Cost-Benefit Analysis and Procedural Values

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Cost-Benefit Analysis and Procedural Values Douglas MacLean Cost-Benefit Analysis and Procedural Values Abstract: One argwnent against using cost-benefit analysis to justifY policies aimed at promoting human life and health or protecting the environment is that it requires putting a price on priceless goods. This distorts the value of these goods, and it can affect their value by cheapening them. This argwnent might be rejected by a moral consequentialist who believes that a rational agent should always be able to reflect on his values, even priceless goods, and assess their costs and their importance. This article defends the argwnent against cost-benefit analysis and suggests that a proper understanding of priceless goods shows that they also raise difficulties for consequentialist moral theories. In 1981, Steven Kelman published an article entitled "Cost-Benefit Analysis: An Ethical Critique" (Kelman 1981). It was written not for philosophers, but for policy makers, scientists, and other professionals and analysts who have an inter­ est in public policy, and it appeared at a time when debates surrounding cost­ benefit analysis in the US had reached a near feverish pitch. The article received considerable attention, prompting critical attacks with replies in the next two issues of the journal in which it appeared. It survives today as an often reprinted article in textbooks and anthologies in which cost-benefit analysis is a subject. 1. Kelman's Objections to Cost-Benefit Analysis Kelman focused explicitly on "cost-benefit analysis as applied to environmental, safety, and health regulation" (Kelman 1981, 33) and he raised three kinds of objections to its use in these areas. The first was a claim that cost-benefit analysis is basically an application of utilitarian moral theory. Utilitarianism, he claimed, is subject to serious criticisms as a moral theory and is therefore rejected by a majority of philosophers today. He remarked that, "it is amazing that economists can proceed in unanimous endorsement of cost-benefit analysis as if unaware that their conceptual framework is highly controversial in the discipline from which it arose - moral philosophy" (Kelman 1981, 34). Kelman's second and third objec­ tions addressed the problems involved in putting dollar values on non-marketed goods. His second objection was that the best methods for doing this are not very good. Few analysts would want to dispute this claim. Two general methods have been developed for assigning surrogate prices to goods like extended life, Analyse & Kritik 16 (1994), S. 166-180 © Westdeutscher Verlag, Opladen Cost-Benefit Analysis and Procedural Values 167 improved health, and environmental protection. The first looks at behavior that implicitly reveals a willingness to pay for non-marketed goods. Clean air, for example, is not marketed, but houses in more or less polluted areas are. The premiums people pay for houses in environmentally desirable areas should reveal an implicit economic value for cleaner air. But many factors determine why prices vary for houses in different areas and why people choose to live in one area rather than another. It is a daunting task to attempt to isolate a factor that correlates with preferences for pollution levels. To take another example, life is not marketed, but jobs with greater risk of death are. Some analysts have looked at wage differentials for occupations that have different risk levels but are otherwise similar, in order to reveal the implicit price of accepting an incremental risk of dying. In order for wage differentials to reveal the price of a risk of death, however, workers must be aware of the levels of risk they face, they must be free to choose different jobs with different risk levels, and they must be satisfied with their compensation for the level of risk they have accepted. These are rather strong assumptions, and it is a rare situation in which they are all well justified. These examples indicate the kinds of problems we face when we look at economic behavior to reveal preferences for non-marketed goods. An alternative method for attributing prices to non-marketed goods is to ask people directly what they would be willing to pay for them if the goods were marketed. Here the worry is whether people will express their true preferences when they answer the questions that are put to them. There are several problems, one of which is that the preferences people express in these situations can be artifacts of the way the questions are framed. Kelman mentions studies that show that the expressed preference for environmental protection varies significantly according to whether people are asked how much they would be willing to pay for a good that they do not own or how much they would demand in compensation to give up a good that they do own. In many cases the question can be framed either way. We can assume that people have a right to live in a safe and healthy envi­ ronment and ask them how much they would demand to give up some of this good, or we can assume a somewhat risky status quo and ask how much people would be willing to pay for better health or a cleaner environment. The expressed preference for the good will be determined by the assumptions that guide the framing of the questions. These objections are well known to economists. Nobody pretends that the methods for revealing or expressing preferences yield precise prices for non­ marketed goods. The question is whether they can generate information that is useful enough for making the necessary comparisons, and whether cost-benefit methods, rough though they are, are nevertheless better than the alternatives for evaluating decisions and policies. These are empirical questions, of course, and a satisfactory answer to them will require a detailed assessment and comparison of alternative methods. Kelman's third objection was that the very practice of finding a wiIIingness-to­ pay for goods that we normally regard as priceless or sacred can alter their value for us and lead us to think of them as ordinary commodities, like those we 168 Douglas MacLean exchange and consume in the normal course of our everyday lives. He likened cost-benefit analysis to "the thermometer that, when placed in a liquid to be measured, itself changes the liquid's temperature" (Kelman 1981, 38). He suggested, incorrectly I think, that markets govern our private transactions but that, when we act as citizens in the public forum, we give expression to differ­ ent and higher values. But his central point was that some goods are cheapened when we try to attach a price to them. His examples included goods that are connected with honor or love, and he clearly thought that the goods of life, health, and environmental protection also fall within this class of values. According to Kelman, we can alter and thereby increase the value of these goods by proclaim­ ing that they are "not for sale". Interestingly, Kelman also claimed to be describing what most people believe, as a matter of common sense. He suggested that analysts who think that the value of any good may be expressed in terms of a willingness to pay for it are out of touch with common sense about priceless values. He wrote: "Economists tend to scoff at talk of pricelessness. For them, saying that something is priceless is to state a willingness to trade off an infinite quan­ tity of all other goods for one unit of the priceless good, a situation that empirically appears highly unlikely. For most people, however, the word priceless is pregnant with meaning. Its value-affirming and value-protect­ ing functions cannot be bestowed on expressions that merely denote a determinate, albeit high, valuation." (Kelman 1981, 40) I think Kelman is right to say that most people believe some things are price­ less and that it is wrong to regard those things as marketed commodities. I also believe that this sentiment underlies much of the widespread suspicion of cost­ benefit analysis and antipathy to its use, especially in making decisions about saving lives, promoting health, and protecting the environment. But there is disagreement among economists and philosophers about whether these beliefs are reasonable and can be justified. This is the issue I want to examine in the remain­ der of this article. I will not comment further on the difficult, mostly empirical issues raised by Kelman's second objection about the inadequacy of preference theories for deter­ mining our willingness-to-pay for non-marketed goods. I must say something about his first objection, however, which links cost-benefit analysis to utilitarian­ ism, because it raises an issue that relates to our understanding of priceless values and their connection to procedures, which I want to consider. 2. Cost-Benefit Analysis, Utilitarianism, and Consequentialism Kelman describes a number of objections to utilitarianism that support the conclusion that "some acts whose costs are greater than their benefits may be morally right and, contrariwise, some acts whose benefits are greater than their costs may be morally wrong" (Kelman 1981, 35). For example, an act whose costs are greater than its benefits might be right because it is just or fair, and an act Cost-Benefit Analysis and Procedural Values 169 whose benefits are greater than its costs might be wrong because it violates some­ one's rights. Now, I happen to agree with Kelman's conclusion, but it is not altogether clear how these arguments count against cost -benefit analysis. Kelman thinks the arguments against utilitarianism carry over directly to cost-benefit analysis, because he regards cost-benefit analysis as merely an application of utilitarian moral theory. But the relationship between utilitarianism and cost-benefit analysis is not that simple.
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