"Discounting Human Life" (Or, the Anatomy of a Moral-Economic Issue)

Cost-benefit analysis must take time into account whenever benefits and costs occur unevenly through the future. In such cases, standard practice is to discount both to the present date using an assumed rate of interest. Discounting may be thought of as the inverse of compounding interest over time: instead of a smaller present sum growing into a future larger one, the larger future sum—whether costs or benefits—is transformed into its smaller present equivalent.

Discounting future costs and benefits has its esoteric dimensions, but the basic principle ordinarily is accepted by economists and policymakers as a necessary part of sound cost-benefit analysis. Yet when applied to future health benefits—especially the avoidance of death—discounting makes many people uncomfortable. For example, when the discount rate is 5 percent, preventing 1,000 deaths thirty years from now is equivalent to preventing 230 deaths today. And, when time horizons are very long, all benefits are discounted to zero using any positive discount rate, so that a death prevented in the distant future is worth nothing at the present time.

A debate last year over asbestos regulations raised questions about the morality of discounting human health benefits. In the course of the debate, many politicians and senior agency executives declared such discounting to be worse than questionable: it was evil. In an attempt to clarify the issue and reduce the tension, RFF hosted a workshop in September 1985 on discounting future health benefits.

The gathering storm

The tempest over "discounting human lives," to use the rhetoric that colored the debate, blew up in the winter of 1984 as part of a larger, long-running quarrel between the U.S. Environmental Protection Agency (EPA) and the Office of Management and Budget (OMB). The latter agency, as watchdog of fiscal probity and deregulatory virtue, had been withholding for more than six months its approval of proposed asbestos regulations, required by the Toxic Substances Control Act (TSCA) and written by EPA. Early in 1985, OMB apparently came under increasing pressure from Congress to release the regulations or to produce a valid reason for returning them to EPA for revision. In a series of high-level meetings, OMB pressured EPA itself to act, and on the first of February major newspapers carried articles describing EPA's plans to withdraw the proposed regulations. EPA announced that, in keeping with another provision of TSCA, it would defer the responsibility for regulating asbestos to the Consumer Product Safety Commission (CPSC) and the Occupational Safety and Health Administration (OSHA). Putting the best face on this, the agency asserted it really had no choice under the law.

When New York Times reporter Philip Shabecoff wrote that "the decision is likely to provoke strong reaction," he was, if anything, understating the situation. Environmental groups and labor unions made no bones about their opposition and were able to mobilize support in Congress. In particular, senators Daniel P. Moynahan (D, New York) and David F. Durenberger (R, Minnesota) questioned EPA's move, and Rep. John D. Dingell (D, Michigan), chairman of the House Energy and Commerce Committee's Subcommittee on Oversight and Investigations, began an investigation into the decision.

After five weeks of escalating pressure, EPA appeared to be reconsidering its decision when it stopped work on the transfer pending further study of legal and policy issues. This provided only temporary relief: EPA still faced OMB's strong position to the originally proposed regulations and oversight hearings scheduled for mid-April by Representative Dingell.

Interestingly, "discounting of human lives" had not yet become an issue in the public debate. (The first prominent mention seems to have been triggered by OMB's insistence that future benefits and costs be discounted in connection with objections to another proposed standard—this one for arsenic.) Specifically, in the asbestos case, OMB eventually argued that the latency period for asbestos-caused cancer meant that benefits, in the form of lives saved because of reduced exposure, would be realized only twenty or thirty years hence. Those future lives saved would be discounted to the present for comparison with the present discounted value of the costs of the regulation. In the hearings, this discounting requirement became a convenient rhetorical stick with which to belabor OMB and the EPA officials deemed responsible for proposing to defer to OSHA and CPSC. In the published record of the hearings, tellingly entitled "A Case Study of Interference in Environmental Protection Agency Rulemaking by the Office of Management and Budget," a detailed chronology of the dispute and internal EPA memorandums, complete with marginal notes, were published. During the hearings themselves, as the record shows, discounting received considerable attention.

Hearings: morality play

For example, Rep. James J. Florio (D, New Jersey) said that OMB was "ghoulishly insisting that the value of a human be calculated on a discounted present value basis." He asserted that using this approach, one would "inevitably come out with a justification for no regulations:" Furthermore, he stated that "this discounted present value analysis has never been subject to any kind of review, never been subject to any kind of public hearing process, and it is a fairly transparent way of saying no regulation."

When asked what he thought of the approach, former Congressman Bob Eckardt, one of the authors of TSCA and a witness, said "it was difficult to say whether that kind of approach was more callous or more foolish."

Rep. Dennis E. Eckart (D, Ohio) characterized the use of discounting where health effects were concerned as "irresponsible." When he asked key EPA witnesses to state their own opinions, most expressed more or less profound personal misgivings, and not one was willing to defend the approach.

In subsequent weeks other top EPA officials expressed their own opposition to the OMB requirement. Administrator Lee Thomas was quoted to this effect after an informal press luncheon on April 22. In June, the acting head of the Office of Air and Radiation expressed disapproval of the idea of valuing human lives (although he refrained from mentioning the discounting issue). The assistant administrator for research and development argued that in this case the discounting approach was scientifically unsound, because the latency periods assumed were far too long; that is, he did not dispute discounting per se, but only the number of years over which it would be applied in asbestos rulemaking.

Later in June, Milton Russell, assistant administrator for planning and program evaluation, reported to Thomas on the use of discounting generally within EPA, offering arguments in support of its application to future health benefits but also noting that long periods of time, involving several future generations, make the procedure much less justifiable.

The issues

Despite the highly charged congressional hearings and the public opposition of many EPA principals, OMB appeared to be sticking to its guns, prepared to go on objecting to regulations that failed a benefit-cost test when future lifesaving was discounted. At the same time, the debate was complicated by objections to applying dollar values to statistical human lives and by arguments over appropriate latency periods in particular cases.

A summary of the complex of issues:

• What would be the effect of a proposed regulation on public health? In particular, how many lives would one expect to save, and when would those savings occur?
• Should the lives expected to be saved be valued in monetary terms, perhaps on the basis of studies of occupational wage differentials related to mortality risk?
• Should either expected lives saved or the monetary equivalents, if one or more were calculated, be discounted to present value if their occurrence would be delayed (because of disease latency or environmental lags, as in slow contaminant transport through groundwater aquifers to drinking water wells)?
• If discounting were to be done, what interest rate should be used?

The first issue, then, while extremely difficult to resolve, in principle is a scientific matter upon which social and natural scientists can work. The second—whether to attach dollar values to benefits—is hardly unique to health damages, although it is perhaps most emotionally argued there. The second and third issues often were confused in the public debate, but the latter can be contentious independent of the valuation issue. That a life expected to be saved in thirty years somehow is "worth" less than one saved tomorrow if discounted at X percent is the sort of calculation that disturbs people.

The last issue—whether to use 5 percent or 10 percent, or whatever rate—is itself a tremendously complicated technical matter. (Interested readers may want to refer to Robert Lind's excellent essay on the subject in Discounting for Time and Risk in Energy Policy, a 1982 RFF book.)

A meeting of minds

It was on the principle of discounting that RFF focused when it held a workshop for staff members from regulatory agencies and OMB. RFF's purposes in conducting the gathering where to provide a neutral ground where the issue could be discussed and to introduce some perspective by calling on outside thinkers from different disciplinary backgrounds.

Attending were fifteen agency representatives, including individuals from the CPSC, OMB, OSHA, and EPA as well as from the Federal Trade Commission and the Commerce Department. One congressional staff member, two representatives of other research organizations, and two consultants completed the guest list. Paul Portney and I served as workshop organizers and RFF hosts.

The gathering began with three brief presentations. In the first, Robert Dorfman, a professor of economics from Harvard University, stressed that as long as the option existed of postponing an investment in lifesaving while earning interest on the money not spent, the result for cost-benefit calculations is identical to the application of a discount factor to future statistical lives "saved."

The second presentation, by Douglas McLean, director of the Center for Philosophy and Public Policy at the University of Maryland, began with an assertion that a life saved 100 years from now is morally equivalent to one saved tomorrow. He then critiqued six arguments used to justify discounting future changes in life expectancies. Only one emerged relatively unscathed: McLean was willing to admit that if opportunity costs are involved in the life saving activities, discounting was justified. This echoed Dorfman's argument and thereby appeared to be an important element of intellectual agreement.

Portney addressed several practical matters. In particular, he suggested that compounding costs until the future date at which lives are saved, while equivalent to discounting the number of lives saved to present values, may be more politically palatable.

There also seemed to be agreement among the policymakers on the desirability of discounting statistical lives or life-years, whether because the agency representatives were not those who were on the record in opposition or because the entire issue had been blown up artificially to serve other ends. In any event, no clear objection to this position was voiced by any of the participants. (The congressional staff member present reminded the group that Congress no doubt would find the issue politically difficult if it should ever arise again in the legislative process.)

What happened to the issue?

On January 23, 1986, EPA finally announced its proposed regulations of asbestos, including immediate bans on some uses and phasing out of other uses. The new rules will take effect following the agency's consideration of whatever it receives during a ninety-day public-comment period. Interestingly, in its justification for the proposed regulations, EPA rejects both the idea of transferring all regulatory responsibility for asbestos to other agencies and the notion that it should discount future lifesaving. In its submission to OMB, EPA mostly strengthened legal arguments and changed very little of substance in the rules themselves.

The basic issue of whether or not to discount future health benefits is not going to be resolved by any number of workshops, however intellectually satisfying they may be. That ethical and economic arguments can be found to support the practice—and that the two arguments are consistent—carries very little political weight against the rhetorical appeal of attacking this "ghoulish" practice. It seems safe to predict that over the long run, the approach itself will be used when and in ways that are in the interests of those using it—much as conventional discounting of costs and benefits is manipulated in investment analysis.