The Cost of Time: Haphazard Discounting and the Undervaluation of Regulatory Benefits
When performing cost-benefit analyses, regulators typically use willingness- to-pay studies to determine how much to spend to avert risks. Because money has a time-value, when a risk is valued is inextricable from how much it is valued. Unfortunately, the studies on which regulators rely are insensitive to this fact: they elicit people's willingness to pay for risk reductions without identifying the time at which the risk reduction will occur. Relying on these time-indeterminate studies has led to a systematic skew in regulatory cost-benefit analysis, toward the undervaluation of risks to human lives. Insofar as cost-benefit analyses inform regulation, this suggests that the current system systematically under regulates against risks to health and safety.