Decision-Making 101:Regulatory Impact Analysis

Jerry ElligSenior Research Fellow

Mercatus Center at George Mason UniversityArlington, Virginia USA

Key Steps in Regulatory Analysis

1. Assess evidence of market failure or other systemic problem

2. Identify regulatory and non-regulatory alternatives

3. Assess benefits of alternatives4. Assess costs of alternatives

In Plain English …

1. What’s the problem and what caused it?2. What are the alternative solutions?3. What will each solution accomplish?4. What does each solution require us to give

up?

Why Does Analysis of the Problem Matter?

USDA catfish reg. Vs. DOI bird hunting reg.

Why Do Alternatives Matter?

Why Does Good Benefit Analysis Matter?

FDA proposed animal food rule:$13-17 million benefits, $87-129 million costs

Apply to pet food only:$12-15 million benefits, $6-9 million costs

Why Does Good Cost Analysis Matter?TSA Budget $4.3 billion (2005)

Reduced air travel

Increased waiting time

Increased fatalities due to substitution from flying to driving

$2.35 billion (2005)

$2.76 billion (2005)

116 individuals (4th Quarter 2002)

www.mercatus.org/reportcards

Why Are We Doing This Project?

1) Agency accountability

2) Better analysis likely means better rules

3) Academic research

4) Stakeholder participation

1) Six criteria from E.O. 12866 and Circular A-4

2) Proposed “economically significant” regulations

3) Team of economists

4) Read RIA and entire Federal Register preamble

5) Qualitative evaluation with numerical scores

6) 2008 to present

Project Description

1. Systemic Problem: How well does the analysis identify

and demonstrate the existence of a market failure or other

systemic problem the regulation is supposed to solve?

2. Alternatives: How well does the analysis identify and

analyze alternative approaches?

3. Benefits (or Other Outcomes): How well does the

analysis identify the benefits or other desired outcomes

and demonstrate that the regulation will achieve them?

Scoring Criteria

Scoring Criteria (cont.)

4. Costs: How well does the analysis assess costs?

5. Use of Analysis: Does the proposed rule or the RIA

present evidence that the agency used the Regulatory

Impact Analysis in any decisions?

6. Cognizance of Net Benefits: Did the agency maximize

net benefits (benefits-costs) or explain why it chose

another alternative?

Evaluation Scale

5 Complete analysis of all or almost all aspects, with one or more “best practices”

4 Reasonably thorough analysis of most aspects and/or shows at least one "best practice"

3 Reasonably thorough analysis of some aspects

2 Some relevant discussion with some documentation of analysis

1 Perfunctory statement with little explanation or documentation

0 Little or no relevant content

6 criteria

0-5 points each

Total Score: 0-30 points

Average 2008-12:

15.4 points (51%)

Highest Possible Score = 30 points

Best score ever: A

28/30 points (93%)

Average scores

Average Scores by criterion (2008-2012)Criteria Score*

Systemic problem 2.1

Alternatives 2.8

Benefits (or other outcomes)

3.2

Costs 2.5

Use of analysis 2.2

Cognizance of net benefits

2.5

* Scores out of 5 possible points

Use of analysis poorly explained

Research findings

• Little difference in average quality of analysis between administrations

• Lower-quality analysis comes from agencies whose policy preferences (ideologies) are closer to the administration’s

• “Midnight” regulations and regulations left for the next administration to finalize have worse analysis

• Agencies are more likely to claim they used an analysis if its quality is higher

Research findings (cont.)

• Securities and Exchange Commission has worse analysis than executive branch agencies

• Interim final rules that implement presidential priorities have worse analysis (early DHS and early ACA)

• Longer OIRA review is associated with higher-quality analysis

• Many proposed regulatory process reforms would likely generate better analysis

Potential regulatory reforms

• Require Regulatory Impact Analysis by law

• Judicial review

• Quality of analysis

• Was use of analysis explained?

• Require publication of analysis for comment before proposed regulation is written

Why does it matter?