Academic journal article Fordham Urban Law Journal

How Much Is That Doggy in the Window? the Inevitably Unsatisfying Duty to Monetize

Academic journal article Fordham Urban Law Journal

How Much Is That Doggy in the Window? the Inevitably Unsatisfying Duty to Monetize

Article excerpt

Einstein appears in front of a blackboard. Before him is an impenetrable string of equations, ending, improbably, with a dollar sign. The caption reads, "Einstein discovers that time is actually money." (1)

INTRODUCTION

It is impossible to imagine effective teaching or scholarship across a range of disciplines within the legal academy without some reference to economics. Impossible today, that is. Generations of students and professors did serviceably well before the ongoing transformation of the law school into a thoroughgoing academic discipline. Economic analysis most influentially embodies that ambition. Refracting legal and administrative decision-making through the lens of quantified risks and benefits is not simply desirable, it is inevitable. Indeed, a central descriptive claim of law and economics is that efficiency and social welfare concerns have always animated legal processes. The descriptive and normative claims of law and economics are, of course, open to debate. What is assuredly true is that students of the law--regardless of which side of the podium they find themselves--must at some point consider the material constraints on policy.

I have been asked to respond to Professor Kip Viscusi's contribution to this Symposium, "Monetizing the Benefits of Risk and Environmental Regulation." (2) Professor Viscusi is the leading proponent of cost-benefit analysis as it applies to regulation. He is an astonishingly prolific scholar, and his work has been as influential within the academy as it has in the field.

As a commenter, I am thus fortunate that this piece breaks no new ground, but instead reviews the theory and application of cost-benefit analysis. The range of scholarship on the topic is vast and often technical; Professor Viscusi is the rare scholar who can cite extensively to his own work without appearing immodest. That is of immense value to the commenter, as it helps him trace for the reader the context of Viscusi's work and some of the increasingly formal critical responses thereto.

Cost-Benefit Analysis

Learned Hand would no doubt be pleased to see the remarkable sweep of the formula that bears his name. (3) Unchained from the colorful--if epistemologically inapposite--facts of Carroll Towing, (4) cost-benefit analysis now occupies a central role in administrative regulation. Viscusi describes the relatively recent promulgation by the United States Office of Management and Budget (OMB) of standards to guide federal agencies as they consider very explicit tradeoffs among health outcomes, direct compliance costs, and the diverse outputs of regulation. (5) These considerations are essential to enable policymakers to make rational and consistent risk decisions across different policy domains. (6) It is important to know that, for example, Regulation X leaves society better off if enacted. Somewhat less obviously, we ought to prefer Regulation Y to Regulation X if Y leaves us even better off. In a world of constrained regulatory possibilities, some mechanism is needed to sort out the good ideas from the bad, as well as the better ideas from the merely good.

Cost-benefit analysis ("CBA") offers such a mechanism. But because "costs" are initially denominated in dollars and "benefits" typically do not self-denominate accordingly, direct comparisons are difficult. Instead, researchers have derived estimates of dollar values from observed market behavior and survey data. Human health and safety are sometimes directly traded (as in the provision of health care or shelter). More often than not, however, we can only observe transactions in which health and safety considerations are merely implicit. Statistical tools are employed to tease out the component of the transaction (say a wage premium) that is thought to be attributable to risk. Thus armed with the "market rate" for a quantum and type of health risk, one can infer what an actual market would look like for a spectrum of risk portfolios. …

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