Reference no: EM131212406

Arsenic and Water Do Mix?

Consider the following statement published on the website of the AEI-Brookings Joint Center for Regulatory Studies:
EPA's analysis of its new arsenic rule estimates annual costs of $210 million and benefits of $140 million to $200 million ... with resulting net costs of $10 million to $70 million. This clearly signals an inefficient rule, but recent analysis by the Joint Center estimates that true net costs are closer to $190 million per year. ... Beyond the high costs of the rule, Burnett and Hahn (the authors of the Joint Center study) raise the possibility that implementation of the rule could actually result in a net loss of lives. The high costs of the rule would reduce funds available to individuals for health care. The long latency period associated with arsenic-related cancers means that reduced funds for health care could result in a net increase of health risk, on the order of about 10 lives per year.

The difficulty of justifying the EPA's arsenic standard with cost-benefit analysis demonstrates clearly that this rule should be withdrawn ("Drinking Water," 2006).

1. How do you know that the EPA has chosen a safe rather than an efficient standard?

2. In arguing for a move toward efficiency, how do Burnett and Hahn utilize the idea of a Pareto improvement? Describe how they see such an outcome arising.

3. Does a Pareto improvement seem plausible in this case? Why or why not?