Repost from Society for Benefit-Cost Analysis. On Balance: Perspectives from the Field. New JBCA article offers practical guide for interpreting regulatory impact analysis

By Susan E. Dudley. Original Source: Society for Benefit-Cost Analysis

In the United States and elsewhere, government agencies are required to conduct regulatory impact analyses (RIAs) to weigh the benefits of regulatory proposals against their costs. These RIAs are invaluable tools for informing decision makers about the effects of regulatory choices; even regulatory decisions that are ultimately made on political, legal, ethical, or other grounds will benefit from the structured evaluation of tradeoffs and alternatives that a good RIA provides.

However, dense or complex RIAs can be challenging for policy officials and interested parties to comprehend and interpret, making it difficult to evaluate the evidence presented and to understand the likely consequences of alternative policy choices.

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Consumers Guide to Regulatory Impact Analysis

While numerous guidelines are aimed at people responsible for developing RIAs, none are geared toward non-specialist policymakers and interested stakeholders who will be reading RIAs as consumers. To address that gap, the George Washington University Regulatory Studies Center gathered a diverse group of regulatory analysis experts* with a goal of helping policy makers and others appreciate the value of RIAs, ask appropriate questions of them, and judge their implications for regulatory policy. The group’s final product, a “Consumers Guide to Regulatory Impact Analysis: Ten Tips for being an Informed Policymaker,” appears in the latest issue of the Journal of Benefit-Cost Analysis. The short, open access article  is available without a subscription. Here is a brief summary of each of the ten tips.

Ten Tips for Interpreting RIAs

Tip 1: Determine whether the RIA identifies the core problem (compelling public need) the regulation is intended to address. Does the RIA clearly articulate the “need for government action?” Generally, this should be a description of the “material failures of private markets,” although the guide explains that regulations may be justified by other goals.

Tip 2: Look for an objective, policy-neutral evaluation of the relative merits of reasonable alternatives. Does the RIA consider plausible alternatives or only a preferred regulatory approach? Are the alternatives likely to target the identified failure of private markets or public institutions?

Tip 3: Check whether the RIA presents a reasonable “counterfactual” against which benefits and costs are measured. Are benefits and costs measured from a baseline that is a reasonable reflection of the way the world would look absent the proposed action?

Tip 4: Evaluate whether totals and averages obscure relevant distinctions and trade-offs. Policymakers are rarely faced with a decision of whether to regulate or not, but must evaluate different regulatory options. For a rule with multiple components or different degrees of stringency, does the RIA estimate the marginal benefits and costs of key elements or levels, and not just present totals or averages?

Tip 5: Recognize that all estimates involve uncertainty and ask what effect key assumptions, data, and models have on estimates. Does the RIA present unbiased “expected values,” as well as ranges for costs and benefits? Is precision in the estimates supported by evidence?

Tip 6: Look for transparency and objectivity of analytical inputs. Often, less is understood about the effects of regulatory intervention (such as reductions in health risks, for example) than the valuation of those effects. Does the RIA present a clear presentation of alternative plausible models and assumptions used to predict regulatory outcomes?

Tip 7: Examine how projected benefits relate to stated objectives. Does the RIA clearly explain how regulatory objectives will be achieved, or is the preferred regulatory outcome simply presumed to work as intended?

Tip 8: Understand what “costs” are included. Do the costs reflect a reasonable proxy for the “opportunity cost” of the regulatory action (the lost value of the best alternative forgone)? The article offers guidance for avoiding mistakes in counting costs.

Tip 9: Consider how benefits and costs are distributed. Does the RIA present evidence on the distribution of benefits and costs so that you can understand how they affect different populations?

Tip 10: Ensure that benefits and costs are presented symmetrically. Are they measured from the same baseline and over the same time frame, generally using the same discount rate? Are major elements missing on one side of the equation, or overemphasized on another?

More Informed Policymakers

The authors note that an RIA’s purpose is not to compel decisions, but rather to provide policy makers with the information needed to think through the possible consequences of different regulatory actions. To do that, savvy policymakers and other consumers need to be aware of the basic elements involved in a good RIA and what questions to ask to get the most from reading one. The ten tips offered in the new JBCA article should help non-expert readers of RIAs be more informed.

Susan E. Dudley, past president of the Society for Benefit-Cost Analysis, directs the George Washington University Regulatory Studies Center and is distinguished professor of practice in the Trachtenberg School of Public Policy & Public Administration.

* Susan Dudley, Richard Belzer, Glenn Blomquist, Timothy Brennan, Christopher Carrigan, Joseph Cordes, Louis A. Cox, Arthur Fraas, John Graham, George Gray, James Hammitt, Kerry Krutilla, Peter Linquiti, Randall Lutter, Brian Mannix, Stuart Shapiro, Anne Smith, W. Kip Viscusi, and Richard Zerbe.

Read the references and original article on Society for Benefit-Cost Analysis