The Battle of the Cost-Benefit Analysts

The battle itself was costly. First OSHA hired a well-known consulting firm (Arthur D. Little) to analyze its draft proposal. The resulting report was riddled with errors and questionable assumptions.^[51] It was so vulnerable to attack that OSHA hired a second firm (Booz, Allen & Hamilton) to massage the data. The NGFA subsequently hired a third consulting firm (G.E.M. Consultants) to attack the conclusions reached by the first two.

On the cost side, estimates prepared for OSHA by Booz, Allen pegged the total initial cost of the standard at $200 million, with annual recurring costs of approximately $137 million. These estimates reflected a series of assumptions about the cost of each of the fourteen provisions in the proposed rule.^[52] Industry accepted the Booz, Allen estimates for some of the minor provisions, such as permit systems for hot work (see table 5), but it took issue with most of the others. By

making marginally higher estimates for almost every subsidiary assumption, industry argued that the cost of many provisions were understated by a factor of two.^[53] Except for the housekeeping provisions, these differences of opinion did not add up to much. Hundreds of millions of dollars, however, separated the cost estimates for housekeeping. Some of these differences are impossible to evaluate.^[54] Other assumptions made by OSHA's consultant seem more reasonable than the industry's.^[55] Industry also offered some persuasive indictments of the OSHA estimates. The Booz, Allen study assumed that operators would purchase "dust-tight" vacuum cleaners, even though the National Electric Code requires the more expensive models certified for class (g) environments. In short, it seems safe to assume that the true cost of the rule would fall in between the estimates prepared by the two consultants.

On the benefit side, where estimates are normally subject to more uncertainty, the report prepared for OSHA took a realistic position. It was assumed that the housekeeping provision would prevent approximately 30–50 percent of all fires and 17–32 percent of all explosions. Through a series of calculations intended to gauge the "willingness-to-pay" to avoid property damage and personal injuries, these figures produced an estimated total benefit of approximately $286 million.^[56] Industry did not take issue with the specifics of these estimates. Although it is always arguable that things will not work out as well as planned, the estimates prepared for OSHA were not vulnerable to the charge of overoptimism.

The battle of the cost-benefit analysts was not won clearly by either side. Assuming that actual benefits would be between 50 and 90 percent of OSHA's (possibly high) estimates, the rule would yield from $143 million to $286 million in total annual benefits. Estimates of annualized cost, based on the figures presented in table 5 and discounted to present value, ranged from $113 million (OSHA) to $240 million (NGFA). The true cost is likely to be somewhere in between. Therefore, the OSHA standard may or may not generate more benefits in excess of costs—a plausible case can be made for both propositions. Either way, the costs appear to be in the same ballpark as the benefits.