Regulatory impact analyses (RIAs) weigh the benefits of regulations against the burdens they impose and are invaluable tools for informing decision makers. We offer 10 tips for nonspecialist policymakers and interested stakeholders who will be reading RIAs as consumers.1.Core problem: Determine whether the RIA identifies the core problem (compelling public need) the regulation is intended to address.2.Alternatives: Look for an objective, policy-neutral evaluation of the relative merits of reasonable alternatives.3.Baseline: Check whether the RIA presents a reasonable “counterfactual” against which benefits and costs are measured.4.Increments: Evaluate whether totals and averages obscure relevant distinctions and trade-offs.5.Uncertainty: Recognize that all estimates involve uncertainty, and ask what effect key assumptions, data, and models have on those estimates.6.Transparency: Look for transparency and objectivity of analytical inputs.7.Benefits: Examine how projected benefits relate to stated objectives.8.Costs: Understand what costs are included.9.Distribution: Consider how benefits and costs are distributed.10.Symmetrical treatment: Ensure that benefits and costs are presented symmetrically.
Federal regulatory policy and the evaluation of regulations using benefit-cost analysis continue to be quite contentious. Advocates for more regulation claim that benefit-cost analysis loses information and impedes our understanding of the real beneficial consequences of regulatory action. Against this backdrop, economists and advocates of economic analysis have sought to improve the quality and technical content of benefit-cost analysis. This article examines key changes made by the 2003 guidelines in Circular A-4 for regulatory analysis issued by the U.S. Office of Management and Budget in an effort to strengthen such analysis. We discuss the motivation and basis for these changes—the treatment of discount rates and uncertainty and the cost-effectiveness analysis for rules affecting health and safety—and evaluate the U.S. Environmental Protection Agency's response to the A-4 changes in its analysis of environmental rules.
The cost-effectiveness of cap-and-trade emissions regulations has become widely accepted. A 2009 proposal by Muller and Mendelsohn would replace conventional ton-for-ton trading with trading based on estimates of marginal damages by pollutant and by source. This proposal faces difficulties arising from the negative marginal damage estimates--neglected in Muller and Mendelsohn (2009)--for nitrogen oxide (NO x) emissions from many urban counties. Such estimates imply nonconvexities in air chemistry that complicate trading and could result in trades that increase emissions by both buyer and seller. Uncertainty in source-specific damages also creates rent-seeking opportunities and the potential for costly litigation. (JEL H53, Q53, Q58)
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