Question

In 1992, the Bush administration wanted to change the way benefit/cost analysis of regulations are performed. Specifically, when computing the cost of a regulation, the administration wanted agencies to take into account the reduction in income that the regulation brings about. The theory behind this suggested change was that regulations cost people money, and the poorer people become, the more likely they are to get ill or die early. One study cited by the Labor Department estimated that each $7.5 million of regulatory expensed could result in one additional death from lowered incomes. In a letter to President Bush 12 Democratic senators called the plan cruelly insensitive and said that the plan was based on a dangerous notion: that Americas working men and women have to make a choice between their jobs and their health. • Was the premise of the proposed change sound? Explain. • Do you believe the proposed change was cruelly insensitive? Explain. • While the proposed change would affect calculations of the cost of regulations, the benefit calculations would basically be unchanged. Are there any factors that are typically left out of benefit (or cost) calculations that perhaps should not be? If so, what are they?

Answer 1

a. No, the premise of the proposed change was not sound. This is because making a choice between jobs and health is very cruel as both are important for a person.

b. Yes, the change is insensitive as regulatory costing in terms of changes in health and job is not good fort overall well being of the society.

c. The consideration of the discount rate is left out of the calculation in cost benefit analysis. It should be taken into consideration while estimating the benefit and cost of the regulation.