Reply Comment on Benefit-Cost Analysis at the STB

March 19, 2020

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On November 4, 2019, the STB solicited further information from the public about specific methods that could be used for benefit-cost analysis of rules related to economic regulation of freight railroads. Most commenters who expressed a view appear to agree that what they really mean by the term “benefit-cost analysis” is the broader framework known as regulatory impact analysis: assessment of the nature and significance of the problem the regulation seeks to solve, development of alternative solutions, and assessment of the benefits and costs of alternatives. Several also implied that distributional analysis is important for STB rules, since the rules can generate substantial wealth transfers between railroads and shippers.

Beyond these broad areas of agreement lie several points of disagreement and several points that simply deserve clarification. This reply comment addresses the following points:

1. Economic logic and empirical studies demonstrate that benefit-cost analysis is no more difficult for economic regulations than for other types of regulation. Really.

2. The perfect need not be the enemy of the good. The best analytical practice for benefit-cost analysis is to quantify and monetize benefits and costs that can be quantified and monetized, explain any uncertainties associated with these estimates, and explain the reasons any significant benefits or costs are not quantified.

3. It is more consistent with OMB practice to vary the extent of the analysis based on the importance of the regulation, rather than establishing a single threshold that determines whether a regulation receives any benefit-cost analysis.

4. The analysis is not the decision. Because the STB is subject to statutory goals other than economic efficiency, a simple decision rule like “regulate only if benefits exceed costs” is not appropriate. Nevertheless, the STB should conduct benefit-cost analysis so it is aware of the tradeoffs involved when it pursues other goals.

5. The STB need not choose between halting ongoing proceedings while it develops its approach to benefit-cost analysis or making no analytical improvements in ongoing proceedings. The Federal Communications Commission (FCC) faced a similar transition problem in 2017-2018, and the FCC’s economists found ways to improve benefit-cost analysis in ongoing proceedings without creating substantial delay.