I am writing this as a follow up to my posting on cost-benefit analysis (CBA) and the subsequent discussion. Let me start by thanking everyone who has contributed to the conversation. The vast majority of posts are excellent examples of respectful debate between people who have clearly thought and read deeply about the topic. I am impressed and, to be honest, a little overwhelmed by the volume of information. Rather than respond to individual posts I will try to roughly categorize and comment on the various views that have been presented. I will then argue that there is more common ground between environmental economists and those suspicious of cost-benefit analysis than appears on the surface.
It seems most of the comments focused on three dissenting themes: cost-benefit analysis does not provide unbiased information; cost-benefit analysis is inherently anti-environmental; and efforts to use monetary cost-benefit analysis for environmental and safety regulations erode the self-evident values upon which our society is based. The first, I think, is based in part on my poor choice of words. ‘Unbiased’ is indeed a high standard that is difficult to define, let alone attain, in gauging information for policy making. Furthermore cost-benefit analysis is ultimately based on people’s preferences – things that economists take as given but that may reflect individual biases and prejudices. Perhaps a better choice of words would have been ‘consistent’ information. By this I mean information provided in comparable units and based on an established, transparent, and disciplined paradigm. To label the information consistent is not to say reasonable people cannot disagree on the details of its implementation. Nor is it to say that all social criteria are well-reflected, particularly since income distribution considerations are notably absent. CBA simply provides quantitative information that should be used with (and as a check on) other, more abstract criteria. I will return to this theme below.
The notion that cost-benefit analysis is by nature anti-environmental confuses the tool with its uses. To be certain information provided by CBA has been misused and misrepresented out of context, as is the case with information in any political situation. The potential for mischief is also present in information gleaned from polls, focus groups and town meetings. Yet these methods of measuring public opinion are not under debate. Cost-benefit analysis, by contrast, is considered biased against the environment based on two related notions: CBA systematically ignores the environment’s nonmarket services, and efforts to value nonmarket services are flawed to a degree that the results cannot provide meaningful insights. My personal experience is at odds with the former, and I disagree with the latter. I have been directly involved in detailed CBA studies that have measured the environmental benefits of reducing nitrogen and phosphorous emissions from concentrated animal feeding operations, as well the environmental benefits of limiting winter snowmobile use in Yellowstone National Park. Rather than ignoring the environment both of these studies found substantial benefits from environmentally favorable regulations. My experience in participating in these types of studies is not unique among environmental economists, and the demand for information on environmental values provides evidence that practitioners of CBA are indeed making an effort to include environmental effects. The concern among critics about the reliability of environmental value estimates provides further evidence that these effects are being considered. Nonmarket valuation is far from a precise science and quantifying people’s preferences will always be a daunting task. It is worth remembering, however, that nonmarket valuation as a field is still relatively young. Many of the criticisms voiced by skeptics are based on older techniques and results (often taken out of context) that the field has moved away from. Contemporary nonmarket valuation draws on insights from survey and marketing science, cognitive and behavioral psychology, statistics, risk assessment, and ecological modeling. The dollar values produced by nonmarket valuation models will never be perfect, but science rarely is. There is for example tremendous uncertainty in climate change models, dose-response functions for exposure to environmental risks, and assessments of marine mammal populations. Imperfect information, however, should not prevent us from making the best use of what we do know. Indeed all scientific models are ‘wrong’; some are nonetheless useful. In my view the impressive progress made in nonmarket valuation models places them firmly in the latter category.
Turning to the final point of dissension, discussion of societal values and environmental policy always gives me pause. There is no denying the role of universally held values in public policy formation, but defining what they are is fraught with difficulty. Still more challenging is reaching consensus on what they ought to be. Witness the ongoing cultural debates in this country: evangelicals cite Christian values, patriots cite American values, and libertarians cite individual values as the moral fabric of our society. Add to these environmental and humanist values – all of which contain admirable but occasionally conflicting ideas – and it is clear that the details of our core beliefs (if even their broad outlines) are not universally agreed upon. Forming policy based on the specific absolutes of one set of values can therefore only come at the expense of another. For this reason I am uncomfortable professing one set of beliefs to be the ‘correct’ one. I would prefer instead tolerance for multiple viewpoints. In practice this ought to mean one has a right to her own opinion and a duty to listen to (and potentially be convinced by) others. CBA is consistent with this idea of preference sovereignty and respects the notion that the details of our core values can reasonably differ across well-informed people. CBA does not replace or erode our values; rather, if properly executed it should be a reflection of them.
I think we have done a good job of respectfully disagreeing in this online debate. But have we made progress? At the end of the day are the differences between proponents of CBA and its detractors irreconcilable? For my part I think there is more common ground between environmental economists and those suspicious of CBA in environmental policy than appears on the surface. I recently attended a workshop in which top environmental economists and ecologists sat in a room and discussed how research from both fields could be combined to value ecosystem services. The talks were intellectually invigorating, but equally important the general goodwill allowed us to identify a host of common interests and concerns and lay the groundwork for future collaboration. Also this year the Carolina Environmental Program at UNC-Chapel Hill sponsored a workshop titled perspectives on environmental values. Here too I found the talks fascinating (if you have a chance to hear Paul Slovic, Scott Slovic, or Lisa Heinzerling speak don’t miss it!), but the criticism of CBA that was a general theme at the meeting left me puzzled. In its place speakers advocated using multiple sources of information on environmental values for policy: spirituality, literature and the arts, legal traditions, and philosophical traditions. The suggestion was that these diverse perspectives can be used in considered debate to arrive at appropriate environmental policy objectives. But if a multi-criterion approach is superior, why exclude CBA? Compare the multi-criterion approach with how I teach my students about the environmental decision maker’s three-legged stool: CBA provides structured, quantitative information on efficiency; equity and fairness considerations need to be balanced against efficiency; and ethical views should provide checks and balances on both of these. I think most environmental economists would agree with this general characterization. And it sounds like common ground to me.
