Arden Rowell (University of Illinois College of Law) has posted Partial Valuation and Cost-Benefit Analysis on SSRN. Here is the abstract:
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Regulators should not regulate where the monetized costs of the regulation are greater than the monetized benefits. This holds true even if money can be used only incompletely to express many of the goods we as a society believe to be valuable. So long as monetary valuations are thorough, in the sense that they count everything for which people are willing to pay money, this is true even if we accept that money is importantly incommensurable with many other goods that we as a society believe to be valuable. The reason for this is not because money is somehow magical, or even necessarily more important than other goods: it is because it is poor policy to pay more for a regulation – in any resource – than people value that regulation.
This approach to valuation, which I call 'partial valuation,' provides distinct guidance both to OIRA, as the office responsible for reviewing draft regulations, and to agencies performing cost-benefit analyses. OIRA should not allow agencies to promulgate regulations where the monetized costs outweigh the monetized benefits. Agencies should seek to monetize thoroughly. When benefits cannot be fully expressed in dollars, they should seek to perform partial valuations, where they elicit people’s willingness to pay for those goods in dollars. Any remainder that regulators truly believe to be inexpressible in monetary terms might be reasonably included in a discussion of nonmonetizable benefits, as would any goods that cannot be valued in monetary terms at all. Once benefits are identified as nonmonetizable, agencies should not attempt to rely on the nonmonetizable category of benefits to somehow “make up for” monetized analyses where the costs outweigh the benefits. Regardless of the importance or magnitude of the nonmonetizable benefits at issue, too much money is too much money. Once a resource costs more in any resource – monetary or non-monetary – than people are willing to pay for it, the existence of other effects does not justify implementation of the regulation.
As a concrete application of this approach, I show that, with the current information before it, OIRA should not permit NHTSA to promulgate the rear-view camera regulation, on the grounds that the monetized benefits do not justify the monetized costs. NHTSA should revisit its methods for monetizing benefits, and should reconsider whether people are truly unwilling to pay enough money, in dollars, to save the lives of a hundred people a year, almost half of whom are toddlers, given the costs they have calculated. If people are truly not willing to pay (in dollars) the cost of the regulation (in dollars), and if NHTSA is truly unable to come up with alternatives for which people are willing to pay, then NHTSA should return to Congress and explain that it has been unable to regulate because the cost of the regulation is simply more than people are willing to pay.
Highly recommended.