Regulatory Costs and Benefits
By Brian Mannix
President Trump’s Executive Order 13771, "Reducing Regulation and Controlling Regulatory Costs," has caused some confusion among the analysts, inside and outside federal agencies, who forecast the economic effects of regulations. Which effects should count as costs and which as benefits? It sounds like it should be an easy question, but it is not. In this Regulatory Insight, Brian Mannix examines some of the obstacles.
By Sofie E. Miller & Daniel R. Pérez
On March 29th, the U.S. Senate Committee on Small Business & Entrepreneurship met to consider legislative reforms that would affect how small businesses confront and shape regulations. This prepared statement for the record focuses on S. 584: Small Business Regulatory Flexibility Improvements Act. The analysis suggests that the Committee should: be careful to avoid the problem of double-counting indirect costs, use an evidence-based regulation framework to strengthen retrospective review, and safeguard against unintentionally reducing the efficacy of the existing Small Business Advocacy Review process.
Public Comment on OMB’s Interim Guidance Implementing Section 2 of the Executive Order Titled “Reducing Regulation and Controlling Regulatory Costs”
By Susan E. Dudley, Brian F. Mannix, Sofie E. Miller, & Daniel R. Pérez
In this comment on the Office of Information and Regulatory Affairs’ (OIRA) interim guidance on Executive Order 13771, GW Regulatory Studies Center scholars acknowledge that the Order represents a significant departure from past practice, however, they emphasize that the additional budgeting constraints it imposes need not supplant longstanding requirements to examine regulatory benefits as well as costs and to achieve regulatory objectives as cost-effectively as possible. The comment reinforces OIRA’s draft questions and answers, and offers some suggestions for clarification and improvement.
by Arthur G. Fraas and Randall Lutter in the Journal of Benefit-Cost Analysis
Government mandates to disclose information are a standard response to problems of asymmetric information. Fraas and Lutter examine recent major U.S. regulations issued between 2008 and 2013 to identify disclosure mandates and look for quantitative assessments of their effectiveness in improving comprehension. The authors find that although mandated disclosures underpin a number of major federal regulatory initiatives, agencies infrequently issue such mandates based on scientifically valid, controlled studies of the improvements in comprehension from such disclosure and recommend reforms to improve federally mandated information disclosure.
By Sofie E. Miller
The Department of Energy’s proposed rule would establish new energy efficiency standards for manufactured housing (formerly known as mobile homes). Due to anticipated price increases, the rule would have a regressive effect on low-income and elderly households, who are the primary occupants of manufactured homes. DOE’s analysis doesn’t take into account resale market obstacles that could prevent homeowners from recouping the higher upfront costs of efficient units, especially in Southern states with high poverty rates that bear the highest costs from the rule.
Structure vs. Process: Examining the Interaction between Bureaucratic Organization and Analytical Requirements
By Stuart Shapiro
Attempts by politicians to control bureaucratic decisions include both structural organization and procedural rules. But how do these interact? This article examines the relationship between bureaucratic structure and the requirement that agencies conduct an analysis of their decisions prior to their issuance in the context of two types of analysis: cost-benefit analysis and environmental impact assessment. The research finds that conduct of analysis is affected by where analysts are placed in agencies. In particular independence of analysts has a tradeoff. Despite this, analysts expressed a clear preference for independence.
By Sofie E. Miller
To improve its ongoing retrospective review efforts, this public comment recommends that the Department of Energy incorporate plans for retrospective review into its economically significant or major rules, and provide enough time between energy efficiency standards to allow for an effective review of each rule before increasing the stringency of its standards. DOE should also consider surveys or other measures of actual consumer behavior to ensure that its assumptions about household appliance energy use are accurate. Finally, DOE should commit to measuring whether its standards negatively affect competition in regulated industries.
By Brian Mannix
The EPA has presented its Environmental Economics Advisory Committee a series of questions that relate to an analytical procedure for estimating the value of statistical lives saved in the future – possibly the distant future – as a result of regulations imposed today. Intertwined with the detailed analytical questions, however, is a fundamental ethical and methodological question: Is it right to force a relatively poor population to pay an inflated price – higher than they are willing to pay to save their own lives – to save the lives of a richer population, on the theory that rich people’s lives are more valuable?
Public Comment on OMB’s 2015 Draft Report to Congress on the Benefits and Costs of Federal Regulations
The Office of Management and Budget’s 2015 Draft Report to Congress provides information on costs and benefits for certain final rules issued between FY 2004 and FY 2014. The Report provides the public valuable information both on estimates of the effects of major executive branch regulations, and also on OMB’s focus and priorities. This comment offers recommendations for improving regulatory impact assessments, writing rules to encourage retrospective review of regulations, and the use of “private benefits” to justify energy efficiency standards.
By Brian Mannix
Choosing regulatory options that maximize net benefits is a sound principle, but it needs to be applied with an appropriate measure of humility. Regulators may be tempted to think that they can use benefit-cost analysis to determine what is “best” for the economy, and then simply mandate it. The collateral damage to competition and innovation can easily turn an otherwise well-intentioned rule into an economic disaster. Regulatory specification of a particular technology can be especially damaging when the technology is proprietary, because then the law may simultaneously lock out competitors and lock in customers.
By Sofie E. Miller
This paper examines the Department of Energy's (DOE) reliance on low discount rates to estimate the benefits of its energy efficiency standards and uses existing literature on implicit consumer discount rates to calculate a range of benefits for DOE’s furnace fan rule. While DOE calculates large net benefits from its energy efficiency rule, using discount rates that better represent average consumer time preferences shows that this standard results in net costs. Furthermore, given the variation in consumer discount rates by income, this standard is effectively a transfer payment from low- and median-income households to high-income households.
By Ted Gayer & Kip Viscusi
This article reviews the norms for the scope of benefit assessment based on executive orders and the laws governing risk and environmental regulations. Recent assessments of climate change policies have shifted from a domestic to a worldwide benefits approach, leading to a substantial increase in the estimated benefits. In 2010 the Obama Administration's Interagency Working Group on Social Cost of Carbon developed the guidelines that provide the basis for the assessment of the benefits associated with reductions in carbon dioxide emissions. Based on the estimates in one integrated assessment model that permitted a U.S. analysis, the estimate of the average U.S. benefit is about 7 to 10 percent of the global benefit. Alternatively, if one does not rely on a direct benefit estimate but assumes that the domestic share of the benefits is proportional to the current U.S. share of the global GDP, then the domestic benefit is 23 percent of the global benefit. This article reviews specific examples of such practices for energy efficiency regulations and the broader benefit assessment guidelines that have been developed for greenhouse gas initiatives, including the CAFE rule for passenger cars and light trucks, the carbon pollution rule for existing power plants, the clothes dryer rule, and the phase out of general service incandescent lamps.
By Sofie E. Miller
In October, the U.S. Department of Energy issued a proposed rule setting energy efficiency standards for residential furnace fans. The rule is intended to save consumers money and reduce greenhouse gas emissions. However, the DOE’s use of low discount rates when estimating the benefits of the fans results in a proposed rule that would benefit well-off Americans but harm low- and medianincome households. That raises the question of whether the rule is economically justified and would improve social welfare, as required by law.
By Sofie E. Miller & Cassidy B. West
The Food and Drug Administration recently extended to November 15 the deadline for public comment on its proposed rule, Standards for the Growing, Harvesting, Packing, and Holding of Produce for Human Consumption. This is the second extension, providing the public an unusually long 304 days to comment on the proposed regulation and offer suggestions for its improvement. It is also a welcome opportunity, as the draft rule does not meet statutory and executive requirements and may needlessly harm consumers as well as small farmers domestically and abroad.
By Susan E. Dudley
Since 1997, the Office of Management and Budget has reported to Congress each year on the benefits and costs of federal regulation. These reports, which generally conclude that the benefits of regulation are an order of magnitude greater than the costs, are used to refute concerns that regulations may be hindering economic growth and to suggest that smart regulation can provide large net economic gains. For example, the Democratic National Committee’s 2012 platform defended President Obama’s regulatory record against Republican criticism by repeating the president’s claim that regulations issued over his first three years produced “more than 25 times the net benefits of the previous administration’s regulations.” The OMB’s draft 2013 report estimates that regulations issued over the last decade have aggregate benefits of between $193 billion and $800 billion, compared to costs ranging from $57 billion to $84 billion.