Header graphic for print
Federal Regulations Advisor Insight and Commentary on U.S. Government Regulatory Affairs

Cost-Benefit Analysis & Political Salience: A Concurring Opinion

Posted in Regulatory Process

A recent post by Stuart Shapiro and John Morall in the University of Pennsylvania’s Penn Program on Regulation, Regblog, highlights the important relationship between the results of economic cost-benefit analysis and the political salience of rules.

Disappointingly to us … agencies do not appear to make better decisions, at least from an economic perspective, when they perform more extensive benefit-cost analyses.

Their post highlights a fundamental proposition:  regulations are the product of a policy decision process, based on a variety of factors, including economics, other disciplines (and possibly lack of discipline), perceived political efficacy, and specific desires to accomplish something.  No single metric requires a policy decision.

Policymakers Decisions.  Focusing on the interrelationship between two of the important, complicated, delicate, and manifold problems of regulatory decisionmaking provides useful research, but the policy decision to promulgate a regulation is the product of much more complicated issues.  Every policy decision reflects to some extent the policymaker’s life experience, including their understanding of economics, politics, psychology, scientific method and its research products, law, and any other discipline to which the policymaker has been exposed.  This experience may be affected by the product of staff research and the regulatory process reflected in the regulatory text, preamble, regulatory impact analysis, regulatory flexibility analysis, privacy impact assessments, and other documents presented to them.

Variants on the Decision Diagram.  Individual disciplines and metrics also do not result in a policy official’s decision – the process is more complicated.  In some instances, the staff generates a proposed regulatory action that is vetted by their political superiors for consistency with the superior’s goals and the President’s program.  In other instances, a problem is identified and the staff, with guidance, generates some solution.  In too many instances, the result is ordained before the proposed rule is published and then justified against the public comments in the final rule.  None of these variants should be surprising; they are all manifestations of an inherently perceptive and intuitive decision, not necessarily a logical or scientific decision.

Reviewing the Decision and the Process.  We rely on familiar judicial review standards to determine whether the regulation is legally sound, whether, for example:

  • the regulator provided adequate public notice and an opportunity for public comment on all substantive elements;
  • the regulator provided a reasoned response to the specific substantive comments;
  • the regulator neglected to assess a statutory obligation or considered factors barred by Congress;
  • the preamble provides a reasoned justification of the regulatory text and the judgments made in the regulatory text;
  • the regulator made reasonable estimates and assumptions, and cumulated them reasonably;
  • the regulator reasoned consistently in estimating elements; or
  • the final rule is a logical outgrowth of the proposed rule.

Economic, scientific, and other analyses that are part of the regulatory process are reviewed under the same standards.

Better Decisions.  Like Shapiro and Morall, I, too, am disappointed that better analysis apparently does not lead to “better” decisions.  Cross-regulatory research and empirical studies, undertaken by experienced and knowledgeable scholars, are worthwhile, and we must appreciate that the tranches of research reflect part of the vagaries of the whole of the decision-making process.

Ultimately, the substantive soundness of a rulemaking is initially determined by appointees and then judged in a court of public and political opinion.  Hopefully appointees will be informed by the value of analysis, whether economic, scientific, or otherwise.

Better analysis may assist, but judgment remains judgment and judicial review may provide the ultimate recourse.