Opposing Cost-Benefit Analysis Tool
Public policy is what the government officials and the public decide to approve or not approve regarding public problems. Public problems are what the public perceives as unacceptable, including environmental degradation, health care services, and consumer safety (Kraft & Scott, 2018). Unfortunately, public policy-making faces challenges between two alternatives, and the government has to make difficult choices. As a result, the cost-benefit analysis (CBA) tool was introduced to help decision-makers to evaluate the benefits and the costs expected from a regulatory option. However, the CBA tool is not an effective tool as it fails to recognize more complex, unquantifiable factors that affect the objectivity of the decision made. This paper argues that the CBA tool is an inefficient public policy tool.
First, CBA requires a translation of the value of all proposals into economic terms. However, certain inputs cannot be translated into economic value such as security and safety, and the effects of new scientific innovations and their omissions invalidate the analysis (Blum et al., 1980). For example, the Environmental Protection Agency announced a new regulation to limit mercury emissions from coal-burning industries. After a Cost-benefit analysis was done, the cost of the coal industry was $750 million, compared to the public health benefit valued at $ 50 million per annum. After several criticisms, EPA authorized a second CBA to be done by the Harvard Centre for Risk analysis. Their study showed that the industry’s $750 million would affect the public from neurological, and cardiac damage from mercury poisoning that would lead to losses worth $50 billion (Caruso, 2008). These differences resulted from EPA’s original CBA analysis only focused on the effects of reducing mercury levels in freshwater only and failed to consider underlying factors. Whereas the Harvard report included the effects of mercury levels on fish and with tuna being the fish that most Americans take, which would increase mercury exposure in the US. Also, EPA failed to recognize the cost of cardiac damage, which affected the overall analysis. Therefore, this example shows the damage that could arise from valuing data in economic terms only (The Regulatory Review, 2016). Finally, this shows that using CBA to determine the value of new regulations is not working, therefore, there is a need for a better approach.
Secondly, the Office of Management and Budget whose administrators are mandated to collect and evaluate regulator’s cost-benefit analysis also decides which data the regulators can gather to support their analysis. This double standard makes getting information for cost-benefit analysis difficult, which affects the overall result. Moreover, if the data needed is denied and the information left out, the data provided may be inaccurate. For instance, in Michigan v. EPA, the Supreme Court found that the EPA had made a mistake by not including costs when regulating the hazardous air pollutant emissions from power plants (The Regulatory Review, 2016).
Moreover, when a company is granted the rights to request the data from various companies in the private sectors, the companies fail to respond in time or overestimate costs and underestimate benefits. Also, the companies insist on confidentiality which makes it difficult to verify the information provided. For example, when the National Highway Traffic Safety Administration was considering regulations for fuel economy, US manufacturers objected claiming the rules would be expensive because the technology did not exist. However, foreign car manufacturers complied with the new regulation (Caruso, 2008). The problem of getting accurate data from the industries being affected by the new regulations becomes difficult, which makes most CBA misleading.
Thirdly, cost-benefit analysis relies on human beings’ decisions on what to be included in their model. The lack of an independent ethical theory and uniform standards limits the effectiveness of CBA as a public policy. Besides, studies show that human beings working within their professional training are not able to be objective. Also, relying on judgments can lead to several assumptions which may affect the outcome. For instance, calculating the value of human life and how to adjust imperfections in the market prices may differ from one individual to another (Adler & Posner, 1999). This makes the effectiveness of the cost-benefit analysis questionable and, thus, ineffective.
Nevertheless, the cost-benefit analysis is an effective tool in analyzing one-dimensional problems. Also, it is an efficient tool for analyzing an industry’s costs (Better Markets, 2020). Besides, it is a good way to get statistics about economic efficiency. It is inadequate in the evaluations of items such as health, environment, and endangered species as they are difficult to attach an economic value to them (Nussbaum, 2000). These factors require a more advanced method of approach that is transparent and represents the interests of everyone.
In conclusion, CBA is not an effective public policy tool. This is because it relies on items that can be translated into economic terms and are quantifiable. While it is a good tool for analyzing an industry’s costs, it fails to adequately analyze other underlying factors in the public interest. Therefore, there is a need to come up with a new method of approach for the public interests on top of the cost-benefit analysis.
References
Adler, M., & Posner, E. (1999). Rethinking cost-benefit analysis. SSRN Electronic Journal, 109(165), 167-245. Web.
Better Markets. (2020). Opposing industry-cost-only analysis as a Trojan horse to kill critical rules. Web.
Blum, J., Damsgaard, A., & Sullivan, P. (1980). Cost-benefit analysis.Academy Political Science, 33(4), 137-147. Web.
Caruso, D. (2008). The myth of cost-benefit analysis. Strategy+business. Web.
Kraft, M., & Scott, F. (2018). Public policy: Politics, analysis, and alternatives (6th ed.). SAGE Publications.
Nussbaum, M. (2000). The costs of tragedy: Some moral limits of cost‐benefit analysis.The Journal of Legal Studies, 29(S2), 1005-1036. Web.
The Regulatory Review. (2016). A debate over the use of cost-benefit analysis. Web.