Improvements in SEC Economic Analysis

After Business Roundtable: A Structured Assessment
August 20, 2020

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Published in the Florida State University Business Review, Volume 19, Spring 2020


Several D.C. Circuit decisions that remanded regulations to the Securities and Exchange Commission (SEC) between 2005 and 2011 provide a natural experiment that permits researchers to identify the correlation between judicial review, the quality of regulatory agencies’ economic analysis, and its use in regulatory decisions. SEC economic analysis improved substantially following the issuance of new staff guidance on economic analysis in 2012. Improvement occurred on all major elements that the guidance identified as important. The improvement occurred both on criteria that address “conceptual” economic analysis and on criteria that require quantification of benefits or costs to receive full credit. Although substantial room for improvement still exists, the court decisions appear to have motivated the SEC, in just a few years, to close the gap between the quality of its economic analysis and the average quality of economic analysis produced by executive branch agencies. This result holds implications not just for the debate about SEC economic analysis but also for the broader debate over the relationship between judicial review and regulatory impact analysis. It suggests that judicial review is likely to have a salutary effect on the quality of agency economic analysis.