Repost from REGBLOG. Improving Benefit-Cost Analysis by Making it Simpler

Original source: REGBLOG


Executive agencies have been required to perform regulatory impact analyses (RIAs) as part of the rulemaking process in the United States since the Reagan Administration. These analyses, which provide a detailed account of the anticipated consequences of a regulatory action, are prepared whenever an agency intends to promulgate a rule that would have a “significant” effect on the economy. They then must submit their RIAs, along with the proposed rules themselves, to the White House Office of Information and Regulatory Affairs for review before taking any action.

Despite the fact that the RIA requirement has been in existence for 35 years, the practice of preparing RIAs remains a target of criticism from across the ideological spectrum. Those opposed to the requirement assert that RIAs are inherently biased against regulatory initiatives. Those in favor of the requirement view its implementation as having been woefully inadequate, as regulations continue to be adopted that do not maximize net benefits.

Decorative Scales of Justice in the CourtroomBut critics from both sides do agree on one thing: RIAs are too often used not to inform regulatory decisions but to justify regulatory decisions that are made for other reasons. When RIAs are intended to justify pre-made decisions, agencies have little incentive to present them in ways that encourage feedback from interested parties. Thus, a related, widely-shared concern is that RIAs are becoming more complex, making them less accessible to potential commentators who would otherwise be able to provide input to make better rules. This latter criticism is not without merit: between 2000 and 2012, RIAs grew in average length from 31,000 words to 128,000 words.

In a recently published paper, we propose a solution both to the unnecessary complexity with which RIAs are sometimes presented and to their alleged use as window dressing for pre-determined, political decisions.

Our proposal requires agencies to produce a simpler analysis than they currently do, and to produce that “back-of-the-envelope” analysis much earlier in the regulatory process, making it available for public scrutiny at that time. As it currently stands, RIAs are published concurrently with proposed regulations. Considerable research has shown that agencies often make key decisions prior to the issuance of their proposed rule. Thus, if an analysis is to inform agency decisions, it stands to reason that it must be performed prior to when those decisions are made.

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