Chapter 7: How Risk Analysis Can Improve Wisconsin Regulations and Save Lives

In Chapter 7, James Broughel and Dustin Chambers explore how risk analysis can be applied by Wisconsin policymakers to better assess the risks associated with public policies. The key argument for risk analysis is that there are opportunity costs associated with the use of public funds to alleviate risk: Money spent on one risk-reducing policy cannot be spent on another. Thus, by optimizing its risk mitigation strategy, Wisconsin may be able to reduce risks without spending additional funds.

First, the authors explain the difference between a target risk and countervailing risks. A target risk is the specific form of risk that a policy in question intends to address. Countervailing risks, on the other hand, are those that arise as a result of a reduction in target risk. If the countervailing risk created by a policy is greater than the reduction in the target risk, the policy will increase overall risk. Thus, it is necessary to account for both target and countervailing risks when creating public policies. To properly evaluate a policy’s net impact on risk, policymakers must determine its cost effectiveness by incorporating all the costs associated with the policy. This is necessary because “spending money to reduce risks through public programs can increase risk as citizens are taxed to pay for the risk mitigation measures.” In other words, a tax-funded policy intended to reduce risk may create countervailing risks by reducing the amount of income that taxpayers can use to reduce their own risks.

The authors argue that some risk-risk tradeoffs are “more general, such as those related to income losses.” On that note, the authors discuss the concept of “value of induced death” (void), which refers to the monetary cost that – when imposed across society – is associated with one additional death resulting from the lost income available to taxpayers. In a study conducted by the authors, they estimate this monetary amount at $38.6 million. In a more conservative study by Broughel and another co-author, the estimated VOID is about $108.6 million. For the purposes of this chapter, they average and round these two results for a VOID of $75 million. In other words, if a public policy costs tax payers $75 million, it will cause one additional death.

The authors then show how, by comparing cost per life saved with the VOID value, the overall effect of a policy on risk in terms of mortality can be determined. According to Broughel and Chambers, “the VOID value acts as a kind of cost-effectiveness cutoff whereby when a regulation or other policy’s cost effectiveness exceeds the VOID value, the regulation can be expected to increase, rather than decrease, mortality risk.”

The authors clarify some limitations of cost-effectiveness analysis. One of these is the challenge of accurately calculating costs, which include both accounting costs and opportunity costs. Another is the need for value judgements to be made to discount future benefits relative to present ones. The authors argue that such judgements should not be up to the discretion of analysts, but instead should accurately represent the values of the society in question.

Next, the authors provide the following step-by-step process for conducting morality risk analyses:

1. Evaluate whether the policy is lifesaving.
2. If the policy is lifesaving, estimate how many lives it will save.
3. Calculate the accounting costs of the regulation over time.
4. Determine the opportunity cost of the regulation and its cost effectiveness.
5. Compare the cost effectiveness of the policy to the VOID.
6. Produce a table of outcomes, tracking the policy’s impact over time on real resources and risk.
7. Report information to decision makers.

Finally, the authors apply this process to present case studies of mortality risk analysis for two Wisconsin regulations. Further details on the process and the case studies can be found in the full chapter.