Policy Benefits (Damage Reduction): Overview

    Having incurred some costs and had some impact on emissions, we now need to think about what we "are getting for our money" (for our resources--remember dollars don't clean up the environment; labor, capital and other resources do!).  Knowing what we're getting for our money (the benefits of the policy) is, however, much more difficult than knowing what the costs of the policy are.  In part, this is because the costs come quite naturally, in most cases, in the form of dollars--a catalytic converter has a certain price that captures all, or most, of the labor, capital and other costs of producing it.  Maintenance costs due to the policy are also fairly accurately estimated, although a common criticism by environmentalists (validity? Discuss) is that cost estimates are overstated by failing to incorporate mass-production and learning-by-doing economies that are usually present when new technologies are employed.
    The benefits of a policy are more uncertain for many reasons.  We will find many examples where the approaches taken toward estimating the benefits of clean-up result in understated benefits--that is, the true benefits are likely to be higher (in some cases much higher) than the estimated benefits.  But, there are cases also where an approach may overstate the benefits of cleaning-up.  We will discuss these examples in the context of four broad approaches to estimating the benefits of an environmental policy.     Each of these approaches has pros and cons from the perspective of obtaining useful information for valuing environmental improvements.  We will see that the role of perceptions of environmental damage is critical to our choice of preferred valuation technique(s).
    NOTE: I would be remiss if I did not remind you again here about some basic philosophical points discussed at the outset.  Taking the view that we "don't need to even look at the benefits because incurring the costs to clean up the environment is our moral or religious duty" will definitely cause your input to be ignored by anybody with policymaking power in this country at this time.   Benefit-Cost analysis is now (as of an early 1980s mandate published in the Federal Register) required of all policies having a significant impact on the economy, and this situation is unlikely to change (Discuss--it offers the promise of replicating for publicly-supplied goods the efficiency benefits of private markets).  That is, if you won't play by the "rules of the game" now underlying environmental policy-setting, you won't be allowed to play at all--your voice will be unheard.  But, on a more positive note, you will find in our discussion a great many ways to argue that environmental benefits are frequently underestimated--often by truly remarkable amounts!  Let's get on with it then and begin understanding how to think about quantifying environmental benefits of a policy.