Repost from JREG Notice and Comment. Sunstein on Cost-Benefit Analysis and the Administrative Procedure Act (AdLaw Bridge Series)

Repost from JREG Notice and Comment. By Chris Walker. Original sourceNotice and Comment, 14 april 2016

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Two weeks ago, in MetLife v. Financial Stability Oversight Council, District Judge Rosemary Collyer (D.D.C.) sent waves through the financial services industry and among scholars of cost-benefit analysis. Relying in part on the Supreme Court’s decision last Term in Michigan v. EPA, the district court held that the FSOC violated the Administrative Procedure Act by not considering the costs of designating MetLife as a non-bank systemically important financial institution (SIFI) where Dodd Frank commanded the agency to consider “appropriate” risk-related factors. (A group of professors of law and finance filed an amicus brief in support of the FSOC that is definitely worth a read.)

In light of this decision, it seems fitting to highlight in the AdLaw Bridge Series this week a new paper by Cass Sunstein, entitled Cost-Benefit Analysis and Arbitrariness Review. A draft of the paper is available on SSRN here, and here is the abstract:

When an agency fails to engage in quantitative cost-benefit analysis, has it acted arbitrarily and hence in violation of the Administrative Procedure Act? At first glance, the question answers itself: Congress sometimes requires that form of analysis, but if it has not done so, then agencies have discretion to proceed as they see fit. But as recent decisions suggest, the underlying issues are far more complicated than they seem. The central reason is that for all its limitations, cost-benefit analysis is the best available method for testing whether regulations increase social welfare. Whenever a statute authorizes an agency to consider costs and benefits, its failure to quantify them, and to weigh them against each other, requires a non-arbitrary justification. Potential justifications include the technical difficulty of quantifying costs and benefits; the relevance of values such as equity, dignity, and fair distribution; and the existence of welfare effects that are not captured by monetized costs and benefits. These justifications will often be sufficient. But in some cases, they are not, and agencies should be found to have acted arbitrarily in failing to quantify costs and benefits and to show that the benefits justify the costs.

Among other things, Professor Sunstein’s new paper provides (at 10) a matrix for understanding the various positions on the role of cost-benefit analysis in the regulatory state. Judge Collyer’s decision would seem to fall within the “cost-benefit maximalism” category. In all events, the role of cost-benefit analysis under APA judicial review of agency action will continue to be a hot topic in administrative law. Professor Sunstein’s new paper is a fun read, as is the amicus brief referenced above.

Read the references and original article on JREG Notice and Comment