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Valuing Foreign Lives and Settlements

Published online by Cambridge University Press:  19 January 2015

David A. Dana
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Abstract

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Cost-benefit analysis in the United States for policy and legal purposes traditionally has been highly parochial, excluding not just losses or gains of welfare to non-U.S. residents from a given policy but also excluding any losses or gains in welfare U.S. residents would experience as a result of impacts to foreigners and foreign settlements. In the climate change context, this approach has meant that cost-benefit analyses for the costs of unmitigated climate change to the United States value at zero the losses that U.S. residents will bear as a result of the direct, adverse impacts of climate change to foreign lives and settlements. This article argues that there are sound theoretical reasons to include such welfare losses in a cost-benefit analysis, and that doing so requires going beyond revealed preference data to consider stated preference surveys. The article presents the findings of internet-based surveys that strongly suggest that the implicit assumption of the current approach to cost-benefit analysis in the United States—that U.S. residents value foreign lives and settlements that may be destroyed by climate change at zero—is untenable.

Keywords

climate changebenefit-cost analysis
Type
Article
Information
Journal of Benefit-Cost Analysis , Volume 1 , Issue 1 , 14 July 2010 , pp. 1 - 26
Copyright
Copyright © Society for Benefit-Cost Analysis 2011

References

1 More generally, CBA for regulatory policymaking purposes in the United States simply does not address extraterritorial economic or physical impacts, and hence, not surprisingly, does not consider U.S. residents’ welfare losses due to those extraterritorial impacts. A Carter-era Executive Order seemed to imply that CBAs consider extraterritorial effects, see Exec. Order No. 12,114, 3 C.F.R. 356 (Jan. 4, 1979), but that Order has been substantially ignored, and extraterritoriality has not been a concern of subsequent executive orders regarding CBAs. Kysar, Douglas A. & Li, Ya-Wei, Regulating from Nowhere, Domestic Environmental Law and the Nation-State Subject (Cornell Law School Legal Studies Research Paper Series, 2008), available at ssrn.com/abstract=995301 (noting “tepid enforcement” of Executive Order 12114)CrossRefGoogle Scholar. Moreover, OMB Circular A-4 (Sept. 17, 2003), p. 15, which implements Executive Order 12,866, specifically directs each agency to “focus on benefits and costs that accrue to citizens of the United States.”

2 I use the term settlements to refer to human-made sites such as cities and towns and historic sites and places of distinctive natural beauty or note (which usually are also the product in part of the surrounding human culture). “Settlements” is a standard term of art in the CBA literature.

3 The agencies acknowledged that they were required by law to estimate domestic benefits of carbon reduction, but not global benefits. See Proposed Rulemaking to Establish Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards, 74 Federal Register 49454, 49612 (Sept. 28, 2009). Whether and to what extent the agencies actually do have the discretion to rely upon a global estimate in addition to a domestic estimate is a question that may well not be resolved until the EPA/DOT rulemaking is finalized, and the federal courts decide upon its legality. As the agencies conceded, the relevant statutory provisions are at a minimum “ambiguous” as to the scope of agency discretion to consider global costs and benefits in addition to domestic ones. Id. at 49612.

4 The topic of indirect costs to Americans as a result of the direct effects of climate change abroad has received virtually no attention by legal academics. The one notable exception is Freeman, Jody and Guzman, Andrew, Climate Change and U.S. Interests, 109 Google Scholar COLUMBIA LAW REVIEW 1531 (2009), but their essay does not address costs to Americans resulting from the loss of foreign lives and settlements in and of themselves or Americans’ willingness to pay to prevent such losses. Rather, it addresses possible costs to Americans such as greater political instability abroad as a result of climate change and hence greater flows of impoverished migrants into the United States.

5 Kysar, Douglas A., It Might Have Been: Risk, Precaution and Opportunity Costs, 22 Google Scholar JOURNAL OF LAND USE AND ENVIRONMENTAL LAW L. 1 (2006).

6 For a powerful argument that the current economics literature under-accounts for the extremity of adverse effects that might result from global warming given the wide range of outcomes that are conceivable, see Weitzman, Martin L., The Role of Uncertainty in the Economics of Catastrophic Climate Change (AEI-Brookings Joint Center Working Paper No. 07-11, 2007 Google Scholar), available at http://ssrn.com/abstract=992873.

7 See Intergovernmental Panel on Climate Change [IPCC], FOURTH ASSESSMENT REPORT: CLIMATE CHANGE 2007 (London, UK: Cambridge University Press, 2007 Google Scholar). See also Stern, Nicholas, ECONOMICS OF CLIMATE CHANGE: THE STERN REVIEW (London, UK: HM Treasury, 2006 Google Scholar).

8 See, e.g., Deschenes, Olivier and Greenstone, Michael, The Economic Impacts of Climate Change: Evidence from Agricultural Profits and Random Fluctuations in Weather (MIT Departments of Economics Research Paper No. 04-26, 2004 CrossRefGoogle Scholar), available at http://ssrn.com/abstract=564722; Nordhaus, William and Boyer, Joseph, WARMING THE WORLD (Cambridge, MA: MIT Press, 2000 CrossRefGoogle Scholar); Johnston, Jason Scott, Climate Change Hysteria and the Supreme Court: The Economic Impact of Global Warming on the U.S. and the Misguided Regulation of Greenhouse Gas Emissions under the Clean Air Act (University of Pennsylvania Institute for Law & Economics Research Paper No. 08-04, 2008 Google Scholar), available at SSRN: http://ssrn.com/abstract=1098476.

9 Nordhaus and Boyer, supra note 6.

10 See supra note 4, at 1538.

11 See McConnell, K.E., Does Altruism Undermine Existence Value? 32 CrossRefGoogle Scholar JOURNAL OF ENVIRONMENTAL ECONOMICS AND MANAGEMENT 22, 32 (1997) (“The purely paternalistic case occurs when the altruist values the quantity of services from the resource received by the beneficiaries. The analysis of paternalistic altruism is like an externality. One person’s service flow enters another’s utility function. . . . The altruist is better off even if the beneficiary consumes resources’ services but suffers a loss in real income or a reduction in utility. It is much like literal paternalism, for example, when parents insist that their children eat their carrots.”). See also Brady, Kevin L., The Value of Human Life: A Case for Altruism, 48 Google Scholar NATURAL RESOURCES JOURNAL 541 (2008) (summarizing the relevant economics literature). The surveys reported on below do not attempt to categorize and sort the motivations of the survey respondents, but such categorization and sorting could be undertaken in future studies by asking questions directly about motivation or by offering different scenarios that might yield different responses depending on motivation.

12 See Zerbe, Richard O., The Legal Foundation of Cost-Benefit Analysis, 2 Google Scholar CHARLESTON LAW REVIEW 93, 115; Johansson, Peter-Olov, Altruism in Cost-Benefit Analysis, 2 Google Scholar ENVIRONMENTAL AND RESOURCE ECONOMICS 605, 605-613.

13 Postulating that each nation has a duty not to “disproportionately” use up the world’s natural resources—and here disproportionate is understood as disproportionate to population—the corrective justice approach holds that Americans have a duty to take strong measures against climate change because Americans have “used up” a disproportionate share of the atmosphere or (to say the same thing otherwise) have disproportionately created or contributed to the current stock of greenhouse gases warming the planet. See, e.g., Singer, Peter, ONE WORLD: THE ETHICS OF GLOBALIZATION 44-45 (New Haven, CT: Yale University Press, 2002 Google Scholar). For thoughtful assessments of this argument, see Adler, Matthew D., Commentary, Corrective Justice and Liability for Global Warming, 155 University of Pennsylvania Law Review 1859 (2007)Google Scholar: Roberts, J. Timmons & Parks, Bradley C.;, A Climate of Injustice: Global Inequality, Northsouth Politics, and Climate Policy 1-2 (Cambridge, MA: MIT Press, 2007 Google Scholar); Posner, Eric A. & Sunstein, Cass R., Climate Change Justice, 96 Google Scholar Georgetown Law. Journal 1565 (2008). The social contract theory for global justice in climate change and other matters builds on a modified Rawlsian veil of ignorance, wherein each nation or each nation’s population is imagined behind a veil of ignorance in which no one nation knows how wealthy or poor or how vulnerable or not vulnerable to climate change or other problems it or any other nation will be beyond the veil. The presumption is that, just as individuals within a single polity behind a veil will opt for a social order beyond the veil that guarantees basic rights and an entitlement to certain important goods in life, each nation behind the veil will opt for an international order beyond the veil that guarantees to each nation a comparable entitlement to important goods for its population. And presumably protection from terrible heat waves and flooding from climate change is one of those important goods. See Beitz, Charles R., POLITICAL THEORY AND INTERNATIONAL RELATIONS, 151 (Princeton, NJ: Princeton University Press, 1979 Google Scholar) (arguing that national boundaries lack “fundamental moral significance” and that principles of justice “therefore apply globally”); Pogge, Thomas W., REALIZING RAWLS 247 (Ithaca, NY: Cornell University Press, 1989 Google Scholar) (arguing that nationality is “just one further deep contingency . . . like genetic endowment, race, gender, and social class…that are present from birth” and that therefore “[w]ithin Rawls’ conception there is no reason to treat this case differently from the other.”). Finally, the human rights theory—a theory that also shares much with religiously inspired theories of social justice— builds on a fundamental commitment to human dignity, to all human beings’ dignity, to human capacities, and thus calls for actions necessary to ensure that all populations have the resources needed to engage in human flourishing. As Martha Nussbaum writes, arguing in this tradition (but drawing more heavily on formal philosophy than many human rights advocates), some general principles can be defended as crucial to “the promotion of human capabilities,” among which is that “it seems unconscionable that a world based on the ideas of mutual respect and human dignity should not commit itself to very significant redistribution.” See Nussbaum, Martha, FRONTIERS OF JUSTICE: DISABILITY, NATIONALITY, SPECIES MEMBERSHIP 311, 317 (Cambridge, MA: Harvard University Press, 2006 Google Scholar). And protection from heat waves and floods and other ravages from climate change are part of what is needed for human flourishing.

14 Compare Sunstein, Cass R., LAWS OF FEAR: BEYOND THE PRECAUTIONARY PRINCIPLE 163-64 (Cambridge, UK: Cambridge University Press, 2005 CrossRefGoogle Scholar) (discussing the IPCC’s struggle and the general problem of comparing the value of lives in rich and poor countries).

15 See Posner, Eric A., Agencies Should Ignore Distant- Future Generations, 74 UNIVERSITY OF CHICAGO Google Scholar. LAW REVIEW 139; Posner, Eric A. and Sunstein, Cass, Dollars and Death, 72 Google Scholar UNIVERSITY OF CHICAGO. LAW REVIEW 537, 579-581.

16 See Kopczuk, Wojciech et al, the Limitations of Decentralized World Redistribution: An Optimal Taxation Approach, 49 CrossRefGoogle Scholar EUROPEAN ECONOMIC. REVIEW 1051, 1054.

17 To the extent government aid is a meaningful representation of popular preferences or valuations regarding foreign lives, however, it may be that certain military expenditures should be included in the aid figures and not simply development or humanitarian assistance (which was the basis of the Koczuk model and extrapolation). For example, the United States has spent billions on peacekeeping in Kosovo, presumably in large part because of United States’ concern about ethnic cleansing and killing in Kosovo that could occur in the absence of peacekeeping. See Bowman, Steve, CRS ISSUE BRIEF FOR CONGRESS: KOSOVO AND MACEDONIA: U.S. AND ALLIED MILITARY OPERATIONS (Jul. 8, 2003 Google Scholar), available at www.au.af.mil/au/awc/awgate/csr/ib10027.pdf (estimating that Congress had already appropriated $8.83 billion for Kosovo operations); Center for Strategic and Budgetary Assessments, AFTER THE WAR: KOSOVO PEACEKEEPING COSTS (Jun. 7, 1999), available at http://www.csbaonline.org/4Publications/PubLibrary/U.19990607 (estimating U.S. peacekeeping costs in Kosovo to be $2-3.5 billion per year).

18 See Johsnton, Jason Scott, Desperately Seeking Numbers: Global Warming, Species Loss, and the Use and Abuse of Quantification in Climate Change Policy Analysis, 155 University of Pennsylvania Law Review 1901, 1908 Google Scholar.

19 See, e.g., Final US Citizen Air Traffic To Overseas Regions, Canada & Mexico 2006, 2006 Profile of Resident Travelers Visiting Overseas Destinations (2006), and U.S. Resident Travel Abroad Historical Visitation Estimates for U.S. Outbound 1996-2006 (One or More Nights) (2006), all available at http:/tinet.ita.doc.gov/research. In the surveys discussed below, respondents who travelled abroad had larger mean contributions to save both U.S. and foreign lives and settlements than people who did not travel abroad, but did not have notably different ratios of mean contribution for U.S. lives and settlements in relation to mean contribution for foreign lives and settlements. The overall pool of respondents, however, contained fewer than 5 percent who reported frequent travel abroad, and thus it is difficult to draw any conclusions as to whether travelling abroad generally translates into greater relative valuation of and foreign lives and settlements.

20 See Institute, Hudson, THE INDEX OF GLOBAL PHILANTHROPY 2007 14, 16 (2007)Google Scholar; Hudson Institute, THE INDEX OF GLOBAL PHILANTHROPY 2006 13-15 (2006)Google Scholar, both available at www.hudson.org.

21 According to one estimate, the total U.S. private tsunami donations exceeded $1.8 billion. U.S. Agency for International Development, Tsunami Reconstruction, Two Years Later (Fact Sheet, 2006 Google Scholar), http://www.usaid.gov/press/factsheets/2006/fs061222.html.

22 See Sen, Amartya, Behaviour and the Concept of Preference, 40 ECONOMICA 241, 249CrossRefGoogle Scholar.

23 See, e.g., Stossel, John & McMenamin, Patrick, Will More Foreign Aid End Global Poverty?, 20/20 (2006)Google Scholar, available at http://abcnews.go.com/2020.Story?id=1955664 (“So much is stolen because we rely primarily on governments to administer foreign aid, and many African governments are kleptocracies.”).

24 According to the Center on Policy Attitudes report in 2001, America “greatly” overestimated the percentage of the U.S. budget that is devoted to foreign aid Program on International Policy Attitudes., AMERICANS ON FOREIGN AID AND WORLD HUNGER: A STUDY OF U.S. PUBLIC ATTITUDES (2001)Google Scholar, available at http://www.pipa.org/archives/us_opinion.php (finding that Americans overestimated aid by a factor of 20 or more).

25 See Murphy, James J. et al., A Meta-Analysis of Hypothetical Bias in Stated Preference Valuation, 30 CrossRefGoogle Scholar ENVIRONMENTAL AND RESOURCE ECONOMICS 313; Doshi, Sameer H., Making the Sale on Contingent Valuation, 21 Google Scholar ENVIRONMENTAL LAW JOURNAL 295, 302-303; Cross, Frank B., Natural Resource Damage Valuation, 42 Google Scholar VANDERBILT LAW REVIEW. 269, 316.

26 See Diamond, Peter A. and Hausman, Jerry A., Contingent Valuation: Is Some Number Better Than No Number?, 8 CrossRefGoogle Scholar JOURNAL OF ECONOMIC PERSPECTIVES 45, 52-53.

27 There are other criticisms as well, including the criticism that responses are insensitive to the scope of the loss to be avoided (that is, how many of an item or entity will be saved), which is also inconsistent with revealed preference, market behavior, in which willingness to pay generally corresponds to the scope or magnitude of the good or goods at issue. Whether the scope of loss or quantity objection is well-grounded depends in part on one’s interpretation of the body of CVM studies as a whole. But even if surveys do not reflect well per-unit, scope-sensitive valuations of a particular good or goods, they may capture valuation of the general category of the good—how much people value polar bears generally, as opposed to how much they value 100 as opposed to 1000 bears. This is a plausible interpretation because published surveys have not generally given respondents enough information to assess the significance of 100 versus 1000 bears, and generally have not focused respondents on the issue by asking them to provide a valuation for 100 and 1000 bears. Instead most surveys are between-subject surveys where respondents are asked to assess the value of only one loss of a particular, stated scope or quantity. Extrapolating this point to the context of surveying about the value of foreign lives and settlements, one might reasonably argue that such studies may not capture per-unit valuation of foreign lives and settlements as much as they may capture valuation of foreign lives and settlements generally or valuation of particular categories of foreign lives and settlements (e.g., European or Latin American lives and settlements).

28 We can obtain comparative data in stated preference studies in a number of ways. Within a single group of subjects, subjects can be asked to rank or allocate a budget with respect to various goods or to choose between two possible donations or contributions involving different goods, in which case they presumably will choose which they think is more valuable. In between-subject studies, the subjects in different groups can be given different goods to value. The former kind of survey may capture better the respondents’ conscious attitudes—the attitudes they believe they have—regarding the comparative value of the items that can be saved. The latter kind of survey, by contrast, may better capture both conscious and unconscious attitudes that affect valuation. This article discusses only between-group surveys regarding the comparative valuation of American and foreign lives and settlements: future work could and should explore whether surveys where a single group comparatively values foreign lives and settlements yields different results from between-subjects surveys.

29 There are in fact differences in stated preference valuations for different species. For example, one study indicates that the Northern Spotted Owl is valued roughly nine times as much as Atlantic Salmon. See Loomis, John B. & White, Douglas S., Economic Benefits of Rare and Endangered Species: Summary and Meta-Analysis, 18 CrossRefGoogle Scholar ECOLOGICALL ECONOMICS 197, 199 (1996). For a recent review of the studies, see Hsiung, Wayne & Sunstein, Cass R., Allocating Responsibility for the Failure of Global Warming Policies, 155 Google Scholar UNIVERSITY OF PENNSYLVANIA LAW REVIEW 1693, 724 (2007).

30 See Rachlinski, Jeffrey J., The Psychology of Global Climate Change, 2000 Google Scholar University of Illinois Law Review. 299, 305-306; Dana, David A., A Behavioral Economic Defense of the Precautionary Principle, 97 Google Scholar NORTHWESTERN UNIVERSITY LAW REVIEW 1315, 1322.

31 See Posner, Richard, CATASTROPHE (New York, NY: Oxford University Press, 2004), 119-122 Google Scholar.

32 According to a recent U.S. census estimate, 65 percent of U.S. households self-identify as Caucasian. See http://quickfacts.census.gov/qfd/0000.html. Complete copies of all the survey variants are available from the author, who can be reached at [email protected].

33 The racial gaps in attitudes about public funding in the wake of hurricane Katrina suggest that the race and ethnicity of survey participants could well significantly affect willingness to pay to prevent or rectify climate-change-related natural disasters. See Dawson, Michael et al., 2005 RACIAL ATTITUDES AND THE KATRINA DISASTER STUDY 2 Google Scholar (2006), available at www.news.uchicago.edu/releases/06/images/katrina_report.doc (finding that 79 percent of black respondents agreed that the “Federal Government should spend whatever’s necessary to rebuild and restore people to their homes in Katrina’s aftermath” but only 33 percent of white respondents agreed with that proposition).

34 The number of respondents who completed each variant was: United States, 85, Europe, 79, Africa, 81, Latin America, 80, Asia, 76.

35 The number of respondents who completed each variant was: United States, 66, Europe, 72, Asia, 68, Africa, 73.

36 Only a handful of responses fell within the 5, 6, or 7 categories (there were none in the 7 category), and these few responses did not measurably affect results for means: that is, the results of no statistical significance and of statistical significance reported below still hold when the few responses above 4 are simply excluded.

37 Throughout the paper, the standard used for statistical significance is p < 0.01.