FCC’s Proposed Rule: Restoring Internet Freedom

July 11, 2017

Gerald Brock, Ph.D.

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This comment responds to the request in paragraphs 105-115 of the NPRM for comment on performing a cost-benefit analysis and following the guidelines contained in Office of Management and Budget’s (OMB) Circular A-4. In summary, I argue below that it is desirable to try to perform a Regulatory Impact Analysis in accordance with the established procedures of OMB Circular A-4 and Executive Order 12866. The Federal Communications Commission (FCC) has sometimes in the past followed key elements of that guidance in its own choice of methods of  analysis but it is useful to explicitly follow the guidance or explain why portions of it are inapplicable.

The FCC Should Perform a Regulatory Impact Analysis

As an independent regulatory agency, the FCC is not required to perform a Regulatory Impact Analysis (RIA) of major regulations but it is desirable to do so voluntarily because RIAs have become the standard method of ensuring careful analysis of proposed regulations. The OECD states:

Regulatory Impact Analysis (RIA) is a systemic approach to critically assessing the positive and negative effects of proposed and existing regulations and non-regulatory alternatives. As employed in OECD countries it encompasses a range of methods. It is an important element of an evidence-based approach to policy making.

OECD analysis shows that conducting RIA within an appropriate systematic framework can underpin the capacity of governments to ensure that regulations are efficient and effective in a changing and complex world. Some form of RIA has now been adopted by nearly all OECD members, but they have all nevertheless found the successful implementation of RIA administratively and technically challenging.

Similarly, a group of nineteen RIA experts convened by GW’s Regulatory Studies Center states:

Regulatory impact analysis (RIA) weights the benefits of regulatory proposals against the burdens they impose. Even regulatory policies that are ultimately decided on political, legal, ethical, or other grounds will benefit from the structured evaluation of tradeoffs and alternatives that a good RIA provides…

In the United States, presidential executive orders for more than 35 years have required agencies to conduct RIAs before issuing economically significant regulations, and to rely on those analyses in designing regulations. In the simplest terms, the goal of regulatory impact analysis is to present information to decision makers to help them ensure that proposed regulations do more good than harm. Presidential Executive Orders 12866 (1993) and 13563 (2011) set  long-established principles of good regulatory decision-making, and the Office of Management and Budget’s (OMB’s) Circular A-4 (2003) provides detailed guidance for developing RIAs.

As discussed below, an RIA can strengthen the analytic foundation of a change in regulation even when it is difficult to predict and quantify the effects of the change. The procedures developed over many years and political administrations in the U.S. and other OECD countries provide a useful guide to what constitutes rigorous analysis of a proposed regulatory change. Those procedures can be helpful in improving regulation even when not required or when not all of the components can be carried out.

Three components of the guidelines help provide analytical rigor even when it is difficult to quantify the costs and benefits. First, the guidelines require a clear statement of the need for the proposed action and limit the justification to specific categories such as clearly identified market failure or other compelling social needs. The presumption is that regulation should not be added to a market that is functioning reasonably well. Second, the agency needs to present evidence that the actions required under the rule will have a causal relationship to solving the identified problem. It is often easier to identify a problem than to find specific regulations that will solve that problem. Nobel prize economist Oliver Williamson has developed the “remediableness criterion” to distinguish problems that can be solved with government intervention from those for which intervention is unlikely to be effective.  Third, the agency needs to show that it has considered a variety of possible solutions to the identified problem and has chosen the particular form of regulation that will generate the greatest net benefits.