However even if the epa had used benefit cost

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However, even if the EPA had used benefit-cost analysis to choose the best of the alternative technologies, t he use of TBES was inefficient because it did not satisfy the equimarginal cost principle. Total discharges can be expressed as, Total Discharges = Output Input/Output Residuals/Input, and the equimarginal principle requires that each of these three factors be taken into account. However, the TBES only affected the ratio of residuals to inputs. In addition, the analysis of the technology based effluent standards was based on a “representative” plant for each industry, but not all firms in an industry are the same with respect to their type of technology, prices of inputs, etc., and therefore the particular type of abatement technology chosen is not necessarily the best choice for all plants. And abatement technologies generally involve a substantial amount of fixed cost so having plants of different sizes install the same abatement technology resulted in the cost per unit of reducing pollution being higher for small plants than for large plants. Studies of the cost-effectiveness of pollution control confirm that the use of technology based effluent standards was not in fact cost-effective but instead resulted in costs up to three times as high as necessary. Safe Drinking Water Act As noted earlier, the health benefits from the Clean Water Act are not very large because most water is treated before it is consumed and the cost of treatment does not
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12.8 ECON 436 SP16 vary much with the quality of the water being treated. The Safe Drinking Water Act requires the EPA to establish standards for “maximum contaminant levels” for any drinking water contaminant that poses a threat to human health. The Act also specifies a Best Available Technology standard for water treatment works. Because the costs of treatment are largely fixed, but communities vary greatly in size, the cost per statistical life saved is much larger for small communities than for large ones, and may be higher than the benefits. For example, suppose that fixed costs are equal to C, the reduction in risk from limiting contaminants is ΔR, and N i is the population of community i. Then the cost per statistical life saved is equal to C/(ΔR×N i ) and therefore is inversely proportional to community size. For example, a community with a population of 10,000 would have a cost per statistical life saved 100 times as large as for a community with a population of 1,000,000. This illustrates one of the possibly drawbacks of uniform national standards. Allowing standards to be set on a more decentralized basis would allow communities to choose the most appropriate standard based on their particular circumstances. However, some have expressed a concern that doing so might result in a “race to the bottom,” with communities setting low standards in order to keep taxes low in an attempt to attract more investment.
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