Since the 1970s, there has been a tremendous growth in government regulation pertaining to risk and the environment. These efforts have emerged quite legitimately because market processes alone cannot fully address risk-related concerns.' Without some kind of regulation or liability, for example, firms lack appropriate incentives to restrict their pollution. Similarly, when products or activities are extremely risky, if people are not cognizant of the risks they face, the firms generating the hazards may not have adequate incentives to issue warnings. To solve these problems, regulatory agencies have mounted a wide variety of efforts to improve the quality of the air we breathe, the water we drink, the products we use, and the workplaces where we toil. Notwithstanding the legitimate impetus for these regulatory activities, government agencies sometimes overstep their bounds. The presence of market failure creates a potential role for government action, but this action must be well conceived. A clearly misguided and unduly burdensome regulation certainly would not be in society's best interest even if it were intended to address a legitimate social problem. As in other policy contexts, the task is to structure regulatory efforts to promote society's welfare as effectively as possible. The importance of this task stems from the need to ensure that the substantial overall cost of regulatory policies is justified. Estimates suggest that total annual regulatory costs are in the vicinity of $400 to $500 billion.2 Of this amount, approximately $100 billion comprises transfers that do not create a net efficien-