Originally published in The Regulatory Review
Since the Reagan Administration, agencies have used benefit-cost analysis to determine whether a proposed rule will yield net benefits for the public. This not only helps to determine whether to regulate, but also helps courts determine whether an agency considered all relevant factors or made errors in judgment. An important assumption of this practice is that costs and benefits, collectively referred to as “welfare effects,” can be monetized so that conceptually disparate impacts are commensurable. When effects are uncertain or are mediated by factors outside of an agency’s control, a neat-and-tidy benefit-cost estimate is less straightforward.
Agencies have often responded to this methodological challenge by reporting certain effects qualitatively. In a 2025 report to the U.S. Congress, the White House Office of Management and Budget (OMB) noted that of the 30 major non-transfer rules—rules that impact which entities receive federal funds and therefore reallocate welfare, necessarily producing offsetting gains and losses—reviewed by OMB in fiscal year 2023, 36.7 percent did not quantify either costs or benefits.
University of Chicago professors Jonathan S. Masur and Eric A. Posner argue that this lack of quantification “may be leading to both under- and over-regulation,” and in some cases, “agencies may be justifying regulations that do not pass a cost-benefit test on the basis of unquantified benefits, without any way of knowing whether those unquantified benefits exceed the known costs.” Without a commensurable rubric to measure costs and benefits, benefit-cost analysis becomes less reliable as a tool for quantitative evaluation.
This is not to say that all welfare effects are easily monetized. Circular A-4, the guidance document for federal agency regulatory impact analysis, has long acknowledged that some benefits and costs are difficult to quantify and that qualitative descriptions may be appropriate at times. The guidance, however, emphasizes that agencies should monetize effects whenever reasonably possible. The problem is not the existence of qualitative impacts in these analyses, but a failure to take advantage of available empirical evidence when it exists, particularly in cases where agencies explicitly identify economic effects but do not quantify them.