Decision-Making 101:
Regulatory Impact Analysis
Jerry Ellig
Senior Research Fellow
Mercatus Center at George Mason Univers...
Key Steps in Regulatory Analysis
1. Assess evidence of market failure or other
systemic problem
2. Identify regulatory and...
In Plain English …
1. What’s the problem and what caused it?
2. What are the alternative solutions?
3. What will each solu...
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...
Why Does Good Cost Analysis Matter?
TSA Budget
$4.3 billion (2005)
Reduced air travel
Increased waiting time
Increased fat...
www.mercatus.org/reportcards
Why Are We Doing This Project?
1) Agency accountability
2) Better analysis likely means bette...
1) Six criteria from E.O. 12866 and Circular A-4
2) Proposed “economically significant” regulations
3) Team of economists
...
1. Systemic Problem: How well does the analysis identify
and demonstrate the existence of a market failure or other
system...
Scoring Criteria (cont.)
4. Costs: How well does the analysis assess costs?
5. Use of Analysis: Does the proposed rule or ...
Evaluation Scale
5 Complete analysis of all or almost all
aspects, with one or more “best
practices”
4 Reasonably thorough...
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)...
Use of analysis poorly explained
Research findings
• Little difference in average quality of analysis between
administrations
• Lower-quality analysis come...
Research findings (cont.)
• Securities and Exchange Commission has worse analysis
than executive branch agencies
• Interim...
Potential regulatory reforms
• Require Regulatory Impact Analysis by law
• Judicial review
• Quality of analysis
• Was use...
Why does it matter?
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Decision-Making 101: Regulatory Impact Analysis

  1. 1. Decision-Making 101: Regulatory Impact Analysis Jerry Ellig Senior Research Fellow Mercatus Center at George Mason University Arlington, Virginia USA
  2. 2. 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 alternatives 4. Assess costs of alternatives
  3. 3. 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?
  4. 4. Why Does Analysis of the Problem Matter? USDA catfish reg. Vs. DOI bird hunting reg.
  5. 5. Why Do Alternatives Matter?
  6. 6. 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
  7. 7. 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)
  8. 8. 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
  9. 9. 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
  10. 10. 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
  11. 11. 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?
  12. 12. 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
  13. 13. Average 2008-12: 15.4 points (51%) Highest Possible Score = 30 points Best score ever: A 28/30 points (93%)
  14. 14. Average scores
  15. 15. 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
  16. 16. Use of analysis poorly explained
  17. 17. 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
  18. 18. 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
  19. 19. 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
  20. 20. Why does it matter?
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