Behavioral Economics and Regulation

pedestrians

Utilizing Behavioral Insights (without Romance): An Inquiry into the Choice Architecture of Public Decision-Making

October 19, 2016

By Adam C. Smith
To justify regulations that reduce consumer choice, policymakers are increasingly relying on observations from behavioral economics suggesting that people don’t always make rational decisions. However, behavioral economists generally neglect a complementary examination of public decision-makers. Through a public choice lens, Smith compares two public agencies influenced by behavioral economics, the U.S. CFPB and U.K Behavioral Insights Team, and finds that their different institutional structures lead to divergent policy outcomes. He concludes that for policies to be welfare-improving, they must be based on an understanding of public choice architecture as well as private choice architecture.

Nudge Theory

One Standard to Rule Them All: The Disparate Impact of Energy Efficiency Regulations

October 12, 2016

Chapter by Sofie E. Miller and Brian F. Mannix
Federal regulations restrict the energy that everyday products can use, for everything from cars to microwaves. While these rules impose significant costs on consumers, the benefits are harder to identify. Agencies claim that restricting consumers’ choices provides consumers with large benefits, but this reasoning is hard to reconcile with the fact that consumers have many legitimate reasons to prefer the appliances they buy and the cars they drive. This chapter explores the reasoning behind energy efficiency regulations and why these reasons are insufficient to support the large costs they impose on consumers, especially low-income consumers.

Graph

Whose Benefits Are They, Anyway? Examining the Benefits of Energy Efficiency Rules 2007 - 2014

September 02, 2015

By Sofie E. Miller
Over the past decade, regulations setting energy efficiency standards have proliferated. These rules account billions of dollars in annual regulatory benefits, but the Department of Energy relies on private benefits and benefits to residents of other countries to justify the standards, contrary to typical benefit-cost analyses. This paper examines the composition of benefits resulting from DOE’s energy efficiency rules 2007 – 2014, and finds that these rules don’t pass a traditional cost-benefit test when relying on traditional analytical assumptions.

JPAM journal cover

Point/Counterpoint: Valuing Internalities in Regulatory Impact Analysis

May 13, 2015

By Brian Mannix & Susan Dudley
In this Point/Counterpoint article series with Cass Sunstein & Hunt Allcott, Mannix & Dudley argue that allowing regulators to control consumers 'for their own good' – based on some deficiency in the consumers themselves rather than any failure in the marketplace – is to abandon any serious attempt to keep regulatory policy grounded in any objective notion of the public good.

washington dc

(Mis)Applications of Behavioral Economics to Regulation: The Importance of Public Choice Architecture

August 01, 2011

By Adam Smith
In this paper, I evaluate the recent promotion of libertarian paternalism as a viable means of coordinating market activities. In doing so, I challenge the notion that “anti-antipaternalism” logically follows from the findings in behavioral economics. For behavioral economic policy to be effective, advocates must show how policy will be rendered effectively through public institutions. I argue that the central dilemma of the field of behavioral law and economics is that it lacks analysis of the public choice architecture within which the improvement of private choice architecture would take place. Without an accompanying theory of the public institutions by which behavioral economic policy will be implemented, the
promotion of these types of policy prescriptions is premature.