FMCSA's $9.4 million ace in the hole

February 1, 2016

Armed with DOT guidance on the value of a statistical life, the agency can justify just about anything. 

 

Regulators naturally develop certain ideas for what makes for good policy. Sometimes they have sound reasons for believing that a new rule will be better than the existing rule. Other times, though, political, emotional and philosophical factors – even the biases of individual bureaucrats – lead regulators to focus on the wrong solutions.

 

No problem. That's why we make government agencies justify the net benefits of their rules through regulatory impact analyses. If an agency wants to impose a rule that will cost lots of money for very little or no benefit they can't because they can't get the numbers to work.

 

That's the theory – the “Schoolhouse Rock” version. In reality, it certainly seems that agencies often draft regulatory impact analyses largely to fit the policy they have already decided to adopt. And while someone should call them on it, few do. Courts usually defer to federal agencies on the science and number-crunching as long as they provide opportunity for comment. Congress often is pulled in different directions politically, so doing nothing usually wins out. 

 

So as long as an agency's numbers seem plausible and are consistent, its analysis generally wins the day. It helps, too, when the agency argues that it is being conservative – that a more realistic analysis would yield even more benefits. Yes, there's an art to writing regulatory evaluations, and the Federal Motor Carrier Safety Administration is a maestro.

 

How can you justify the costs of mandating electronic logging devices (ELDs) on all drivers who now use paper logs? No problem. Simply figure out the value of 1 minute of productivity in trucking, multiply that by the 4.5 minutes a trucker supposedly will save due to ELDs and you get $1.88 billion in annual benefits. Yes, that's billion with a b. For saving 4.5 minutes per driver per day. And that's 63% of the total benefits that FMCSA estimates from the ELD rule.

 

OK, if (1) all drivers always maxed out available drive time and (2) the 4.5 minutes completing paper logs would otherwise be spent driving, then you could make a case that there was economic value to saving 4.5 minutes. In reality, it's hogwash. 

 

Another major benefit of ELDs, FMCSA said, is the time savings on the back end for processing paper logs. That comes to about $434 million a year. In this case at least, the time savings are real, even if you doubt the value. A third, much smaller piece of the total paperwork savings is the cost of paper logs themselves, which is about $126 million a year.

 

The value of a statistical life

Paperwork savings aside, the other big presumed benefit of ELDs comes from crash reductions, which FMCSA estimates at more than $572 million. The bulk of that comes from saving an estimated 26 lives annually at $9.2 million a year – since adjusted to $9.4 million – and increased annually at 1.18% to account for growth in real wages. The rest comes from preventing 1,844 total crashes and 562 injuries a year.

 

Just eight years ago, the value of a statistical life (VSL) was $3 million, and it was just $2.5 million when initially set by the Department of Transportation in 1993. Having risen just 20% in 15 years, the VSL jumped 93% to $5.8 million in 2008. DOT argued essentially that an incorrect adjustment factor had been used, so recalculating the annual growth over 15 years yielded an almost doubling of the VSL.

 

Since that big adjustment near the end of the Bush administration, the VSL has surged another 62% in large part due to further revisions in the methodology.

 

Feel free to read the latest guidance on the VSL if you wish, but you won’t understand it unless you have done college-level coursework in statistics. Put very simply, the VSL isn’t exactly a value of a human life but rather the value someone places on reducing his risk of dying. Suppose someone is willing to pay $1,000 – perhaps by buying a safer vehicle – to reduce his risk of dying in a car crash. Suppose further that the risk of dying in a car crash is 1 in 10,000. The VSL would be 1,000 times 10,000, or $10 million. That’s not how people really act, though, and the math and assumptions that get you to a theoretical willingness to pay is virtually incomprehensible to someone without a PhD.

 

In FMCSA’s latest major rulemaking, the proposed rule on safety fitness determinations, all of the benefits flow from reducing crashes. The biggest piece – $127 million worth in 2017 – rests squarely on multiplying the VSL times 1.183 (average number of fatalities per fatal crash) times the 11 additional fatal crashes FMCSA says the SFD rule will prevent each year relative to today’s SFD regulations. Smaller figures apply to each of the 128 injury crashes and 220 tow-away crashes FMCSA says an SFD rule would prevent for a total of just over $200 million in the first year of the rule.

 

Even without the upward adjustments, it takes just 11 lives saved to offset $100 million in regulatory costs. Eight years ago, those same 11 lives would have justified only $33 million in regulatory costs.

 

Nobody says we should sacrifice lives for the sake of saving a few bucks, but an escalating VSL means that FMCSA’s cost-benefit analysis becomes much easier and that errors in the agency's estimates have a much greater impact on the outcome. After all, most regulations don’t save truck drivers 4.5 minutes a day to the tune of $1.88 billion a year.

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