Uncertainty in the Cost-Effectiveness of Federal Air Quality Regulations

Kerry Krutilla, David H. Good and John D. Graham

Journal of Benefit-Cost Analysis, 2015, vol. 6, issue 1, 66-111

Abstract: In this study, we conduct a cost-effectiveness analysis of nine air quality regulations recently issued by the U.S. Environmental Protection Agency (EPA). Taking emission reductions in the Regulatory Impact Analyses (RIAs) for these regulations as given, we independently assess uncertainty about the compliance costs of the regulations and the lives the regulations are estimated to save. The latter evaluation is based on a formal uncertainty analysis that integrates expert judgments about the effects of fine particle exposures on mortality risks. These expert judgments were given in an EPA-sponsored elicitation study conducted in 2006. The integrated judgments are used to generate probability distributions for several types of cost-effectiveness ratios, including the gross and net cost per life saved, net cost per life year saved, and net cost per quality-adjusted life year (QALY) gained. The results show that the cost-effectiveness ratios exhibit considerable uncertainty individually and also vary widely across regulations. Within a simulated 90% confidence interval for the gross cost per life saved, for example, there is both the possibility that benefits from lifesavings alone are sufficient to cover the rules’ costs and the possibility that no lives will be saved and cost-effectiveness ratios will be infinite. The wide ranges for the confidence intervals suggest the need for better information about the effects of fine particle exposures on mortality risks.

Date: 2015
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