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Are Risk Regulators Rational? Evidence from Hazardous Waste Cleanup Decisions

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  • James T. Hamilton
  • W. Kip Viscusi

Abstract

Using original data on the cleanup of 130 hazardous waste sites, W. Kip Viscusi of Harvard Law School and James T. Hamilton of Duke University's Sanford Institute of Public Policy examine the extent that political decisions and quantitative risk assessments influence cleanup and remediation decisions. They conclude that target risk levels chosen by regulators are largely a function of political variables and risk-perception biases. Communities with higher voter turnouts are more likely at times to have lower risks remaining after final site cleanup and to have more spent to avert expected cases of cancer. They find these political influences are most significant for the least cost-effective site cleanups and the lowest site risks. By basing its policies on an individual risk approach that does not reflect the size of the exposed population or whether the population exists at the site, the Environmental Protection Agency often fails to recognize important aspects of the overall beneficial consequences of its efforts. The mean cost per case of cancer averted at the sample of 130 EPA sites is $11.7 billion. The median cost is $418 million. These estimates use EPA conservative risk assumptions and assume no latency period. With such adjustments, the median cost rises to above $1 billion per cancer case. The most effective 5 percent of all cleanup expenditures eliminate over 99 percent of the cancer risk. Put somewhat differently, 95% of the costs are spent to address less than 1 percent of the risks.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.89.4.1010
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 89 (1999)
Issue (Month): 4 (September)
Pages: 1010-1027

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Handle: RePEc:aea:aecrev:v:89:y:1999:i:4:p:1010-1027

Note: DOI: 10.1257/aer.89.4.1010
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References

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  1. Noll, R.G. & Krier, J.E., 1989. "Some Implications Of Cognitive Psychology For Risk Regulation," Papers 149, Stanford - Studies in Industry Economics.
  2. Peter A. Diamond & Jerry A. Hausman, 1994. "Contingent Valuation: Is Some Number Better than No Number?," Journal of Economic Perspectives, American Economic Association, vol. 8(4), pages 45-64, Fall.
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  4. James T. Hamilton, 1993. "Politics and Social Costs: Estimating the Impact of Collective Action on Hazardous Waste Facilities," RAND Journal of Economics, The RAND Corporation, vol. 24(1), pages 101-125, Spring.
  5. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
  6. Van Houtven, George L. & Cropper, Maureen L. & DEC, 1994. "When is a life too costly to save? : evidence from U.S. environmental regulations," Policy Research Working Paper Series 1260, The World Bank.
  7. Becker, Gary S, 1983. "A Theory of Competition among Pressure Groups for Political Influence," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 371-400, August.
  8. Noll, Roger G., 1989. "Economic perspectives on the politics of regulation," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 22, pages 1253-1287 Elsevier.
  9. Cropper, Maureen L. & William N. Evans & Stephen J. Berard & Maria M. Ducla-Soares & Paul R. Portney, 1992. "The Determinants of Pesticide Regulation: A Statistical Analysis of EPA Decision Making," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 175-97, February.
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Citations

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Cited by:
  1. Treich, Nicolas, 2010. "The value of a statistical life under ambiguity aversion," Journal of Environmental Economics and Management, Elsevier, vol. 59(1), pages 15-26, January.
  2. Anna Alberini & Stefania Tonin & Margherita Turvani, 2009. "The Value of Reducing Cancer Risks at Contaminated Sites: Are More Heavily Exposed People Willing to Pay More?," Working Papers 2009.60, Fondazione Eni Enrico Mattei.
  3. Jeffrey Wagner & Gregory DeAngelo, 2005. "Characterizing regulation and negligence rule uncertainty in solid waste management," Economics Bulletin, AccessEcon, vol. 11(1), pages 1-11.
  4. Robert W. Hahn, 1998. "Policy Watch: Government Analysis of the Benefits and Costs of Regulation," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 201-210, Fall.
  5. Julio Videras & Christopher Bordoni, 2006. "Ethnic heterogeneity and the enforcement of environmental regulation," Review of Social Economy, Taylor & Francis Journals, vol. 64(4), pages 539-562.
  6. Delmas, Magali A. & Montes-Sancho, Maria J., 2011. "U.S. state policies for renewable energy: Context and effectiveness," Energy Policy, Elsevier, vol. 39(5), pages 2273-2288, May.
  7. Scott, Susan & Watson, Dorothy, 2009. "Cost-benefit Analysis of the Introduction of Weight-based Charges for Domestic Waste ? West Cork's Experience," Papers WP335, Economic and Social Research Institute (ESRI).
  8. Anna Alberini & Stefania Tonin & Margherita Turvani & Aline Chiabai, 2007. "Paying for permanence: Public preferences for contaminated site cleanup," Journal of Risk and Uncertainty, Springer, vol. 34(2), pages 155-178, April.
  9. Thomas Mayer, 2003. "A Frequent Misuse of Significance Tests," Working Papers 15, University of California, Davis, Department of Economics.
  10. Thomas Mayer, 2006. "The Empirical Significance of Econometric Models," Working Papers 620, University of California, Davis, Department of Economics.
  11. Liu, Sezhu & Hite, Diane, 2013. "Measuring the Effect of Green Space on Property Value: An Application of the Hedonic Spatial Quantile Regression," 2013 Annual Meeting, February 2-5, 2013, Orlando, Florida 143045, Southern Agricultural Economics Association.
  12. Deaton, Brady J., Jr. & Hoehn, John P., 2002. "The Effect Of Hazardous Waste Sites On Property Values In Zones Of High Industrial Activity: A Hedonic Approach," 2002 Annual meeting, July 28-31, Long Beach, CA 19612, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  13. repec:ebl:ecbull:v:11:y:2005:i:1:p:1-11 is not listed on IDEAS
  14. Johansson-Stenman, Olof, 2008. "Mad cows, terrorism and junk food: Should public policy reflect perceived or objective risks?," Journal of Health Economics, Elsevier, vol. 27(2), pages 234-248, March.
  15. Lim, Byung In & Shogren, Jason F., 2005. "Valuation by conflict," Ecological Economics, Elsevier, vol. 55(2), pages 251-261, November.
  16. Thomas Mayer, . "Misinterpreting a Failure to Disconfirm as a Confirmation: A Recurrent Misreading of Significance Tests," Department of Economics 01-08, California Davis - Department of Economics.
  17. Louis Jaeck, 2011. "Information and political failures: to what extent does rational ignorance explain irrational beliefs formation?," Constitutional Political Economy, Springer, vol. 22(3), pages 287-301, September.
  18. Francisco Alpizar & Fredrik Carlsson & Maria Naranjo, 2010. "The Effect of Risk, Ambiguity and Coordination on Farmers’ Adaptation to Climate Change: A Framed Field Experiment," Working Papers 2010.81, Fondazione Eni Enrico Mattei.
  19. Fadlaoui, Aziz & Roosen, Jutta & Baret, Philippe V., 2005. "Of Experts, Politicians and Beasts: Setting Priorities in Farm Animal Conservation Choices," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24546, European Association of Agricultural Economists.

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