Mortality Effects of Regulatory Costs and Policy Evaluation Criteria

Abstract

Risk regulations directly reduce risks, but they may produce offsetting risk increases. Regulated risks generate a substitution effect, as individuals' risk-averting actions will diminish. Recognition of these effects alters benefit-cost criteria and the value-of-life estimates pertinent to policy analysis. Particularly expensive risk regulation may be counterproductive. The expenditure level that will lead to the loss of one statistical life equals the value of life divided by the marginal propensity to spend on health. Regulations with a cost of $30 million to $70 million per life saved will, on balance, have a net adverse effect on mortality because of these linkages.