Regulating Agencies: Using Regulatory Instruments as a Pathway to Improve Benefit-Cost Analysis

February 18, 2020

Christopher Carrigan, Mark Febrizio, & Stuart Shapiro

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Originally published by the C. Boyden Gray Center for the Study of the Administrative State.

Abstract                                               

Scholars of regulation generally view the procedures that agencies must follow when promulgating rules as instruments by which political principals control bureaucratic agents. Much like political principals attempt to use procedural checks to constrain regulatory agencies’ actions, these same agencies employ various regulatory instruments to influence the decisions of private agents, especially firms. Despite the parallel nature of these principal-agent problems, few studies, if any, have looked at whether lessons from one can be used to inform the other. In this paper, we draw analogies between benefit-cost analysis (BCA)—a procedural control employed in the regulatory process—and three regulatory instruments that have similarities to BCA—performance standards, information disclosure requirements, and management-based regulation. We use lessons from research on the effectiveness of regulatory instruments to make predictions regarding the efficacy of BCA in various situations. Just as different regulatory instruments are appropriate for different regulatory contexts, the pathways by which BCA attempts to encourage better regulation may not all be applicable in every circumstance. We argue that such mutual exclusivity should inform how requirements for BCA are designed and that BCA’s emphasis on systematic analysis—the pathway most closely resembling management-based regulation—may offer the most promise for encouraging better rules.