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A conceptual model of consumer sorting in markets for housing, labor and health care is outlined and used to make three points about how benefit transfers are used for environmental policy evaluation. First, the standard approach to assessing benefits of air quality improvements by transferring the value of a statistical life from labor market studies embeds several untested (but testable) assumptions. Second, if the cost of an environmental policy exceeds its capitalized effect on housing prices, then the capitalization effect is an insufficient statistic for determining whether benefits exceed costs. Third, there are several ways in which equilibrium sorting models may be usefully extended to assess distributional welfare effects of environmental policies. [ABSTRACT FROM AUTHOR]

The article reports on the criticism thrown at the U.S. Environmental Protection Agency (EPA) by science advisers as it sets a new air-quality standard for ozone, a primary component of smog. EPA's decision will lessen the existing regulatory limit on ground-level ozone concentrations set in 1997 from a maximum of 84 parts per billion to 75 parts per billion. Environmentalists also dislike what they saw as the administration's interference. In a memorandum, Susan Dudley, a top regulatory official, encouraged the EPA not to set a secondary welfare standard at a lower level to protect against other environmental problems like the potential damage to crops and other vegetation. The EPA set the primary and the secondary standards at the same level.