons: A New Account

Risk assessment is now a common feature of regulatory practice, but fear assessment is not. In particular, environmental, health and safety agencies such as EPA, FDA, OSHA, NHTSA, and CPSC, commonly count death, illness and injury as costs for purposes of cost-benefit analysis, but almost never incorporate fear, anxiety or other welfare-reducing mental states into the analysis. This is puzzling, since fear and anxiety are welfare setbacks, and since the very hazards regulated by these agencies - air or water pollutants, toxic waste dumps, food additives and contaminants, workplace toxins and safety threats, automobiles, dangerous consumer products, radiation, and so on - are often the focus of popular fears. Even more puzzling is the virtual absence of economics scholarship on the pricing of fear and anxiety, by contrast with the vast literature in environmental economics on pricing other intangible benefits such as the existence of species, wilderness preservation, the enjoyment of hunters and fishermen, and good visibility, and the large literature in health economics on pricing health states.This Article makes the case for fear assessment, and explains in detail how fear and anxiety should be quantified and monetized as part of a formal, regulatory cost-benefit analysis. I propose, concretely, that the methodology currently used to quantify and monetize light physical morbidities, such as headaches, coughs, sneezes, nausea, or shortness of breath, should be extended to fear. The change in total fear-days resulting from regulatory intervention to remove or mitigate some hazard - like the change in total headache-days, cough-days, etc. - should be predicted and then monetized at a standard dollar cost per fear-day determined using contingent-valuation interviews.Part I of the Article rebuts various objections to fear assessment. Deliberation costs are a worry, but this is not unique to fear, and can be handled through threshold rules specifying when the expected benefits of fear assessment appear to outweigh the incremental deliberation costs of quantifying and monetizing fear. Other objections reduce to the deliberation-cost objection, or are misconceived: irrational as well as rational fears are real harms for those who experience them; fear can be quantified; worries about uncertainty and causality reduce to deliberation costs; the possibility of reducing fear through information rather than prescription means that agencies should look at a wider range of policy options, not that they should evaluate options without considering fear costs; the concern that the very practice of fear assessment will on balance, increase fear by creating stronger incentives for fear entrepreneurs seems overblown; and fear is a welfare setback, whether or not it flows from political views.Part II argues for what I call the unbundled valuation of fear. A given hazard may cause a package of harms for each individual exposed to it: the fear of the hazard, an incremental risk of death, and perhaps other harms. Why not, then, price the harms as a package? In particular, why not predict the deaths caused by a given hazard and avoided by regulatory intervention, and multiply those deaths by a value of statistical life (VOSL) number designed to incorporate a fear premium? For reasons explored in Part II, the bundled valuation of fear and death, through fear premia attached to VOSLs or in other ways, is misguided. Rather, these two kinds of harms should be separately quantified and monetized. Parts III and IV consider how agencies should monetize fear states. How should the price of a fear-day be determined? Part III argues that contingent-valuation techniques are more appropriate, here, than revealed-preference techniques. Part IV discusses the design of contingent-valuation interviews for pricing fear. The instrumental as well as intrinsic costs of fear may need to be accounted for; the respondents to these interviews should, optimally, be calm rather than fearful; and interviews designed to secure a QALY valuation of fear can also be useful, but only if the QALY scale is understood as a welfare scale and calibrated in an inclusive way.In arguing for fear assessment as a component of cost-benefit analysis, this Article contributes to the literature on cost-benefit analysis and also stakes out a novel position in scholarly debates about risk regulation. One standard view (call it the simple technocratic view) argues that popular fear should play no role in determining regulatory choice; instead, regulators should focus on minimizing or achieving technologically feasible or cost-justified reductions in death, illness and injury. A standard opposing view (call it the populist view) is that popular perceptions of the riskiness of hazards, in turn substantially influenced by how feared or dreaded the hazards are, should be determinative. The account presented in this Article is technocratic, not populist; risk regulators should seek to maximize social welfare, and cost-benefit analysis is a technocratic tool for doing just that. Yet technocratic risk regulation need not focus narrowly on mortality and morbidity. It should focus (prima facie) on all constituents of welfare, including fear and anxiety. Although popularly perceived risk should not determine risk regulation, since the fear and anxiety that drives popular risk perception is simply one welfare impact among the multitude of costs and benefits flowing from hazards, neither should risk regulation reduce to counting deaths or injuries - to a crude minimization of physical impacts or a simplistic balancing in which death- and injury-reduction are the sole regulatory benefits that are seen to counterbalance compliance costs.

Benefit–Cost Analysis and Distributional Weights: An Overview

This paper builds upon, but substantially revises, John Harsanyis concept of ‘extended preferences’. An individual ‘history’ is a possible life that some person (a subject) might lead. Harsanyi supposes that a given spectator, formulating her ethical preferences, can rank histories by empathetic projection: putting herself ‘in the shoes’ of various subjects. Harsanyi then suggests that interpersonal comparisons be derived from the utility function representing spectators’ (supposedly common) ranking of history lotteries. Unfortunately, Harsanyis proposal has various flaws, including some that have hitherto escaped scholarly attention. In particular, it ignores the limits of personal identity. If the subject has welfare-relevant attributes that the spectator cannot acquire without changing who she is, full empathetic identification of the latter with the former becomes impossible. This paper proposes instead to use sympathy as the attitude on a spectators part that allows us to make sense of her extended preferences. Sympathy – an attitude of care and concern – is a psychological state quite different from empathy. We should also allow for hetereogeneity in spectators’ extended preferences. Interpersonal comparisons emerge from a plurality of sympathetic spectators, not (as per Harsanyi) from a common empathetic ranking.

The Rule of Recognition and the U.S. Constitution

Benefit–cost analysis (BCA) evaluates policy choices by summing unweighted monetary equivalents, and is insensitive to distributional considerations. An established scholarly tradition proposes to use distributional weights in BCA—multiplying monetary equivalents by weighting factors that are inversely proportional to individuals’ incomes. This article provides an accessible overview of the topic of distributional weights, with a special focus on environmental policy. The intellectual foundation for weights is the concept of a social welfare function (SWF). Two are considered: a utilitarian SWF and an isoelastic/Atkinson SWF, which incorporates an extra degree of inequality aversion. The article explains the concept of an SWF, discusses in detail how to specify utilitarian and isoelastic/Atkinson weights so as to mimic the corresponding SWFs, and uses the value of statistical life (VSL) to provide an example of weighting. The article then considers two important objections to distributional weighting: that interpersonal well-being comparisons (and thus weights) are undermined by preference heterogeneity, and that distributional considerations are best handled through the tax system.

Cost-Benefit Analysis and Distributional Weights: An Overview

H.L.A. Hart famously proposed that law in every full-blown legal system derives from a “rule of recognition”: an ultimate criterion of legal validity accepted as such by officials. This claim is central to modern analytical jurisprudence. Subsequent work has either elaborated and refined Hart’s claim, or challenged it (as with Dworkin’s scholarship).U.S. constitutional theorists have generally paid little attention to Hart’s view or the debates about it. And analytical jurisprudents have discussed the view without much reference to the actual features of legal practice in the United States.This book, with chapters by leading constitutional theorists and jurisprudents, seeks to systematically examine the applicability of the “rule of recognition” model to the U.S. legal system – seeking both to illuminate questions of constitutional theory, and to use the U.S. system as a “test bed” for Hart’s claims. A multitude of topics are addressed, including: the legal status of extratextual sources of fundamental U.S. law; debates about interpretive methods, e.g., originalism versus nonoriginalism; judicial supremacy; the legitimacy of constitutional precedent; “popular constitutionalism”; whether the rule-of-recognition model should allow for a multiplicity of such rules; whether the rule of recognition is duty-imposing or power-conferring; the connection between fundamental law and social practice; and the role of shared plans in constituting a legal system. Contributors include: Matthew Adler, Larry Alexander, Mitchell Berman, Michael Dorf, Richard Fallon, Michael Steven Green, Kent Greenawalt, Kenneth Einar Himma, Stephen Perry, Frederick Schauer, Scott Shapiro, Jeremy Waldron, and Wil Waluchow.