NCPA - National Center for Policy Analysis

COST-EFFECTIVE REGULATIONS

March 31, 2005

There are inevitable trade-offs involved in public health and safety policies, says Princeton University economist Alan B. Krueger.

As the Office of Management and Budget stated in the 2003 budget: "Since the nation does not possess enough resources to eliminate all risks, an important performance goal for government is to deploy risk-management resources in a way that achieves the greatest public health improvement for the resources available."

Health economists typically recommend policies that maximize the total number of life years saved, or, equivalently, the average life expectancy of the population. Yet research indicates that the cost per year of life saved varies widely across government regulations and programs. Some cost-effective initiatives that would reduce risks are passed over, while more costly and less effective ones are put in place.

  • A 1995 study by public health specialists of 587 possible lifesaving interventions found that a quarter of them cost less than $6,900 per year of life saved and a quarter cost more than $372,000 per year of life saved (updated to 2005 dollars) -- a ratio of more than 50 to 1.
  • For example, a program of prenatal care for pregnant women is estimated to cost $2,800 per year of life saved, while the cost per year of life saved from regulating airborne benzene is around $5 million.
  • In general, safety standards and preventive medical treatments were more cost-effective than environmental regulations.
One reason for the inefficiency of federal regulations, says Krueger, is that regulatory costs are not included in the budget.

Source: Alan B. Krueger, "Public Health Measures Always Involve Trade-Offs," Economic Scene, New York Times, March 31, 2005.

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http://www.nytimes.com/2005/03/31/business/31scene.html

 

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