Thinking and Deciding

NORMATIVE THEORY 499
each individual faces a certain probability of death from that cause in a year, then the
number of people who die from that cause each year is approximately that probability
multiplied by the number of people in the population at issue. Probabilities translate
into numbers of people. Thus, we often measure risk reduction in lives saved, or life
years saved, or quality-adjusted life years saved (see Chapter 13).
Suppose we, as a society, are spending $1,000,000 per life year saved by regulating
disposal of hazardous waste, and $1,000 per life year saved by vaccinating
children against whooping cough. And suppose we could spend more money on
vaccinations and vaccinate more children, at this rate. We could save more lives by
taking some of the money from the regulation of hazardous waste and spending it on
vaccinations. As we move money from hazardous waste to vaccinations, the benefit
of each dollar spent on waste will increase and the benefit of each dollar spent on
vaccinations will decrease. We might, for example, have to spend more and more
money on advertising to induce the last few holdouts to get vaccinated. At some
point, we will probably reach a point where the marginal benefits (benefits of the
next dollar) of the two expenditures are equal. Before we reach this point, we can
always save more life years by taking money from hazardous waste and moving it
to vaccination. The same kind of argument works for other effects aside from life
saving.
This is, of course, a normative economic theory, a “first best” approach. We
cannot always move money from one category to another in the real world.
Public control of risk
It is simplistic to say “we as a society” are spending such and such. For one thing,
a “society” is an arbitrary unit. From the normative economic (or utilitarian) point
of view, the appropriate unit is the world, and the future as well as the present. We
might, for example, save more lives by reallocating a fixed amount of resources from
rich countries to poor countries. However, risk decisions are made at different levels
of government, from the town to the world. The following theory applies to whatever
level is making the decision.
One mechanism for risk control is direct expenditure of public funds. Examples
are police, armies (to protect against the risk of foreign invasion), and monitoring of
contagious diseases.
A second mechanism is regulation. Regulation puts the cost of risk reduction
on those who engage in some activity that increases risk. Examples are rules that
require catalytic converters for automobiles or taxes to discourage the use of risky
products such as cigarettes.
A third mechanism of public risk reduction is provision of information. Often the
most cost-effective way to reduce risk is for individuals to protect themselves against
it. Examples are smoke detectors and fire extinguishers in the home and child safety
seats in cars. Governments also inform people about the risks of smoking, lack of
exercise, and so on.