Cost-Benefit Analysis (CBA) has been a mainstay of the regulatory state since the Reagan administration issued Executive Order 12,291 in 1981. Despite vigorous criticism, the CBA policy first introduced by Reagan has remained largely untouched by subsequent administrations.[i] Most recently President Obama issued his own Executive Order, reaffirming CBA practices under his administration. While CBA is the standard tool used for evaluating new regulations, many scholars have proposed alternative methods that they claim to be preferable to CBA.[ii] Recently John Bronsteen, Christopher Buccafusco, and Jonathan S. Masur proposed one such alternative to CBA: Well-Being Analysis (WBA). Although WBA claims to use the power of social psychology to innovate the tools available for regulators, it falls short of being the answer to the CBA problem.
Cost-benefit analysis provides regulators with a convenient tool to weigh the benefits of a new regulation against its burdens. This analysis is made particularly salient because CBA allows all costs and benefits to be measured with the same dollar metric. Basically, CBA weighs a person’s willingness to pay for a benefit of a new policy against his or her willingness to accept burdens introduced by a new regulation. Once dollar amounts are assigned to the benefits and costs of a regulation, regulators can easily quantify the net benefit of a proposed regulation.[iii]
Without a crystal ball, regulators must rely on CBA to determine if a proposed regulation is worthwhile. As a tool, CBA is easy to administer and provides a concrete way to measure the value of a regulation. CBA provides a one-size-fits-all approach for analyzing every sort of agency regulation; in this way, CBA acts as quality control among agencies, ensuring that any and all regulation analysis is conducted uniformly. CBA therefore creates a sort of scientific standardization in agency activity. The consistency and quality control offered by CBA also allows agencies to be transparent. The uniform application of CBA allows outsiders to understand exactly how a potential new regulation is being evaluated.
Although CBA is standard practice for regulators, it has consistently been criticized. CBA is primarily an economic tool, which many critics find incompatible with what CBA attempts to quantify. For example, CBA requires a dollar amount to be placed not only on human health but also on the value of a human life. Many critics have bemoaned that placing a dollar amount on things like human life is morally suspect and scientifically haphazard. “A particular life may have one value to the individual, another to his or her family, and still another to society at large.”[iv]
The consistent and vocal criticism of CBA has led many theorists to propose alternatives to CBA. Recently, Bronsteen et al, proposed well-being analysis (WBA) as a viable replacement for CBA. WBA heavily relies on hedonic psychology, which examines how individuals experience enjoyment in life. Instead of focusing on CBA’s willingness to pay vs. willingness to accept, WBA measures how much more or less a person would enjoy their life due to the effects of a regulation. “WBA simply adds up the positive experiences of life that individuals stand to lose or gain under a given project.”[v] WBA proponents argue that with advancements in hedonic psychology, a person’s enjoyment of positive experiences can be quantified into well-being units. They further argue that data about sense of well-being can be accumulated and analyzed with more or less the same, if not better, accuracy and efficiency as CBA.[vi] Ultimately, WBA proponents argue that WBA presents the same benefits as CBA, but avoids CBA’s pitfalls introduced by wealth and monetization metrics.[vii]
Although WBA perhaps offers an alternative to CBA, it seems WBA is susceptible to many of the same criticisms as CBA. While WBA uses well-being units as a metric instead of dollars, it is unclear if well-being is in fact a better measure than money. Despite the change in metric units, the criticism that some things simply can’t be quantified remains. Additionally in some ways, enjoyment seems as superficial a measure as buying power. Intriguingly, WBA proponents note that increases/decreases in wealth are logarithmically proportional to a person’s increased sense of satisfaction.[viii] The link between wealth and enjoyments perhaps demonstrates that well-being and wealth have more in common than WBA would care to admit. Mainly, wealth and enjoyment are both transient measures of success that can vary over time. And in some sense, both wealth and enjoyment can only minimally represent a policy’s or a society’s success.
Generally speaking, WBA and CBA share a common foundation. CBA has been largely criticized as being misguided by placing a dollar amount on invaluable things, like human life. While WBA does not place a dollar amount on human life, it does place a number on it, albeit a number representing wellness units. By using superficial measures and building on the same foundation of systematic quantification, it seems that WBA and CBA share much in common.
In many respects, the commonalities between WBA and CBA allow WBA to be a good alternative to CBA. While WBA can offer a familiar type of analysis for regulators, it also shares many of CBA’s advantages. And, WBA proponents argue, WBA is a more sensitive tool that can better measure the effects of regulations.[ix] Ultimately, WBA advocates urge that the data provided by WBA and/or CBA are mere starting points for regulators.[x] They infer that it is the job of ultimate policy makers (assumingly the executive and legislative branches) to ensure that justice, fairness, and human dignity are considered.[xi] But this regulatory scheme depicts a regulatory state where the ends justify the means. It would perhaps be better to have an analytical regulatory tool that reflects our society’s normative values of justice, fairness, and equality.
While WBA presents an interesting development in the cost-benefit analysis debate, it is unclear how novel an approach it really is. WBA’s similarities to CBA make it an alluring analytical method. But its resemblance to CBA also suggests that WBA may not be a true alternative to CBA. Ultimately, the debate over CBA and the development of WBA would benefit from a candid evaluation of the normative values that animate U.S. law and regulation, in the hopes that one day, our regulators’ analytical methods are consistent with the ideals our society strives toward.
-Jessica L. Shaffer is a General Member of MJEAL. She can be reached at firstname.lastname@example.org
The views and opinions expressed in this blog are those of the authors only and do not reflect the official policy or position of the Michigan Journal of Environmental and Administrative Law or the University of Michigan.
[i] Helen G. Boutrous, Regulatory Review in the Obama Administration: Cost-Benefit Analysis for Everyone, 62 Admin L Rev 243, 248 (2010). See also Michael A. Livermore, Can Cost-Benefit Analysis of Environmental Policy Go Global?, 19 NYU Envtl LJ 146, 151 (2011).
[ii] Michael A. Livermore, Can Cost-Benefit Analysis of Environmental Policy Go Global?, 19 NYU Envtl LJ 146, 163 (2011).
[iii] Michael A. Livermore, Can Cost-Benefit Analysis of Environmental Policy Go Global?, 19 NYU Envtl LJ 146, 161-63 (2011).
[iv] W. Kip Viscusi. Fatal Trade Offs. 17-19 (1992).
[v] John Bronsteen et. al., Well-Being Analysis vs. Cost-Benefit Analysis, 62 Duke LJ 1603, 1645 (2013).
[vi] Id. at 1664.
[vii] Id. at 1645.
[viii] Id. at 1640.
[x] Id at 1640.
[xi] Id. at 1616. See also, Exec. Order No. 13,563, 3 C.F.R. 215 (2012).