Toxic Inequalities

Environmental pollution often affects the most disadvantaged people the most. In this paper, we argue that benefit–cost analyses of policies and programs designed to alleviate such inequalities should incorporate distributional considerations while respecting individual preferences. The concept of equivalent income offers a theoretically sound approach for defining distributional weights that does not rely on the comparison of well-being measures such as subjective utility, happiness or life satisfaction. We demonstrate how this concept can be used to analyze the implications of exposure to neurotoxic substances, which requires us to explicitly consider the endogenous relationship between neurodevelopment and income in the derivation of welfare weights. Through a simulation exercise, we show the difference between standard and inequity-aware welfare analysis and highlight the profound effect on program choice that accounting for unequal exposure to pollution has. Based on our results, we discuss why policymakers concerned with environmental health and safety should seek to factor fairness considerations into their decision-making processes.