Jeffrey Bossert Clark
In his recent monograph, subtitled "Risk Reduction Through
Markets," Cato Scholar Peter VanDoren hits his mark. He explains,
in a balanced discussion, what economics can do to advance current
policy learning about regulating chemicals with toxic effects. Most
of his conclusions will not surprise conservatives, who have long
argued for a more economically oriented approach to toxic torts
and environmental regulation. But this work is not polemical, and
in many instances, admits that the author's arguments are simply
value judgments based on his particular views on politics and equity.
VanDoren begins by explaining the limits of knowledge in this area.
Because the effects of most substances that cause cancer or other
observable effects that are harmful are quite small in magnitude,
it is generally possible in conventional studies only to detect
differences of 1 percent or greater.(1) Thus, in many instances,
VanDoren notes that uncertainty forces us to recognize that the
optimal regulation of potentially hazardous substances will depend
upon value judgments about whether "false positives" (wrongly
concluding that a safe substance causes harm) are worse than "false
negatives" (wrongly concluding that an unsafe substance does
not cause harm) or vice versa. This is because, at a given sample
size, there is an inevitable trade-off between false positives and
false negatives (or in the terms of statistics, between Type I and
Type II error). The only way to escape this trade-off is to increase
the sample size in a study, but that is often prohibitively expensive,
or even impossible. Indeed, given these constraints VanDoren notes
that long-term exposure to tobacco smoke is the only harmful chemical
agent whose effects have shown to be large and well-known.
Using research on cancer as a jumping-off point, Van Doren explains
how much of current regulatory efforts are misguided as a matter
of science. Current studies, for example, establish that the cancer
risk of eating 32 grams of peanut butter is 75 times the cancer
risk of drinking a liter of water contaminated with the same levels
of trichloroethylene ("TCE") as found in the well water
at issue in the litigation popularized in the book A Civil Action
and the movie of the same title.(2) Even more surprisingly to a
lay person will be that eating one raw mushroom is 250 times more
likely to cause cancer than drinking water contaminated with TCE
in the same fashion as the Woburn, Massachusetts water in A Civil
Action.
VanDoren patiently explains the debates about increases in overall
cancer incidence, the types of biases that can be present in epidemiologic
studies, and the controversy over whether animal test data are valid
in predicting the incidence of harmful effects in humans. Going
beyond the academic debates, VanDoren even explains in one particularly
telling anecdote how the operational models used by administrative
agencies often pose even greater problems for regulation. "In
one experiment, a tracer gas was released from the Alaska pipeline
terminus at Valdez. Actual exposure, as measured by personal badges,
was compared with the predictions of the EPA dispersion model. The
statistical correlation between them was near zero (-0.01), meaning
the [EPA's] predictions were worthless."(3)
Early on in the book VanDoren begins to invoke the individualistic
philosophy one would expect from a Cato scholar. For instance, Van
Doren responds to the objections of the environmentalist mainstream
that markets cannot effectively regulate the risks posed by hazardous
substances, even when the facts about such substances are well-known,
because the poor will often fail to take the precautions necessary
to avoid or minimize the harmful effects. To VanDoren's mind, this
confuses equity with efficiency. The problem identified by the environmentalists
has nothing to do with efficiency -- the problem is that the poor
-- by definition, people with less income -- have made a choice
to accept a risk that those who are wealthier will pay to avoid.
If this is a problem, says VanDoren, the solution is general income
redistribution, not micro-redistribution in the name of a paternalistic
environmentalism.
After separating out equity concerns, VanDoren introduces the central
organizing principle of his book -- the distinction between private
risks and public risks -- respectively, harmful agents whose effects
are limited to a single person vs. those that create effects shared
by other individuals. For instance, a private risk is exposure to
a harmful pesticide used in a home garden whereas the presence of
smog in the ambient air is a public risk. Different regulatory regimes
should govern these two very different types of risk according to
VanDoren. Private risks should be addressed by the tort system (in
the form of a negligence or strict-liability rule) or not at all.
And public risks should be addressed by government regulation, whether
taxation, tradeable credits, or command-and-control limits.
VanDoren concludes that no single liability regime is appropriate
for all harmful agents. Rather, the choice of the liability regime
is very context-specific. In the absence of a legal system with
such malleability, VanDoren recognizes that general rules of thumb
will have to be employed. VanDoren openly admits that such choices
will be based on value judgments. He then goes on to defend his
value choices -- no liability at all for private risks, or more
likely (because that solution is politically infeasible), a regime
of negligence; and for public risks, tradeable credits. He justifies
his choice of a negligence rule for private risks on the basis of
promoting individual responsibility. His choice of tradeable credits
to solve for public risks is more rooted in positive economics,
however. Taxes are difficult to set at the right level because of
problems with individuals accurately revealing their true preferences
when private markets do not exist for the "good" in question.
And VanDoren advances the standard criticisms of command-and-control
regulation as unwieldy, and likely to lead to excessive regulation.
VanDoren acknowledges that in some circumstances, class actions
could solve for public risks, but argues that in cases where the
number of defendants is too large, class actions will not be efficient,
whereas as tradeable credits do not suffer from this deficiency.
Finally, Van Doren explores the private solution available to deal
with any risks that fall through the cracks and are not effectively
regulated by the tort system or by the government -- purchasing
insurance. Once again, VanDoren starts out with the basics that
should be familiar to most students of law and economics -- insurance
must be designed to avoid the problems of moral hazard (engaging
in risky behaviors precisely because insurance is available) and
adverse selection (only those who most need insurance actually attempt
to purchase it). Assuming market (or regulatory) mechanisms can
be devised to circumvent these problems, VanDoren concedes that
private insurance is generally not a perfect solution for most environmental
hazards because injuries occur at unknown rates and individuals
often cannot control their risk levels. But VanDoren notes that
private insurance would be much more effective in solving for public
and private risks if, at a macroeconomic level, government in the
1960s-70s had not pursued policies that raised and destabilized
interest rates, and if environmental statutes such as CERCLA were
exclusively forward-looking instead of designed to retroactively
redistribute property rights. Those government policies have resulted
in making most insurers unwilling to underwrite environmental risks.
Chemicals, Cancer, and Choices is a recommended and quick read
(especially if the footnotes are checked only when one is curious
about sources). It would be especially good to recommend to law
students as a primer on the economics of toxic torts and environmental
regulation. Like the famed teaching materials that trained a generation
of elite lawyers (albeit at much greater length), Henry Hart's and
Albert Sacks' The Legal Process, VanDoren's book explores the issue
of which legal remedies are suited to solving which particular types
of problems. The state of both legal and economic knowledge has
advanced much since Hart and Sacks taught at Harvard, and VanDoren's
book is a good window into what has been learned. The challenge
is translating that learning into policy.
- Defined as the difference between the incidence
of the harmful effect being studied in a control group and a group
exposed to the expected causal agent.
- The risk here is defined in terms of a "HERP
index," which is the lifetime daily exposure rate experienced
by humans (in milligrams per kilogram of
body weight) that lowers, by one-half, the percent of tumor-free
animals in a bioassay experiment over a standard lifetime of the
animal.
- Peter VanDoren, Chemicals, Cancer, and Choices:
Risk Reduction through Markets 17 (1999) (citation omitted).
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