23 Jul 2008

Nobel Economists on Cost-Benefit

Riverkeeper asked the EPA to require (under the Clean Water Act) that companies use the "best available technology" for water cooling intakes without regard to the costs and benefits of any given technology. Some power-generators sued (power plants suck in water through intakes for cooling), claiming that such a ruling placed a burden out of proportion to the benefits. One court ruled that cost-benefit should be used, but the Second Circuit ruled that it need not be. The case is now before the US Supreme Court.

Economists are upset. In this amici curiae brief, MANY famous economists argue for the use of cost-benefit, i.e.,
As economists, we believe that the Second Circuit's ruling, by not allowing the consideration of important information about the relationships between the benefits and costs of alternatives, is economically unsound. In particular, we believe that, as a general principle, regulators cannot make rational decisions unless they are allowed to compare costs and benefits and to use the results, along with other factors as appropriate, to choose among alternatives.

To the extent permissible under the statute and case law, EPA should be allowed to consider benefits and costs in establishing rules for implementing §316(b). The Court's allowing EPA to consider benefits and costs would improve both the decision making process - by making it more transparent - and the regulatory decisions by allowing important relevant information to be considered explicitly.
Cost-benefit analysis is an excellent tool for decision making. It is controversial because it puts values on things that many people think are priceless (e.g., a life, a species, etc.), but it is useful because it allows regulators (and others) to compare regulations (or regulation against no action).

Bottom Line: Nothing it priceless -- everything can be traded for something.*

hattip to HF

* An old (scandalous) joke on costs and benefits:
Old Millionaire to Young Beauty: I'd like to sleep with you, and I can pay.
YB: Sure, you're rich.

["time" passes]

OM: That was wonderful -- here's $20.
YB: What do you think I am, a prostitute?

OM: I know you're a prostitute -- now we're bargaining.

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