randall lutter

Improving Weight of Evidence Approaches to Chemical Evaluations

December 16, 2014

By Randall Lutter et al
Federal and other regulatory agencies often use or claim to use a weight of evidence (WoE) approach in chemical evaluation. Their approaches to the use of WoE, however, differ significantly, rely heavily on subjective professional judgment, and merit improvement. We review uses of WoE approaches in key articles in the peer-reviewed scientific literature, and find significant variations. We find that a hypothesis-based WoE approach, developed by Lorenz Rhomberg et al., can provide a stronger scientific basis for chemical assessment while improving transparency and preserving the appropriate scope of professional judgment. Their approach, while still evolving, relies on the explicit specification of the hypothesized basis for using the information at hand to infer the ability of an agent to cause human health impacts or, more broadly, affect other endpoints of concern. We describe and endorse such a hypothesis-based WoE approach to chemical evaluation.

budget outlays over time

Tight Budgets Constrain Some Regulatory Agencies, But Not All

October 08, 2014

By Susan E. Dudley & Melinda Warren
Each year we examine the President’s proposed Budget of the United States to identify the outlays and staffing devoted to developing and enforcing federal regulations. This "regulators' budget" report covers agencies whose regulations primarily affect private-sector activities, and expressly excludes budget and staffing associated with regulations that govern taxation, entitlement, procurement, subsidy, and credit functions. This year's report finds that while tight budgets are constraining regulatory spending at many federal agencies, those that are at least partially funded by fees on the entities they regulate are supporting substantial increases in regulatory outlays and staffing.

department of energy

Looking Back to Move Ahead

October 08, 2014

By Sofie E. Miller
Retrospective review is meant to ensure that regulations achieve their intended outcomes and to improve agencies' use of ex ante analysis by comparing projected outcomes with actual results. To that end, the Department of Energy sought public input on how to best promote periodic retrospective reviews of its rules and how to select the rules to review. This article recommends that DOE should take three steps to further its retrospective review efforts. First, it should incorporate plans for retrospective review into its economically significant or major rules. Second, it should allow enough time between releases of new energy efficiency standards to allow for an effective review of each rule’s effects before issuing updated rules. Third, it should use the Herfindahl-Hirschman Index (HHI) to measure whether its existing energy efficiency standards have had negative effects on competition in the regulated industries.


Australia's Regulatory 'Bonfire'

October 08, 2014

By Susan E. Dudley & Jeff Bennett
The World Economic Forum ranks Australia 128th in the world in terms of the burden of government regulation, noting "the business community cites labor regulations and bureaucratic red tape as being, respectively, the first and second most problematic factor for doing business in their country." Concerns over regulatory burden have resonated with the Australian coalition government elected last September, which committed to "building a stronger, more productive and diverse economy with lower taxes, more efficient government and more competitive businesses…by reducing the regulatory burden that is strangling Australia’s economic prosperity and development.” This article outlines the Australian government's plans for regulatory reform, and the effects of those reforms on competitiveness and regulatory burden.


The Political Transaction Costs and Uncertainties of Establishing Environmental Rights

September 24, 2014

By Kerry Krutilla
A key issue in the design of environmental polices is how environmental rights are distributed. Among the options, rights can be grandfathered to polluters or taxed or auctioned to generate public revenue. These alternatives have different political consequences, which impose different economic costs and political uncertainties. This research models political behavior around the rights establishment, and formally determines the associated welfare costs. The model includes parameters for the degree to which environmental rights are distributed between polluters and the government; the benefits of the environmental policy; the compliance costs of the policy; and the relative political power of polluters and environmentalists. The model shows that the economic costs of political behavior can significantly erode the expected value of environmental policymaking when the environmental rights are taxed or auctioned. These costs are not considered in the policy evaluations that recommend structuring environmental policy to raise revenue.


Bank Disclosure and Incentives

August 15, 2014

By Korok Ray
In this working paper, Korok Ray proposes a microeconomic model of a bank that acts as a financial intermediary engaging in maturity transformation, borrowing short-term debt from a market of investors to fund a long term loan to a firm. The bank installs a manager who exerts costly effort to reduce the credit risk of the loan portfolio. Disclosing this credit risk to the market increases the manager’s incentives for risk management. The market rewards the manager’s early efforts to manage risk with a lower future cost of debt. When paid on bank equity, the manager is induced to better manage risk. Disclosure therefore helps resolve the moral hazard problem inside banks.


The Social Cost of Carbon

August 07, 2014

By Susan E. Dudley & Brian F. Mannix
First, we endorse the administration’s effort to arrive at a uniform social cost of carbon (SCC), to help ensure at least internal consistency across a portfolio of policies directed at reducing carbon emissions. Second, we applaud OMB’s effort to seek public comment on its technical support document (TSD), and urge the administration to follow through with scientific peer review and with other measures to ensure transparency in regulatory decisions. Third, we caution that the task of estimating the SCC was undertaken with an apparent bias that needs to be corrected before it can be taken as objective. Finally, the logical next step is not for regulatory agencies to incorporate the SCC into Regulatory Impact Analyses. Rather, the next step is to seek an international consensus on the value of the SCC and to negotiate a coordinated global policy response, which is the only way that the theoretical benefits of government actions to reduce global carbon emissions can be translated into actual results.


Determining the Proper Scope of Climate Change Benefits

June 04, 2014

By Ted Gayer & Kip Viscusi
This article reviews the norms for the scope of benefit assessment based on executive orders and the laws governing risk and environmental regulations. Recent assessments of climate change policies have shifted from a domestic to a worldwide benefits approach, leading to a substantial increase in the estimated benefits. In 2010 the Obama Administration's Interagency Working Group on Social Cost of Carbon developed the guidelines that provide the basis for the assessment of the benefits associated with reductions in carbon dioxide emissions. Based on the estimates in one integrated assessment model that permitted a U.S. analysis, the estimate of the average U.S. benefit is about 7 to 10 percent of the global benefit. Alternatively, if one does not rely on a direct benefit estimate but assumes that the domestic share of the benefits is proportional to the current U.S. share of the global GDP, then the domestic benefit is 23 percent of the global benefit. This article reviews specific examples of such practices for energy efficiency regulations and the broader benefit assessment guidelines that have been developed for greenhouse gas initiatives, including the CAFE rule for passenger cars and light trucks, the carbon pollution rule for existing power plants, the clothes dryer rule, and the phase out of general service incandescent lamps.

department of energy

Regressive Furnace Fans

April 16, 2014

By Sofie E. Miller
In October, the U.S. Department of Energy issued a proposed rule setting energy efficiency standards for residential furnace fans. The rule is intended to save consumers money and reduce greenhouse gas emissions. However, the DOE’s use of low discount rates when estimating the benefits of the fans results in a proposed rule that would benefit well-off Americans but harm low- and medianincome households. That raises the question of whether the rule is economically justified and would improve social welfare, as required by law.

Susan Dudley with Senator Lieberman

OSHA’s Long-Awaited Crystalline Silica Rule

April 16, 2014

The Occupational Safety and Health Administration recently sought comment on proposed standards to reduce occupational exposure to respirable crystalline silica. The agency faces multiple challenges in devising a regulatory approach that will meet its statutory goal of reducing significant risk. In a comment filed on the public record, University of Alabama law professor Andrew Morriss and I recognize OSHA’s challenges; however, we find that the greatest obstacle to reducing risks associated with silica exposure is not lack of will (on the part of employers or employees), but rather lack of information. Our analysis concludes that the proposed rule will contribute little in the way of new information and, indeed, may stifle the necessary generation of knowledge by precluding flexibility for experimentation and learning.


Comment on Löfstedt’s ‘The substitution principle in chemical regulation: a constructive critique’

January 02, 2014

By Susan E. Dudley
This commentary on Ragnar Löfstedt’s constructive critique of the substitution principle observes that while the principle is intuitively appealing, it begins to unravel on closer examination. When considering government intervention to effect societal improvements, it is important to be aware of two problems. First, predicting the actual outcome of an intervention is very difficult, and second, people disagree about what constitutes ‘societal improvements’. This commentary examines the substitution principle in light of those problems and offers a set of guiding principles for evaluating and developing alternative policy frameworks that will improve public health and welfare.