Policy Sciences 13 (1981) 125 138 Elsevier Scientific Publishing Company, Amsterdam - Printed in the Netherlands

The Biology-Policy Interface: Theories of Pathogenesis, Benefit Valuation and Public Policy Formation

PETER N. NEMETZ and AIDAN R. VINING*

Policy Analysis Division, Faculty o f Commerce and Business Administration, University of British Columbia, Vancouver, B.C., V6T 1 Y8

ABSTRACT

This paper reviews some of the basic concepts of cost and risk-benefit analysis in the context of toxic chemical regulation and discusses several critical complexities inherent in the practical application of this methodology. The broad qualitative use of risk-benefit analysis can be an important aid to the decision- making process. It is concluded, however, that the full-scale incorporation of a rigorous form of risk-benefit analysis into the regulatory process is inappropriate at this time and could have significant and unintended consequences.

Introduction

There has been increasing interest in the techniques of cost-benefit and risk-benefit analysis as a challenge to traditional regulation of carcinogenic chemicals in the workplace, environment and consumer products. This paper reviews some of the basic concepts of cost-benefit analysis in the context of toxic chemical regulation and discusses several critical complexities inherent in the practical application of this

* The authors wish to express their gratitude to their colleagues, Professors Norm Carruthers, D e n t o n Marks and Dean Uyeno, and an anonymous referee for their instructive comments on an earlier draft of this paper.

0032-2687/81/0000-0000 �9 Elsevier Scientific Publishing Company

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methodology. Profound differences in the philosophical rationale of regulatory

intervention provide the foci for several important issues of public policy, namely: (1) how useful wil risk-benefit analysis be in the near future as a practical decision-making tool and (2) is there any hope that risk-benefit analysis will substantially "defuse" the increasing polarization of industry and environmentalists on the use of carcinogenic substances? It is concluded that While cost- and risk-benefit analysis hold promise for future policy applications, it would be inappropriate at this time to adopt a rigorous form of this methodology in the control of toxic substances.

The cost-benefit approach suggests that, from a policy perspective, we should be

seeking an "optimal" level of pathogenesis. This optimal level represents the interaction of two functions: the marginal benefit and marginal cost of pathogenic control. The marginal benefit of pathogenic control is equivalent to savings to society

in the form of death and disease avoided by the control process. By contrast, the marginal cost of pathogenic control represents the costs to individuals, industry and government in achieving disease reduction.

The impetus for the adoption of rigorous cost- and risk-benefit assessments comes from several sources. One important reason is the perceived inappropriateness of many government regulations which appear to violate basic conceptions of cost- effectiveness. The current array of American legislation and regulatory activity for the control of toxic substances embodies markedly divergent philosophical approaches to

the issue of cost-effectiveness. At one extreme, the exposure level to toxics, at least in theory, is set at zero. Thus, the Delaney Amendment to the U.S. Food and Drug Act provides an absolute prohibition on the deliberate addition to foods of chemicals that

have been shown to be carcinogenic in man or animal. In addition, the Federal Insecticide, Fungicide, and Rodenticide Act prohibits use of a pesticide that has been shown to be carcinogenic. Another important example of relatively inflexible regulatory responses to toxic chemicals are uniform and fixed national standards in workplace settings which implicitly do not account for variations in the number and sensitivity of exposed workers.

By contrast, under the Toxic Substances Control Act, the Environmental Protection

Agency is required to regulate a hazardous chemical substance or mixture upon a finding that "it presents or will present an unreasonable risk of injury to health or to the environment," (15 U.S.C.A. & 2605 West Supp. 1978).

In several recent cases, federal courts have implicitly accepted a general, a lbei t rudimentary, risk-benefit approach. In Reserve Mining Co. v. EPA [514 F.2d 492, 7 ERC 1618 (8th Cir. 1975)], the court stated that it was necessary " . . . to strike a proper balance between the benefits conferred and the hazards created by Reserve's facility," (p. 535). In particular, the court determined that since " . . . no harm to the public health has been shown to have occurred to this date and the danger to health is not imminent . . . no reason exists which requires that Reserve terminate its operations at once," (p. 500). The court elaborated on this point by stating that:

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In the absence of proof of a reasonable risk of imminent or actual harm, a legal standard requiring immediate cessation of industrial operations will cause unnecessary economic loss, including employment, and, in a case such as this, jeopardize a continuing domestic source of critical metals without conferring adequate countervailing benefits (p. 537).

Nevertheless, the court concluded that " . . . the risk to public health is of sufficient gravity to be legally cognizable and calls for an abatement order on reasonable terms," (p. 500). In summary, while not making a dollar for dollar comparison 'of costs and benefits, the court determined that the benefits of water pollution control justified the costs of control but not the excessive costs associated with the immediate cessation of

operations.

In Ethyl Corporation v. EPA [541 F.2d 1, 8 ERC 1785 (D.C. Cir. 1976)], the court affirmed the right of the Environmental Protection Agency to require a reduction in the level of lead additives in gasoline. Drawing extensively on the discussion of risk in Reserve Mining, the court concluded that " . . . a risk assessment may, if rational, form the basis for health related regulations under the 'will endanger' language of Section

211 [of the U.S. Clean Air Act]" (p. 28). To quote:

�9 . . the Administrator's [dustfall] hypothesis stands firm as reasonable, undoubtedly with more studies already made than the hypothesis that justified regulation in Reserve Mining. Indeed, the primary difference between this case and Reverse Mining is that the Eighth Circuit justified ordering abatement of asbestos discharges into the water solely on the basis of a hypothesis, while here the hypothesis is offered only as support for the regulations, the primary basis being the demonstrated dange r to health posed by inhalation of lead emissions . . . . Accordingly we affirm his [the Administrator's] determination that lead emissions "present a significant risk of harm to the health of urban populations, particularly to the health of city children" (pp. 46-48).

While lacking the explicit references of Reserve Mining to the relationship between costs, risks and benefits, the Ethyl decision does affirm the role of risk analysis in the formation, interpretation and enforcement of environmental policy.

More recently, the U.S. Supreme Court struck down the Occupational Safety and Health Administration's (OSHA) new regulations for benzene in a judgment which

raised but did not resolve the issue of risk-benefit analysis.

Only four members of the Court decided that OSHA's refusal to detail the regulation's benefits was

unreasonable, considerably diminishing the force of the decision as a precedent for future cases . . . . The new regulation was struck down only when the ninth member of the Court, William Rehnquist, agreed �9 . . for entirely independent reasons (Science, 1980, p. 567).

In a concurring opinion to the decision of the court, Mr. Justice Powell stated that:

�9 . . the statute [The Occupational Safety and Health Act of 1970] also requires the agency to determine that the economic effects of its standard bear a reasonable relationship to the expected benefits. An occupational health standard is neither "reasonably necessary" nor "feasible" as required by statute, if it calls for expenditures wholly disproportionate to the expected health and safety benefits (48 LW 5038, 6-24-80)�9

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The issue of cost-benefit analysis will be raised again when the Supreme Court hears a

challenge by the steel industry to OSHA's regulations concerning coke oven

emissions.

Industry has reacted strongly to OSHA's proposed regulations governing carcino-

gens in the workplace. In essence, these proposals represent a traditionally conserva-

tive approach to regulation - an approach which adopts strict standards and

consciously ignores the trade-offs inherent in risk-benefit methodology. In opposition

to this approach, the American Industrial Health Council (AIHC), representing

90 companies and 30 trade associations, has at tempted to advocate a benefit-cost or

risk-benefit approach to the assessment of potentially carcinogenic chemicals. Some

of the A I H C proposals are that: (1) "acceptable risks" should be established for

individual chemicals rather than the "zero-risk" implicit in OSHA regulations. AIHC

asks that the social and economic benefits of chemicals should be assessed in

establishing acceptable exposure levels; (2) the potency of potential carcinogens

should be considered in setting exposure levels; (3) research laboratories and

construction activities should have different regulations from factories; and (4)

substances and mixtures containing low levels of suspected carcinogens should he

exempted from regulation.

The opposite view has been taken by an ad hoc committee commissioned by the

u.S. Surgeon General (1970) to consider possible changes in the Delaney clause. The

c o m m i t t e e concluded that:

the principle of a zero tolerance for carcinogenic exposures should be retained in all areas of legislation presently covered by it and should be extended to cover other exposures as well.

The use of cost-benefit and risk-benefit analysis has an intuitive appeal and has been

increasingly advocated in other areas of environmental risk such as the provision of

energy. The critical question is the feasibility of cost-benefit analysis when we are dealing with such risks as carcinogens. There are two major problems. For

convenience, we will label them the damage function problem and the benefit valuation problem.

The Damage Function Problem

The first major conceptual difficulty is associated with the estimation of the damage function, or dose-response curve. There are two major, and competing, hypotheses about the way cancer is caused. The first, or threshold hypothesis, assumes that there is a no-effect dose of carcinogen below which induction of cancer cannot occur. If such a view is correct, the AI HC proposals to exempt from regulation substances containing low levels of suspected carcinogens would seem reasonable. By contrast, other researchers have suggested a "linear-dose" hypothesis, often called the single-event or "one-hit" hypothesis. This alternative theory of carcinogenesis assumes that there is no

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safe dose and the dose-response curve commences at the origin. In some areas, there is

even evidence that the linear-dose hypothesis may underest imate the potential for

cancer induction. Thus, Knelman (1979, p. 22) claims that for radiation: "new

evidence virtually mount ing daily, indicates that not only is the linear hypothesis not

conservative for certain low-level radiat ion exposure, but that for alpha radiat ion at

least, incremental increases in dose cause larger responses at low levels than at high".

A recent report of the Commit tee on the Biological Effects of Ionizing Radia t ion

published by the U.S. National Academy of Sciences has modified earlier assumptions

of linearity in the dose-response function. Known as B E I R lII , this report posits a

l inear-quadratic relationship (of the form a + BD + "/D 2) between somatic damage

and X-ray and gamma radiat ion but, with regard to alpha and other high linear

t ransformat ion radiation, the report states that " . . . linear risk e s t i m a t e s . . , may, in

fact, underest imate risk" (NAS, 1980, p. 4). The Commit tee retains the linear

hypothesis for genetic damage, however. The report is controversial as it has elicited

criticism from numerous groups who feel that its assessment of health risks f rom

low-level radiation is either too high or too low (Nature, 1980a, b, c).

Unfor tunate ly , it is unlikely that the debate will soon be resolved. BEIR III " . . .

acknowledges that the informat ion available about the causat ion o f human cancer is

not ' robust ' enough to distinguish between the possible dose-response m o d e l s . . . "

(Nature 1980a, p. 546). This view is consistent with an earlier review (Maugh, 1978,

p. 37) which concluded that "there is little hard scientific evidence to support either

point of view". The article pointed out that "few investigators have done research in

the area, and what little evidence is offered by each side seems to be effectively rebutted

by the other". (See also NAS, 1977, pp. 45-46). Indeed the problem may be even more

intractable than this. Guess and Crump of the Nat ional Institute of Envi ronmenta l

Heal th Sciences (NIEHS) have developed computer simulations which suggest that it

is very unlikely that it will be possible to distinguish between linear non- threshold,

non-l inear non-threshold, and threshold functions even when experiments involve

large numbers of animals (Maugh, 1978). They point out thai, by changing the

ou tcome for only 11 animals out of 8,000 in a given experiment, the posited "damage-

funct ion" can change radically. The magnitude of this change is well within the limits

of experimental error.

A central challenge in identifying the shape of the damage function is the problem of

limiting false positives in both animal experiments and epidemiologic studies. As Page

(1978) states:

kimiting false positives is common in statistical studies, including studies of environmental risks. The tested hypothesis is usually a hypothesis of no effect. A statistical procedure is chosen which limits the chance of a false positive, the erroneous rejection of the no-effect or null hypothesis and the concomitant finding of an effect, to some prescribed level, usually one or five percent in practice. If the null hypothesis is rejected, a decision is made that there is an effect; if the procedure fails to reject, there is no decision as to the existence or nonexistence of the effect ('judgment is reserved"). In common practice, however, after a failure to reject a no-effect hypothesis, and perhaps during the time further investigations are

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undertaken, decision makers treat the effect as though it were nonexistent and take few precautionary steps. Moreover, sometimes the distinction between the failure to find an effect and the finding of no effect is simply ignored. In that ease, a negative finding leads to a negative conclusion (p. 231).

The attuned reader will find the fallacy of the false negative ubiquitous in legal, regulatory, and statistical reasoning. When the press reports that saccharin has been in use for 70 years without a single human cancer death proven as a result of its use, the suggested inference is that this is evidence of saccharin's no n-carcinogenity to humans. Before drawing this inference, regulatory institutions and other decision makers should investigate the likelihood of detecting saccharin carcinogenity even if, for example, it should contribute 700 to 1,000 extra cancer deaths a year. This type of question is rarely posed or investigated in statistical and other studies of environmental risks. Without its investigation, negative findings are largely devoid of meaning, especially for environmental risks, where the probabilities of false negatives are likely to be substantial. For a meaningful interpretation of a negative finding, there must first be an explicit investigation of the power of the statistical or other decision procedure to detect hidden effects (p. 233).

Such p rob lems make it difficult to be certain that negative f indings are "real ly"

negat ive. Har r i s et al. (1977) found that while the chance of a false posi t ive was held to

be 5% in one mode l of carc inogens in d r ink ing water , the chance of a subs tan t ia l effect

going undetec ted was still 40%.

Other researchers have a rgued that assessing the damage funct ion is c o n s i d e r a b l y

compl i ca t ed by synergis t ic and an tagon i s t i c effects. E x p o s u r e to carc inogens rarely

occurs in i so la t ion . F requen t ly , an ind iv idua l may be exposed to an a r r a y of po ten t i a l

carc inogenic agents th rough such mechanisms as ingestion, inha la t ion and abso rp -

t ion: D a m a g e thus depends on such fac tors as the "v ic t im 's" occupa t ion , place of

residence, food c o n s u m p t i o n and behav iour pat terns . In this respect, the assessment of

carc inogenic risk must cons ider the p rob l em of total , mu l t i -pa thway exposure . These

p rob l ems suggest the. exis tence of a wide range of po ten t i a l env i ronmen ta l cost

funct ions based on the under ly ing physical and biological damage funct ions.

Theore t ica l levels of op t ima l con t ro l can be de te rmined th rough the super impos i -

t ion of marg ina l exposure reduc t ion and benefit funct ions. Marg ina l benefit funct ions

can be der ived direct ly f rom env i ronmen ta l cost funct ions. As ment ioned , these

"benef i t s" can be def ined as the level of d a m a g e avoided . In a sense, the benefit

func t ion is a mi r ro r image or ana logue of the d a m a g e funct ion . The p l e tho ra of

resul t ing env i ronmenta l benefit funct ions leads inexorab ly to the conclus ion that there

is a large range of potent ia l "op t ima l " levels of exposure and risk.

There is one fur ther p rob l em with assessing the extent of marg ina l exposu re costs.

Gehr ing of D o w Chemica l and others have a rgued tha t in the m o d e r n world we face a

v i r tual "cons tan t quan t i ty" or carc inogenic mater ia l - workers exposed to asbes tos in

indus t r ia l occupa t ions would , if they sought e m p l o y m e n t elsewhere, p r o b a b l y be

exposed to o ther ca rc inogen ic mate r ia l s (Maugh , 1978). In o the r words, the true net

marg ina l cost may be very different f rom the gross marg ina l cost. All of these

complexi t ies suggest that there are t ruly m o n u m e n t a l p rob lems in es t imat ing damage

funct ions when we are dea l ing with cancer -caus ing agents.

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The Benefit Valuation Problem

We have identified two steps in the delineation of damage functions: first, the identification of a functional relationship between biological/physical damage and levels of carcinogens or pollutants in general; and, second, the assignment of appropriate costs to these perceived levels of damage. Even if we assume that the first problem of dose-response function identification is solvable, we must assess some of the difficulties associated with the assignment of monetary values to total damage.

At least four critical problems are associated with the attempt to estimate benefits and to identify optimal levels of toxics control. These include: the problem of valuing life, the problem of small probabilities, the problem of latency and the problem of the

divergence of the distribution of costs and benefits. One theoretical approach to the valuation of life is to utilize the summation of all

affected individuals' willingness-to-pay for the adoption or avoidance of a particular program. In practice, this has not been possible. As Acton ( 1976, p. 61) points out, "the main practical problem with the willingness-to-pay procedure ~or benefit estimation is that developing accurate assessments of an individual's willingness-~to-pay is difficult and expensive, and the validity of published attempts to apply various estimation techniques has not been demonstrated". Zeckhauser and Shepard (1976, p. 33) make the same point.

Many of the problems involved in utilizing the willingness-to-pay criterion can be

broadly classified as public good or"freerider" problems. There are obvious incentives to misrepresent, either consciously or even unconsciously, one's willingness-to-pay. An extreme example of this behaviour is presented by Ackerman et al. (1974) in their analysis of pollution in the Delaware River Basin. The authors were exasperated with environmentalists' failure to accept any non-zero level of pollution, despite the frequently large private and social costs of such a policy. This attitude is, in itself, not surprising. Environmentalists typically: (1) refuse to accept the initial endowment of property rights in "pollution" as valid; (2) are willing to accept higher product prices

and reduction of consumer choice as a result of their views; and (3) understand that others may not share their concerns, at least initially. Given these conditions, they have incentives to distort their willingness-to-pay, and they additionally have a morality which justifies such a distortion. Environmentalists, no less than industry and other members of society, do not have incentives to consider total social costs and

benefits. In light of these factors, individuals asked to reveal their willingness-to-pay may do

one of several things (none involves revealing their exact preference): they may state very high willingness-to-pay, even for low levels of exposure, knowing that mecha- nisms do not exist to translate these statements into behavioural reality. Alternatively, they may simply opt out of the game by claiming that specifying a payment schedule legitimizes existing property rights. Either response would make assessments of willingness-to-pay extremely difficult in practice.

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There are additional conceptual problems with willingness-to-pay (independent of freerider problems) which are particularly relevant to the type of problems represented by carcinogenic substances with long latencies and relatively low probabilities of risk. One serious problem is what Zeckhauser and S hepard (1976, p. 14, fn. 19) have called "the nasty reality of generation selfishness". They conclude that "each generation will have an incentive to skimp on its beques t s . . . [and] a suboptimal bequest stream will result". On this issue, A. Myrick Freeman concludes:

The issues are more complex when we consider effects extending over very long periods of time, for example between generations. Discounting with the normal discount rate can reduce even catastrophic distant future effects to nominal present values. For example, with a relatively low discount rate of 5%, the benefit of avoiding some number of deaths 200 years in the future is reduced by a factor of 0.0006. On the basis of conventional discounting, the benefits of preventing some future catastrophe, for example, the effects of possible destruction of the ozone layer, may seem less than the present costs of preventing the effect. It appears that in cases of this sort, the major consideration is not intertemporal efficiency in resource allocation, but rather intergenerational equity in the distribution of welfare. Hence, it should not be surprising that decision rules based on the efficiency criterion should appear to give unreasonable results. This is a problem which is beginning to receive attention in the literature. But as yet, there are no generally accepted answers (1978a, p. II-24).

This problem is likely to be particularly severe if future generations have higher incomes and a potentially greater willingness-to-pay.

A further complexity is how individuals evaluate risk in assessing their willingness- to-pay. As Page (1978) points out:

�9 . . for risk markets, whether implicit or explic!t, to work well enough to define acceptable risk, the nature of the risks must be understood and the acceptance must be voluntary�9 There is considerable doubt that these conditions are met in cases of environmental risk. An alternative to market or field data on actual behavior or risk acceptance is psychometric experimentation, which asks people to evaluate risks in laboratory settings�9 This approach, which might be expected to yield concepts of acceptable risk, instead has only cast further doubt on the ability of people to evaluate risks (p. 230).

Given these practical difficulties with the willingness-to-pay criterion, Acton points out that "livelihood saving is the most commonly used formal method for assessing the value of reducing mortality, and has been used as such for over fifty years" (p. 51). But recently this approach has received severe criticism in the economic literature (Acton, 1976; Freeman, 1978b, 1979; R. Evans, 1978). "Extensive analytic effort has been d e v o t e d . . , to the valuation of the human life by way of measurement of economic productivity, a process which despite its widespread popularity is neither sound economics nor sound social policy" (Evans, 1978, pp. 2-3). Many critics have pointed out that such procedures inherently suggest that the lives of some groups of individuals

- high income as against low income, males as against females - should receive a higher valuation.

In response to the increasingly unacceptable social implication of this criterion, interest has been generated in what might be called unobtrusive measures of

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willingness-to-pay. Thaler and Rosen (1975) have examined implicit willingness-to-

pay, primarly through an examination of wage differentials of those engaged in

"risky"jobs. (See also Mishan,. 1972, pp. 105-108.) While the "risky" wage differential approach does offer some hope, it too is beset with well documented difficulties (Acton, 1976, pp. 62 3).

In an attempt to circumvent the complexities inherent in the valuation of life, an alternative approach has been proposed based on the simpler concept of cost- effectiveness. Designated CSX, the cost of saving lives, this methodology can be used to contrast implicit and explicit average expenditures for the reduction ofmorta l i ty ina multitude of human activities. This type of analysis demonstrates variations in such expenditures per capita in excess of an order of magnitude (Siddall, 1979). Superficially, at least, CSX purports to provide clear policy signals for the reallocation

of monies towards an "efficient" equi-marginal return. Unfortunately, the interpretation of this type of monetary information is neither

clear nor simple. CSX is basically cost-benefit analysis masquerading as cost- effectiveness and, as such, cannot simplify the inherent problems in the valuation of life. The central tenet of CSX which provides its apparent strength but, in fact, represents its fundamental weakness is the assumption that each and every human life is equivalent. While this concept is morally compelling, it in no way reflects the attitudes of society as a collective unit or its component individuals, Society implicitly places a value on individual life which varies by both time and place. To cite one example, society is not indifferent between 50,000 traffic fatalities per year throughout

the nation and an equal loss of life in a single, localized, short-term disaster occurring once every year. It is a moot point to assume that this comparative evaluation is a

socially invalid judgment. As a consequence, CSX can only provide a rough guideline for the formation of public policy in areas where there is substantial risk to human life.

In the area of air pollution, researchers such as Freeman (1974) and Rosen (1974) have attempted to estimate a range of benefits associated with pollution reduction by examining household property values. While this methodology offers considerable hope for benefit estimation in areas covered by traditional pollution, it is much less useful when considering carcinogenic pollution. Consider, for example, the substan- tial differences in information costs between traditionally-regulated air pollutants (such as total suspended particulates, ozone, nitrogen dioxide, carbon monoxide and sulphur dioxide) and carcinogenic chemicals (including chloroform, vinyl chloride and benzene). In most of North America, including cities with severe air pollution problems such as Los Angeles, there has been a traditional concern and concomitant generation of information concerning the "classic" pollutants. While potential homeowners can utilize their eyes and noses to assess (and partially capitalize) the impact of these classic pollutants, it is much harder to imagine such successful infor- mation-signalling with air pollution involving latent or less obvious carcinogenic substances.

It is interesting to summarize the recent findings of economists contracted by the

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Environmental Protection Agency to review critically the problems of estimating the benefits of air and water pollution control. Crocker (1978, p. III-38) concludes that " . . . the current state-of-the-art in assessment of the benefits of air pollution control is rather feeble". On benefit assessment in the area of water pollution, Stevens (1978, p. IV-10) concludes that "the real problem . . . is the lack of conce~ptually valid functional relationships between water quality parameters and associated human behavior". In conclusion, little appears to have changed since 1975 when Tihansky reviewed an extensive compilation of major benefit studies:

From an original collection of almost two hundred studies, approximately sixty are selected as contributing most to the conceptual framework and empirical insights of benefit evaluation. Of the selected studies, less than 30 percent are theoretically valid, but even fewer seem cognizant of the applicability, let alone the existence, of welfare economics . . . . Although there is no theoretical basis for most benefit values, equally discouraging is the paucity of empirically derived damage functions (1975, pp. 127-128).

How Should we Formulate Public Policy?

We have suggested that there are significant conceptual difficulties in the use of benefit-cost and risk-benefit analysis as effective instruments of public policy for the

regulation Dftoxic, and specifically carcinogenic, chemicals. These types of difficulties have not always, however, prevented the adoption of other dubious instruments of

policy evaluation in the past. In light of this experience, it is imperative to assess the potential impact of the

implementation of risk-benefit techniques in an area where the conceptual and empirical foundations of analysis remain incomplete. A major justification for the utilization of risk-benefit analysis is that it will bring some much-needed (economic) "rationality" to an existing regulatory process dominated by the "non-rational", "political" decision-making of bureaucrats, legislators and judges. We can compare these hopes with the aura of anticipated benefits which were expected to accompany the adoption of effluent charges in the more traditional areas of water and air pollution. Majone (1976), in an extensive study of water pollution control in Europe and the United States, concludes that "in the few instances where more sophisticated tools have been used (like effluent charges in France and the Netherlands), they have . . . not produced the results expected of them on the basis of their technical properties" . . . . "the injection of new wine into old institutional bottles has not simplified, but actually complicated, an already confused regulatory framework" (p. 589). Because of the cogency of this discussion to the regulation of carcinogens, it is worth quoting Majone at length:

Many analysts have lambasted the administrative approach (prohibitions, standards, incentives, and so on) for its lack of effectiveness and for its tendency to become "a political process entailing bargaining between parties of unequal power." They have proposed effluent charges and related market-oriented techniques as alternatives that, by their automatism and in conjunction with the integrated management of river basins and airsheds "would reduce the scope for administrative discretion and bargaining."

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But these normative conclusions overlook one important point: the same forces that influence and distort the regulatory framework will also affect other approaches, by the same or by different methods. The comparison between, say, an uncorrupted system of effluent charges and a regulatory machinery captured by special interests is a specious one. Where effluent charges have been used - for instance, in France they have proved to be as subject to bargaining and as conditioned by considerations of political and administrative expediency as have standards, licenses, and other regulatory measures. Thus, the search for a system that "would resolve most of the political conflict over the environment in a highly visible way," in the same sense in which planning-programming-budgeting was supposed to lift the budgetary process out of the morass of political compromise, is bound to lead to disappointment... (p. 592).

Conceptual ly , of course, the use of r isk-benefit analysis to determine the opt imal use

of carcinogenic materials involves exactly the same kind of marginal analysis

a l though, to our knowledge, nobody has recommended "effluent" charges in this area.

Industry , and many economists , p resumably prefer a risk-benefit approach because

it promises to emphasize economic ra t ional i ty and de-emphasize political bargaining,

bureaucra t ic admin i s t r a t ion and judicial par t ic ipat ion. But what happens if we

manda te a r isk-benefit approach and cannot , in practice, implement it? We argue that

the principal outcome will be an array of un in tended and, in many cases, undesirable

consequences. These un in tended , but not necessarily unpredictable , consequences will

depend upon ins t i tu t ional a r rangements . One major consequence might be to make

the b a n n i n g of carcinogenic materials either much easier or much more difficult,

depending on who is required to produce a r isk-benefi t analysis. If, for example, the

E P A had to produce an extensive and totally defensible risk-benefit analysis before

b a n n i n g a substance, such bans would be much rarer. If, on the other hand, a firm or

indus t ry had to produce a comprehensive r isk-benefi t analysis to rebut such a ban,

these laws could be much more frequent. In other words, the bu rden of proof would be

very difficult for any plaint i ff required to produce a r isk-benefi t analysis. Defendants ,

as we have shown, would quickly be able to produce witnesses demons t r a t ing the

unrel iabi l i ty of both physical /biological damage and benefit estimates.

The critical significance of the bu rden of proof to the decision making process has

been highlighted by the recent decision of the U.S. Supreme Cour t in Industrial Union

Department , A F L - C I O v. Amer ican Petroleum Institute. In s tr iking down O S H A ' s

new, more strict s tandards for benzene (i.e., I ppm instead of the previous 10 ppm), the

court stated:

The Agency's position is that there is substantial evidence in the record to support its conclusion that there is no absolutely safe level for a carcinogen and that, therefore, the burden is properly on industry to prove, apparently beyond a shadow of a doubt, that there is a safe level for benzene exposure.

We disagree. As we read the statute, the burden was on the Agency . . . . In this case OSHA did not even attempt to carry its burden of proof (48 LW 5034, 6-24-80).

Clearly, if the bu rden of proof had been reversed, it would have been difficult for the

industry to demonst ra te that benzene was not dangerous at levels lower than 10 ppm.

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If, as previously argued, "regulatory capture" can occur even in systems which purport to incorporate dispassionate and objective economic analysis into the decision-making process, we must therefore look for other reasons to justify adoption. Consequently, let us review briefly the "costs" and "benefits" associated with the two different theoretics of regulation. The traditional process of standard setting generally involves the establishment of uniform regulatory levels oftoxics control throughout a political jurisdiction, be it regional or national. This does not, however, imply that the existence of uncertainty and diversity in biological response and cost Of control are ignored. Rather, many regulatory levels are specifically designed to err on the side of conservatism with regard to both uncertainty and diversity. As a consequence, the principal cost of such a regulatory approach is reflected by some subset of "over- regulations". In other words, there has been an implicit policy choice in favour of incurring the relatively certain control costs associated with over-regulation rather than the relatively uncertain costs associated with an increase in adverse biological

effects. By contrast, the process of risk-benefit analysis attempts to achieve levels of control

which represent a finely-tuned balance between costs and benefits. The calculus of such an ideal process suggests that, in any specific situation, movement toward greater or lesser control of toxics will increase social costs, where social costs are defined as the total of regulatory costs and biological damage. In fact, the aura of precision which characterizes this approach is illusory and misleading. Given the level of uncertainty that currently prevails in the evaluation of both inter- and intra-species response to toxic chemicals, the adoption of a risk-benefit methodology cannot avoid the costs of

both under- and over-regulation. It is our contention that, while the risks of over-regulation will probably be lower in

the risk-benefit approach than in the traditional uniform standards approach, the risks of under-regulation will undoubtedly be higher. The result is a clear qualitative choice between the two regulatory rubrics: the potentially excessive costs of technical control associated with traditional regulation versus the potentially excessive costs of biological damage with the use of risk-benefit.

The standard economic defense of risk-benefit analysis is that it is an inherently

superior approach because it identifies a level of control which is closer to the point of minimum social cost than the "arbitrary" process of uniform standards. The fallacy of this position is the assumption of practical comparability and additivity between control costs and biological costs~ the two principal components of total social cost.

Whereas control costs are easily measurable, biological costs are not. As described earlier in this paper, there is significant uncertainty associated with both the delineation of the biological dose-response function and its conversion into an appropriate cost function. While sensitivity analysis is a potentially useful aid in risk-benefit analysis, the extent of uncertainty may significantly reduce the number of instances where such analysis can lead to a clear policy choice. This type of difficulty is most likely to occur where estimates of risks differ by one or even two orders of

137

magni tude (Kimm et al., 1979). Symptomat i c of the uncertainty associated with the

valuat ion of h u m a n health and life is the prolific and often rancorous debate of this

issue in government hearings, the public press and academic literature.

Sum m a ry and Conclusions

We have suggested that there is a justifiable concern on the part of many economists

and industrial decision-makers with the apparent ly excessive costs associated with

current regulatory mechanisms for the control of toxics. There is clearly a need for

some modif icat ions in the complex system of data gather ing and analysis and the

concomi tan t establishment and moni tor ing of the regulatory process. As demon-

strated in R e s e r v e M i n i n g , the broad qualitative use of risk-benefit analysis can be an

impor tan t aid to the decision-making process. It is our position, however, that the

full-scale incorpora t ion o f " r igo rous" risk-benefit analysis into the regulatory process

is inappropr ia te at this time and could have significant and unintended consequences.

If, for example, neither par ty to a dispute is able to demonst ra te a specific cost-benefit

relationship, the allocation of the burden of p roof will be determinative.

In sum, risk-benefit analysis and the associated methodologies for the assessment of

relevant economic, social and biological values have yet to achieve the level of

precision required for sound and defensible decision-making. Indeed, it has been

argued by some that the theoretical requirements for the intellectually r igorous

application of risk-benefit analysis cannot be met in practice (Lovins, 1977).

In light of the diverse valuat ion of biological, physical and social damage, it is our

conclusion that to err on the conservative side th rough the principal reliance on

t radi t ional and conservative s tandard setting procedures is the most desirable course

of action. In fact, it can be argued that the maintenance of such an approach is not to

err at all, but to adopt the only rational approach to public policy.

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