NEWS from CPSC

U.S. Consumer Product Safety Commission

Commission Initiates Formal Rule For Assessing Costs & Benefits Of Its Regulations

WASHINGTON, D.C. (March 12) -- Work by the U.S. Consumer Product Safety Commission to develop clear public guidelines on how the Commission assesses the costs and benefits of its health and safety regulations received strong public endorsement during a day-long meeting this week from a variety of outside experts.

Since the summer of 1980, Commission staff has been drafting a proposed rule containing a methodology for assessing the costs and benefits of agency actions. CPSC is the first federal regulatory agency to prepare such guidelines to simplify its rulemaking procedures and to clarify them for industry and consumers. This week's public meeting was conducted as part of the comment period on the proposal which was published in the Federal Register on December 30, 1980; the final rule is expected to be issued later this year.

The Commission is exceptional among regulatory agencies in that it is required by its authorizing legislation (the Consumer Product Safety Act of 1972) to evaluate its efforts in terms of the reduction of risk to consumers and the potential for increased cost to industry and consumers. Such assessment must be performed before CPSC issues a safety or health standard or ban.

Under the general provisions of Section 9(C) of the Consumer Product Safety Act, four groups of factors are involved in this kind of analysis of costs versus benefits. Before proposing specific regulations, the Commission must consider:

• the degree and nature of the risk of injury to consumers by a given product.



• the number of consumer products currently available or being used which are subject to a particular rule.



• the effects of a particular rule on the utility, cost or availability of the potentially injurious products.



• minimizing adverse effects on competition or disruption or dislocation of manufacturing and other commercial practices.

The proposed rule to implement Section 9(C) addresses some of the most difficult and controversial issues associated with cost/benefit evaluations. These include:

• whether to and how to assign monetary values to deaths and injuries of American consumers.



• how to evaluate and quantify risks associated with cancer-causing substances.



• how to give fair consideration to the indirect effects of rules, such as benefits from avoidance of pain and suffering.

The Commission staff believes that it is often difficult to assign a monetary value to the potential loss of a life, physical impairment or to short-term or long-term illness. Therefore, CPSC intends to express its estimate of risk in each assessment as a "range" of values, rather than as one specific dollar estimate. This procedure will help to accommodate the uncertainties inherent in risk assessment.

Speaking in support of this concept during the public meeting, Dr. Lester Lave, a Senior Fellow at the Brookings Institution in Washington, urged that the entire range of potential health effects from a consumer product hazard be considered when assessing costs and benefits -- all the way from minor skin irritation to premature death.

Under the terms of the proposed rule, CPSC also will express the assessed economic impact of a regulation on an industry in terms of a "range" of costs rather than one projected figure. Paul D. Kamenar, testifying on behalf of the Washington Legal Foundation, recommended that all the costs of a regulation, direct and indirect, be weighed adequately.

Dr. Nicholas Ashford of the Massachusetts Institute of Technology * told the Commissioners that industry's assessment of the costs can be substantially inflated for a variety of reasons, including the fact that industry usually estimates its costs according to contemporary technology.

Dr. Ashford pointed out that if new standards or bans are anticipated by industry then regulation can serve as a stimulus to production when a new industry is created in the search for a safer (and perhaps cheaper) substitute for the regulated product. Economic growth, then, is stimulated and regulations in this sense become cost-effective rather than unnecessarily burdensome.

Under the terms of its proposal, CPSC recognizes the limitations of assigning a dollar value to human death and suffering, and states the agency's intent to use cost/benefit analysis as one of several tools in regulatory decision-making. Often, value judgements also must play a substantial role and CPSC has left room for subjective factors in its proposed methodology for considering the costs of reducing risks.

An additional participant in this week's meeting, Reuben Robertson, recommended that CPSC "recognize that none of these techniques / cost/benefit analysis, regulatory analysis, cost- effectiveness analysis or risk assessment / furnishes an automatic decision-making tool that will obviate the need for exercising the regulator's judgement." Robertson is the chairman of the Administrative Conference of the United States.

Elizabeth Pinkston, an economist speaking for the President's Council on Wage and Price Stability, said that CPSC's proposed rule was in accord with an Executive Order (12291) issued last month by President Reagan which requires that all executive branch agencies examine the potential costs and benefits of their regulatory actions. (CPSC is an independent regulatory agency created by and directly responsible to the Congress.)

Ms. Pinkston stressed that when CPSC considers various regulatory options the agency ought to choose the approach which will "yield benefits in excess of the costs it imposes, and provide greater net benefits than any alternative course of action."

The public comment period on CPSC's proposed rule will remain open through March 24, 1981. All written comments should be mailed to the Office of the Secretary, CPSC, Washington, D.C., 20207.