Dangerous Assignment


Fatal Tradeoffs: Public and Private Responsibilities for Risk, by W. Kip Viscusi, New York: Oxford University Press, 320 pages, $37.00

Life is replete with hazards to our physical and mental health. Eventually, one or a combination of them will kill each of us. Some of these risks (including the chance of getting beaned by a baseball, rocked in a roller coaster, or dumped by a date) are "goods": We "consume" them, and in important ways they help make life worth living. But other risks are "bads," in the sense that people are willing to incur costs to reduce the likelihood of their occurrence.

For everyone but anarcho-capitalists, it is proper that government attend to at least a few bad risks, like those posed by foreign invaders and domestic criminals. Handling these dangers is said to constitute a "public good," since Albert can't prevent Betty from free-riding on his defense of our borders or his maintenance of law and order. But reduction of most bad risks has until recently been seen as a private matter. Albert is best able to gauge the value of his using a chain saw; likewise, Betty internalizes much of the gain derived from living in an earthquake-proof building. Private goods are, for both economic and ethical reasons, properly allocated through private ordering, which employs property, contract, and, when costs are wrongfully imposed, tort law.

For some time government has been taking away the power of individuals to determine their own risks. The 1970s in particular saw a huge new wave of health, safety, and environmental regulation that in essence denied the existence of the public/private dichotomy sketched above. The public ostensibly was not making, or could not make, "correct" choices about the safety characteristics of their jobs, their cars, or their groceries. During the last 20 years Congress has created a series of agencies and directed them to guard our safety almost without compromise. Under each administration except that of Ronald Reagan, bureaucrats have been granted ever-increasing budgets and directed to protect us against ourselves.

Kip Viscusi's interesting book, Fatal Tradeoffs, addresses the question of whether these bad risks should have been moved from the private to the public sphere. He also asks how effectively the public sector has dealt with risk. His conclusions are unlikely to please the "reinventors of government" in the Clinton-Gore administration.

Viscusi, who teaches economics at Duke University and was deputy director of Jimmy Carter's Council on Wage and Price Stability, is a prolific author who has been concerned with the choice between individual and collective responses to risk throughout his career. Fatal Tradeoffs brings together much previously published and some new material on three risk-related themes. The first part of his book examines fundamental questions about measuring the value we place on our own lives. It also substantiates the (amazingly) controversial thesis that this value is finite, that we are not prepared to devote infinite resources to marginal lessening of risk. The second part of the book identifies seemingly irrational behavior that individuals exhibit when privately assuming risk. The third section, which takes up half of the book, consists of case studies detailing regulatory risk-reducing efforts of the '70s.

Fatal Tradeoffs is a collection, and it suffers from the unevenness and the lack of flow inherent in the format. It can most usefully be seen as a series of stories about the economic (not the ethical) costs and benefits of depriving individuals of the power to decide how risky their lives should be. Viscusi doesn't advocate that people should be free even if they make foolish choices. Nor does he depart from the welfare-economics assumption that markets can and do fail, and that government should intervene, if consumers' information is inadequate.

Yet information, including information about risks, is costly, whether provided by the private sector or by government. So a non-infinite amount of it will invariably be supplied. Government lovers can always find informational defects that allow them to advocate political intervention in markets for (more or less risky) goods. The pragmatic theme of Fatal Tradeoffs is that governmental decisions about risks are usually (but not always) worse than individual choices.

Part One patiently shows that Americans make relatively consistent choices about risk: We voluntarily accept money in return for greater peril; conversely, we are willing to spend money to abate risks. Our willingness to pay and to accept payment indicates that we place an average value of about $6 million on our lives. Of course, none of us have, as individuals, "average" tastes or demands. In the most interesting chapter of the book, "Strategic and Ethical Issues in the Valuation of Life," Viscusi points out that willingness to pay for safety generally rises with wealth. A Mercedes-Benz provides more shelter from a crash (if not from a car-jacking) than a Toyota Tercel. The foam seat cushions provided to coach passengers aren't as buoyant as the inflatable life vests furnished to those who fly first class. This merely signifies that safety is a good like many others.

Defying this wisdom, government regularly attempts to equalize risks in a "let them eat cake" fashion: Poorer consumers are typically required to bundle safety they don't want to pay for with a good they otherwise desire. This required bundling often leads poorer consumers to forego consumption. This is why, when automobile air bags are eventually mandated by the government, some consumers at the margin will continue to drive old (much more dangerous) heaps. This is also why the proposed Transportation Department requirement that infants occupy their own seat on commercial flights, at an expected savings of one life per two years, would produce a significant net increase in risk, as parents at the margin choose to drive rather than purchase additional tickets.

The realization that people don't attach infinite values to their lives is especially relevant to international trade policies. A purported desire to equalize safety levels throughout North America has led some Clinton advisers to propose that the United States not import from, say, Mexico any product for which manufacturing processes are "more hazardous" than they are here. But imposing the risk preferences of Robert Reich on typical Mexican workers greatly reduces Mexicans' welfare.

Increasing Mexicans' income by accepting the products they offer us will both increase their wealth and ultimately transform their preferences. Pace Reich, even if these workers are as "exploited" as he believes, it would be detrimental to them to export our current regulatory standards. Americans themselves were less averse to risk in earlier stages of development, and it was free assumption of these risks that allowed us to increase the value we place on our lives.

Part Two of Fatal Tradeoffs identifies and analyzes frequently observed anomalies in attitudes toward risk. These include our tendency to overweigh previously unrecognized low-probability risks (such as the risk of cancer from living near a nuclear power plant) while underweighing known higher-probability dangers (such as the risk of cancer from eating peanut butter).

Viscusi also describes our general resistance to moves from the status quo. In a survey he describes, respondents were informed that commonly marketed insecticides and toilet-bowl cleaners entail certain dangers. They were not willing to pay much more for the products in order to achieve risk reductions on the order of 0.05 percent. But when these same respondents were subsequently asked how much of a price decrease they would require to accept an increase in risk of 0.05 percent, all of them indicated that the product would be too risky at any price.

These and other "market failures" appear to provide Viscusi with a rationale for regulatory intervention, so long as it costs less per life saved than "we as a society" think a life is worth. Presumably, the losers under such regulations need not be compensated for the liberty they surrender (including the liberty to have eccentric tastes, and indeed the liberty to be irrational) in the name of the greater good. In Chapter 10, for example, Viscusi analyzes federal "cotton dust" regulations and concludes, contrary to his expectations, that they were probably cost-effective. In Chapter 14 he identifies regulations that may even be "too lax" on a cost-benefit calculus. He pays little attention to the informational and political problems involved in governmental identification of and response to risky behavior.

The case studies in Part Three are generally well presented. Most of the complicated mathematics is confined to appendices, though some calculus creeps up on the unsuspecting reader from time to time. On other occasions Viscusi's self-reference to "this paper," or his footnote citing one of his articles (instead of the chapter that reproduces the article) reminds the reader that Fatal Tradeoffs is patched together. Sometimes, Viscusi simply gets his facts wrong. His mistaken claim that tort awards are subject to taxation, for example, undermines his argument that they are not an adequate way to control unduly imposed risks. These flaws notwithstanding, Fatal Tradeoffs is a useful primer on risk and an invigorating reminder of the price we will pay to entrust to Hillary and Bill the task of making America safe.

Michael I. Krauss is a professor of law at George Mason University.