Cost benefit Analysis

Philip Morris, the tobacco company, does big business in the Czech Republic, where cigarette smoking remains popular and socially acceptable. Worried about the rising health care costs of smoking, the Czech government recently considered raising taxes on cigarettes. In hopes of fending off the tax increase, Philip Morris commissioned a cost-benefit analysis of the effects of smoking on the Czech nation budget. The study found that the government actually gains more money than it loses from smoking. The reason: although smokers impose higher medical costs on the budget while they are alive, they die early, and so save the government considerable sums in health care, pensions, and housing fro the elderly. According to the study, once the “positive effects” of smoking are taken into account – including cigarette tax revenue and savings due to the premature death of smokers – the net gain to the treasury is $147 million per year.

The cost-benefit analysis proved to be a public relations disaster for Philip Morris. “Tobacco companies used to deny that cigarettes killed people,” one commentator wrote. “Now they brag about it.” An anti-smoking group ran newspaper ads showing the foot of a cadaver in a morgue with a $1,227 price tag attached to the toe, representing the savings to the Czech government of each smoking-related death. Faced with public outrage and ridicule, the chief executive of Philip Morris apologized, saying the study showed “a complete and unacceptable disregard of basic human values.”

Some would say the Philip Morris smoking study illustrates the moral folly of cost-benefit analysis and the utilitarian way of thinking that underlies it. Viewing lung cancer death as a boon for the bottom line does display a callous disregard for human life. Any morally defensible policy toward smoking would have to consider not only the fiscal effects but also the consequences for public health and human well-being.

But a utilitarian would not dispute the relevance of these broader consequences – the pain and suffering, the grieving families, the loss of life. Bentham en.wikipedia.org/wiki/Jeremy_Bentham invented the concept of utility precisely to capture, on a single scale, the disparate range of things we care about including the value of human life. For a Benthamite, the smoking study does not embarrass utilitarian principles but simply misapplies them. A fuller cost-benefit analysis would add to the moral calculus an amount representing the cost of dying early for the smoker and his family, and would weigh these against the savings the smoker’s early death would provide the government

This takes us back to the question of whether all values can be translated into monetary terms. Some versions of cost-benefit analysis try to do so, even to the point of placing a dollar value on human life. Consider two uses of cost-benefit analysis that generated moral outrage not because they didn’t calculate the value of human life, but because they did. ~ Page 42