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Rating: 
Summary: by Price V. Fishback
Review: If you want to find out what can be learned about environmental policy from excellent fundamental research, read Calculating Risks by James T. Hamilton and W. Kip Viscusi. In contrast, the debates over environmental policy are often muddled by poor empirical work; politicians and newspapers use the "telling" anecdote; and many public policy writers on environmental topics throw together bits of data from some standard sources and then perform statistical analysis, much of which suffers from aggregation biases and inadequate data.Hamilton and Viscusi decided to dig deep and collect the kind of data needed to make an assessment of the effectiveness of environmental policy. They study the Superfund, which has been established to clean up hazardous-waste sites around the country. They start with Environmental Protection Agency (EPA) documents that describe the hazardous waste and the nature of the dangers in more than two hundred sites around the country. They then match that information with data on socioeconomic factors in the same areas. In some case studies, they collect housing prices to allow them to examine the impact of the Superfund sites on housing values. Finally, they develop information about the political and economic forces that might influence EPA decisions about cleaning up various sites. Originally a series of articles that went through the peer-review process and were published in some of the leading economics and public-policy journals, Calculating Risks can be understood by policymakers, yet it contains enough dense material to ensure that strong-willed and avid students of political economy can examine exactly how Hamilton and Viscusi came to their conclusions. The result is an excellent political-economic analysis of Superfund. One caveat is necessary. The discussions of the compensating differentials in labor and real-estate markets seem to assume that the full value that people place on avoiding risk is reflected in the estimated compensating differentials. That assumption is problematic because it presumes that information costs are low and that markets are essentially frictionless. More likely, the compensating differentials give a lower-bound estimate on how people evaluate the risks. My best guess is that in most cases the compensating differentials may understate the buyer's actual value of a statistical life by about 20 to 30 percent. Even if understated as much as 75 percent by the compensating differentials, however, the true value of a life would still be only in the $20 million range. Still, in many cases, the Superfund is paying far more than $20 million to reduce the risk of a statistical death. Anyone interested in environmental policy needs to take a long, hard look at Calculating Risks. In places, the analysis is somewhat dense for the noneconomist, but in both the introduction and the conclusion of each chapter, the authors do a good job of explaining their results and the significance of what they have discovered. Some readers might quibble with certain specific interpretations, but my sense is that such quibbles will not influence the overall effect of the book. Hamilton and Viscusi have put together a truly impressive set of evidence, and they have painstakingly analyzed the operation of the Superfund. I doubt that one could find a better analysis in any other source. The analysis is also fair-minded. The authors are not cranks tilting the data and the analysis to conclude that the Superfund should be eliminated. Instead, they focus on trying to find ways to make the program more effective. The EPA could save a similar number of lives at much lower cost if the EPA were allowed to follow an alternative strategy for choosing where and when to clean up hazardous waste. Further, the funds saved by the change in EPA policy could be used to save more lives in other areas. Of course, there is no guarantee that reducing the spending on the Superfund would lead to greater risk-reduction spending elsewhere. After all, one of the key lessons of the book is that political pressures can sway agency decisions in ways that are not always consistent with the stated goals of their projects.
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