The US, certainly, is a “cost-benefit state,” as Cass Sunstein puts it, and much of the world has gone the same way. No major policy can be enacted without weighing the monetary costs and benefits. Even legal cases, in large part, involve such a reckoning. This isn’t to say that cost-benefit analysis is strictly good – see Marx on commodification, or more recently Gneezy and Rustichini’s famous paper on Israeli daycare centers. These basic criticisms aside, though, cost-benefit analysis does seem practical and technocratic and, indeed, democratic: we let the numbers rather the agent of the state do the deciding when it comes to policy. Alas, things aren’t so simple, as Marion Fourcade points out in the present paper from a recent issue of the American Journal of Sociology.
What’s not so simple is, for non-market goods, how we ought to construct the costs and the benefits in the first place. Examples include the value of human life, compensation for injury, “pain and suffering”, and destruction of nature, among others. Fourcade considers a recent example: court settlements following oil spills on the coast of France in 1978 and Alaska in 1989, the latter, of course, being Exxon Valdez. Ignoring direct payments for immediate cleanup and restitution to fisherman, there was a huge difference in what the oil companies paid for their damage to “nature”. In particular, the American case involved a massive payment for damages to Prince William Sound incurred by non-locals, whereas the French spill involved no payments of any kind for destruction to nature directly.
The reasons why are sociohistorical, of course. In the US, land has long been held by the government (today, 13% of the US is federally owned), and the conception of a “public trust” or government interest in preserving waterways, forests, mines, etc. for the future use of citizens has a longstanding history. France, with many conflicting local land claims, centuries-long patterns of regional settlement, and near-nonexistence of federal land, instead tends to be focused on the national patrimony, a conception that tends to see nature through the lens of her local users. For instance, France did not establish a national park until the 1960s; if you’re a hiker, you can’t help but notice the difference between a French Grande Randonnée, with cabins and good food every night, and America’s long distance trails like the Pacific Crest, with weeks-long detours into wilderness. Conceptions of the role of money and morality also differ across cultures, in the obvious direction: the French are more skeptical than Americans of putting monetary value of things outside the traditional economic sphere.
These sociohistorical factors led to different ideas about how to present evidence of damage to courts. The French, organized generally at the level of a group of villages where the spill was most prominent, basically just counted up the amount of biomass destroyed, valued this at market price (without accounting for movement on the demand curve that such biomass might cause), and threw in the cost of restoration of the shore. The Americans (under guide from Solow, among others), at the level of the federal government, attempted to construct a “contingent value” of the existence of a pristine Prince William Sound. All Americans, not just locals, were seen as relevant economic actors. Surveys found the median US household would pay $31 for the existence of such a bay, whether or not they might eventually use it in the future, which gives a contingent valuation of $2.8 billion for a clean shore. (We’ll ignore the many problems with contingent valuation here, only noting that two of my favorite economists, Peter Diamond and Jerry Hausman, have a lengthy 1994 JEP on the topic that, indeed, may be too nice; in any case, my distrust of learning about the economy from surveys is probably too extreme.) That figure is orders of magnitude more than the French settlement.
Fourcade also briefly discusses performativity at the end of the article. If you don’t know the concept, performativity basically just makes the point that social scientists affect the social world by their research: game theory or whatever economic concept you like is not exogenous to society, but rather is “performed” over time. In the case of valuation of nature, the use of contingent valuation in Exxon Valdez led to a large settlement that was partially used to fund ecosystem research that has found interesting results about the links between animals in the food chain which justifies higher payments in future natural disasters than those used in Valdez.
One final point I’m curious about: would this be published in a top economics journal? The most famous papers about contingent valuation that I know – Hausman’s critique and the Kakadu Park paper – appeared in a book and in Oxford Economic Papers, neither of which are prominent for economists. I’d like to think an interesting article like the present one could find a home in a top 5 journal, or in J. Envir. Econ. at least – after adjustments to the style to better fit the norms in economics, of course – but I’m not sure what reviewers would make of the methodology. What do you think?
http://sociology.berkeley.edu/profiles/fourcade/pdf/AJSIII_Published.pdf (Final published version – big thumbs up to Fourcade for good Green Open Access practice! May she be emulated by her fellow sociologists!)
If you liked this one, you should check out “Price and Prejudice.” Ok, it’s actually a quite similar paper, but I still love her title choices. And great of you to keep up with the latest in the soc of economics!
There’s an earlier book on a similar topic, “The Struggle for Water” by Wendy Espeland (in soc at Northwestern). It’s a fascinating history of a struggle over the building of a dam on the land of a small Native American tribe in the SW, and the battle within the Bureau of Reclamation to figure out how to deal with the seemingly irrational tribe that refused to put a monetary value on their land. The history of cost-benefit analysis is a major part of the story.
And if you can find an economics journal that would publish papers like this, let me know!