This report examines the relationship between the organization of economists in agencies and the robustness and integrity of economic analysis that is intended to inform decisions about the design and adoption of individual regulations. It considers three methods of organizing economists who work on regulations: “divisional” organization (placement in the program office that writes regulations), “functional” organization (placement in a unit separate from the program office), and a hybrid organization that places economists in the program office but also has a central economics office that reviews regulations and the accompanying analysis.
Organization theory, prior empirical research, and interviews of senior regulatory economists and attorneys in federal agencies suggest that the choice of organizational structure often involves a tradeoff between the quality and objectivity of economic analysis and the extent to which the analysis is considered in decisions. Federal agencies often implement decision-making authorities, practices and procedures intended to support the strengths and remedy the weaknesses of the chosen organizational structure.
Agencies that place their economists in a functional organization can mitigate some of functional organization’s disadvantages by (1) including economists on multidisciplinary regulatory development teams from the outset, (2) ensuring that the economists can make independent recommendations to high-level decision-makers, and (3) giving the head of the economics office signoff authority on regulatory actions. Agencies that place their economists in a divisional organization can mitigate some of divisional organization’s disadvantages by (1) ensuring that economists in the program office report to and are managed by other economists in the program office who are at a senior level; (2) empowering a central economics review office at the departmental level to serve as a quality check on economic analyses from the program offices, provide leadership in standardizing and disseminating high-quality analytical methods, conduct longer term research and development to inform future regulatory proceedings, and ensure that the economists’ perspective is heard by high-level decision-makers; and (3) giving the central economics office authority to object to specific regulatory actions.
This research also identified two other practices that appear to improve the integrity and impact of economic analysis regardless of organizational structure: (1) publicly formalize an early role for economists and economic analysis in the regulatory development process, and (2) explicitly give some entity (usually the functional economics office or central economics review office) responsibility for improving and articulating relevant analytical methods and establishing agency-specific guidelines for economic analysis.
Finally, the research suggests that functional or “hybrid” organization of economists may produce economic analysis that is more thorough and objective than analysis produced by a purely divisional organization. Potential disadvantages of the functional organization can be mitigated with appropriate practices and procedures to ensure that economic analysis is considered in decisions. Because wholesale reorganization can also involve significant costs, however, it may be the most attractive solution only when an agency’s leadership determines that the agency is not consistently producing useful regulatory impact information and fundamental structural change is necessary.