Value, Cost and the Output Life Cycle

The figure below shows the output life cycle diagram including the value and cost concepts discussed in this section and the section on consumption and value.

Output life cycle in relation to value and cost
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All stages in a final output’s life cycle typically incur input cost, but only the consumption stage creates effectual value. For an output’s production to be rational, its effectual value must be greater than its life-cycle input cost.

Note that potential value applies only to the final output, and that effectual value applies only to the consumption of this output. Input cost, however, applies to all stages of the output's life cycle because production is typically required at each stage.

This diagram is important because it captures the essence of ENL's approach to the gains from economic activities.

In this approach, effectual value is compared to life-cycle input cost. If effectual value is greater than input cost, people within the geographical scope of analysis will gain health from this output at the current quantity.

Ignoring ecological limits, the output should thus be produced at this quantity unless a better allocation choice is available. If effectual value is less than input cost, health is being lost, and the output should be produced at a lower quantity, or possibly not at all.

Such a conclusion is not intended to be definitive, but rather to serve as ENL's contribution to a broader social decision regarding the output's production.

In effect, ENL says the following to economic decision-makers: Here are the potential health effects of a decision to proceed with the production of this output at the suggested quantity. You presumably understand that the health standard was not chosen arbitrarily, but rather reflects the vital needs of present humankind and the opportunities for life and health of future humankind. If you choose to override ENL's conclusion, ensure that you have fully weighed the ethical implications of your decision and that you have rationally balanced ENL's health results with all relevant non-health factors.

To make this perspective more concrete, consider the announcement in February 2007 that the International Linear Collider (ILC), an advanced atom-smasher, could be built in five years with 22 million worker-hours.1

Assume that the labor cost and natural cost of this project will both be modestly positive. The health gains from "consuming" the collider are likely to be zero. The collider's net health effects are thus projected to be modestly negative.

In addition, analysis will likely conclude that there are numerous ways to allocate the 22 million worker-hours to alternative production so that significant health gains could be achieved.

On this narrow basis, an ENL-based analyst would reject the collider's construction. To override this rejection, social deliberation would have to conclude that the benefits to humankind from the expected advances in fundamental knowledge will offset not just the actual health lost (the life- cycle input cost), but also the forgone well-being from employing 22 million worker-hours to build the collider instead of producing the best available output alternatives.

The point is not that the collider’s construction should be cancelled, but that a social process such as this is necessary before it can legitimately proceed.

A letter-writer to New Scientist magazine captured the spirit of this approach perfectly. The topic was NASA's claim that postponing a space program would have "devastating consequences" for our understanding of the cosmos. The writer wryly commented that:

I decline to be devastated by the idea. The cosmos has been there for a long time and the chances are that it will survive for later study even if NASA's plans are delayed for a couple of hundred years. I would be much happier if the money and effort from that programme were devoted to ensuring that we will still be here in a couple of hundred years.2

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