Regulatory assessment for chemicals: a rapid appraisal cost-benefit approach

David Pearce and Phoebe Koundouri ()

No 409, DEOS Working Papers from Athens University of Economics and Business

Abstract: The purpose of this paper is to explore alternative 'rapid appraisal' methodologies for determining the costs and benefits of environmental legislation, the focus being the new Chemicals Policy in the European Union (EU) known as REACH (Registration, Evaluation and Authorisation of Chemicals). We show that a full and rigorous cost-benefit appraisal of this legislation is not possible because of informational deficiencies. Hence, some 'second best' approach is required. In addition, full cost-benefit appraisal is likely to be expensive and impossible to conduct in the near-term. We argue that it is possible to obtain some broad estimates of gains and losses by making reasonable assumptions and by pursuing different methodologies for estimating benefits. Two methodologies, both based on the notion of a disability-adjusted life year (DALY), are adopted. A DALYis a measure of health loss, enabling different forms of morbidity to be compared with premature mortality. We seek to 'monetise' DALYs in order to make a direct comparison with the costs of the policy measures. The first approach addresses health expenditure in the UK and EU, based on the presumption that this expenditure is incurred in order to avoid and treat the causes of DALYs. Health expenditure per DALY is thus a measure of the value of a DALYand this expenditure is avoided by reductions in DALYs due to environmental control. The second approach assigns a willingness-to-pay value to a DALY based on an 'anchor' estimate of the 'value of a statistical life' (VOSL) and an implied value of a 'life year' (VOLY). On the basis of these models we show that while the costs of REACH could be greater than benefits, the second approach reveals a strong probability that benefits exceed costs. Since our models explicitly exclude any environmental benefits, we regard our benefit estimates as minima. Overall, our own judgement is that we feel confident that REACH generates net benefits, a result consistent with other partial studies that have been carried out to date.

Keywords: Cost-benefit analysis; REACH; Disability-adjusted life years (DALYs); Value of a statistical life (VOSL); Value of a life year (VOLY) (search for similar items in EconPapers)
Date: 2004-12-30
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Citations: View citations in EconPapers (2)

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