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Chemicals, Cancer, and Choices: Risk Reduction Through Markets
Chemicals, Cancer, and Choices: Risk Reduction Through Markets
Chemicals, Cancer, and Choices: Risk Reduction Through Markets
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Chemicals, Cancer, and Choices: Risk Reduction Through Markets

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Frequent media reports alert us to the dangers environmental chemicals may pose for human health. Each new warning generates an almost predictable debate: Interventionists demand stricter government regulations. Pragmatists counter that the costs of such controls are much greater than the benefits. Skeptics question the scientific validity of the alleged danger, and the cautious wonder if uncertainty can excuse failing to protect the public health. Better science can reduce—but not eliminate -- our uncertainty about the effects of chemicals. This book offers readers a unique way to sort through all the rhetoric that accompanies questions of science and health. In the case of exposures that arise from the consumption of specific products, markets can permit individuals to choose their own levels of exposure. Even when there is common exposure to chemicals in the air, a market for emission rights would allow the cautious to purchase such rights and reduce their exposure. In short, the market affords individualized responses to chemical risk as an alternative to government-imposed rules for everyone.
LanguageEnglish
Release dateJun 25, 1999
ISBN9781933995892
Chemicals, Cancer, and Choices: Risk Reduction Through Markets
Author

Peter VanDoren

Peter Van Doren is a Senior Fellow at the Cato Institute and editor of the quarterly journal Regulation and an expert in the regulation of housing, land, energy, the environment, transportation, and labor. His writing has been published in the Wall Street Journal, the Washington Post, Journal of Commerce, and the New York Post. Van Doren has also appeared on CNN, CNBC, Fox News Channel, and Voice of America.

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    Chemicals, Cancer, and Choices - Peter VanDoren

    Copyright © 1999 by the Cato Institute.

    All rights reserved.

    Library of Congress Cataloging-in-Publication Data

    VanDoren, Peter M.

    Chemicals, cancer, and choices : risk reduction through markets / by Peter VanDoren.

    p. cm.

    Includes bibliographical references and index.

    ISBN 1-882577-78-7

    ISBN 1-882577-79-5

    1. Health risk assessment. 2. Health risk assessment—Government policy—United States. 3. Health risk assessment—Economic aspects—United States. 4. Free enterprise—United States. 5. Environmental toxicology. I. Title.

    RA566.27 .V36 1999

    615.9’02—dc21

    99-26599

    CIP

    Printed in the United States of America.

    CATO INSTITUTE

    1000 Massachusetts Ave., N.W.

    Washington, D.C. 20001

    Acknowledgments

    I wish to thank the institutions and individuals who assisted me in the preparation of this book. Julian Wolpert and Princeton University offered financial support during the early stages of the project. Mike Munger, Bill Keech, and Thomas Oatley read versions of the manuscript during meetings of the Political Economy Research Group at the University of North Carolina at Chapel Hill. Mike Gough, David Boaz, and Tom Palmer, all of the Cato Institute, provided thoughtful and supportive comments. Jason Cheever edited the entire manuscript and provided useful comments that only someone outside the Beltway could offer. Finally, I am eternally grateful to my wife, Catherine, for her support, love, and humor.

    1. Introduction

    Your health is in constant peril from exposure to a multitude of toxic chemicals. Or so it seems, as frequent media reports alert us to the dangers of eating alar-treated apples, drinking artificially sweetened coffee, ingesting certain laxatives, swimming in backyard pools, and pumping automotive gasoline (Ingersoll 1998; McGinley 1997b; McGinley 1997a; Halpert 1995).

    Each new warning generates an almost predictable public debate (Passell 1995; Kelly 1995; Cushman 1997; Kenney 1998). First, interventionists demand stricter government regulations to reduce our exposure to the new health risk. Pragmatists counter that the costs of such controls will swamp whatever benefits they might offer. Skeptics question the underlying study’s scientific validity and advocate waiting until better knowledge is obtained. Finally, the cautious wonder if uncertainty can excuse failing to protect the public health.

    How are we to sort through all the rhetoric that surrounds questions of science and health?

    Further scientific research will provide only limited answers to only some of the questions. Better studies can reduce—but not eliminate—our uncertainty about chemical side effects. Policymakers still will have to face tough decisions.

    In general, policy analysts examine sources of conflict in a market society and determine what the government might do to improve firm and consumer choices. This book examines the specific issue of chemicals in our modern industrial society and discusses how government can enhance public health. In this context, important policy issues include:

    How well does the market for synthetic chemicals operate?

    Are individuals and firms making efficient choices about chemical use and exposure?¹

    Are choices concerning chemical use and exposure subject to value or equity conflicts?² If so, how should such disputes be resolved?

    Although, under certain circumstances, an enlightened government theoretically could improve the efficiency of chemical markets, does government intervention suffer from government failure and, thus, not produce improvements (Stigler 1971; Posner 1974; Peltzman 1976; Becker 1983; Shepsle and Weingast 1984; Wolf 1993; Keech 1995)?

    Chapter 2 examines the current state of scientific research into how chemical exposures affect human health. There are good human studies on only a few substances. Animal and bacterial studies are more plentiful but are a poor substitute. Furthermore, better research will contribute surprisingly little to many chemical exposure disputes, which involve equity conflicts and trade-offs falling in the realm of policy analysis.

    Chapter 3 focuses on those chemical exposure risks that are private goods.³ Individuals can choose to avoid dangers like pesticide-laden food by paying extra for pesticide-free food. But they can properly weigh risks only if they know the harmful effects of these chemicals. Unfortunately, citizens who obtained sufficient information through the market would have little time to do anything else. Courts enhance the operation of markets with common-law torts, but no single liability rule efficiently manages all chemical risks in all situations. Government bureaucracies attempt to enhance the operation of markets, but their one-size-fits-all command-and-control regulations are very flawed.

    Chapter 4 discusses chemical risks that are public goods.⁴ Risks like air pollution are collectively consumed, and individuals generally cannot avoid them simply by acquiring information and making choices. While torts and regulations theoretically can produce efficient levels of public exposure, they usually fall short.

    Regardless of what institutions govern human exposure to chemicals, residual exposure will exist. Risk-averse individuals will want to share that risk through insurance. Chapter 5 explains the operation of insurance markets, particularly environmental insurance markets. The federal Superfund program and certain court decisions have made insurers reluctant to write environmental insurance contracts. Until Congress and the courts stop confiscating wealth through arbitrary statutes and common-law decisions, the environmental liability insurance market will not work well.

    Chapter 6 reviews the findings and makes policy recommendations. Conflicts about exposure to chemicals involve three value or political choices involving consent and property rights. First, who decides whether false-positive (declaring a safe substance to be harmful) or false-negative (declaring a harmful substance to be safe) errors are more costly? Second, should some citizens be taxed to augment the ability of others to purchase information about the effects of exposure? Third, what liability rules should govern the manufacture and sale of chemicals?

    In the case of chemical exposures that are private goods, government should provide information rather than regulation. And the negligence liability rule, rather than strict liability, should be applied.

    For collective exposures, government should create ambient quality standards to achieve the same cost-versus-health balance observed in private market decisions. The government should then auction emissions property rights to the highest bidders and distribute the proceeds to all citizens equally.

    2. Effects of Synthetic Chemical Exposures on Human Health

    Exposure to synthetic¹ chemicals, like any other activity, can be analyzed by using a cost-benefit framework. Rational individuals consume private goods if benefits exceed costs.

    Consumers can easily calculate the benefits of chemical use. Farmers compute how pesticides increase crop yields, and people appreciate the fact that chlorination produces bacteria-free water. It is more difficult to determine the costs of chemical use because, in addition to a commodity’s market price, there are less obvious costs, such as increased health risks.

    This chapter surveys the scientific literature and explains what is known about chemical exposures and human health.

    Issues of Statistical Inference

    Suppose we wanted to determine if a new drug reduces insomnia. We could conduct an experiment in which some subjects were exposed to the drug and compare their insomnia rate with that of a control group who were not exposed.

    If 2 of the 20 people in the exposed group reported insomnia (10 percent) and 3 of the 20 people in the control group reported insomnia (15 percent), we might attribute the 5 percent difference to the drug. But we could not be certain. The drug could have had no effect on sleep. Perhaps 5 of the 40 people in the experiment were insomniacs to begin with, and 3 of them just happened to be assigned to the control group.

    But we could boost our confidence by increasing the size of the groups. If there were 1,076 people in each group and we observed a 5 percent incidence difference, then we could be 95 percent certain that the drug had a positive effect.²

    What if the drug’s effect were not so noticeable? Suppose we observed only a 1 percent incidence difference in our experiment? With 1,076 people in each group, we could be only 63 percent confident that exposure to the drug caused a decrease in insomnia. To be 95 percent confident, we would need nearly 27,000 subjects in each group. To detect differences of 0.1 percent with 95 percent confidence requires 2.9 million subjects in each group. No one has ever conducted such a study because of the extraordinary expense.³

    Given practical limits, we can detect only differences of at least 1 percent. Fortunately, drug effects are usually relatively large. But the increased cancer risks that concern regulatory authorities and many citizens are relatively small⁴—usually much smaller than the level of risk that scientists confidently can distinguish from background noise (Kaldor and Day 1985, 79).⁵

    Why 95 Percent Confident?

    Researchers usually decide how much an exposed group must differ from a control group before attributing the difference to the exposure rather than to mere sampling variation around a true result of no difference. Many scientists do not feel comfortable saying an exposed group differs significantly from a control group unless there is less than a 5 percent probability that the difference could have arisen through sampling variation.⁶ The 5 percent figure is no more magical than 4 percent or 6 percent; it is simply convention.

    Researchers can make two types of probabilistic inference errors: false positive and false negative. In human health research, false-positive errors occur if health differences between the two groups in a study are deemed the result of substance exposure even though the average result of repeated studies would show no health difference. False-negative errors occur if the opposite happens—that is, health differences between two groups in a study are deemed the result of sampling variation even though

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