This document discusses the Supreme Court's decision in Michigan v. EPA and argues that the meaning of the cost/rationality nexus established in that case needs clarification. It proposes a conceptual framework that distinguishes between cost determination and cost quantification in regulatory decision making. Cost determination pertains to identifying whose interests should be considered as costs, while cost quantification refers to measuring the magnitude of costs. The authors argue the Court in Michigan conflated these concepts by applying cost quantification logic to the regulatory listing phase, which involves cost determination alone based on statutory rights. Clarifying the difference could improve the rationality of cost consideration in administrative decision making.

1. Why Michigan v. EPA
requires that the meaning of the cost/
rationality nexus be clarified
Daniele Bertolini
Ryerson University – Ted Rogers School of Management
daniele.bertolini@ryerson.ca
Carolina Arlota
University of Oklahoma, College of Law
carolarlota@ou.edu

2. Overview
1. The decision in Michigan v. EPA
´ Cost/rationality nexus
2. Proposed framework of cost/rationality nexus
´ Cost Determination v. Cost Quantification
3. Michigan revisited
´ Court conflated the logic of cost-determination and
cost-quantification

3. 1. Michigan v. EPA
http://www.sierraclub.org

4. Regulatory Process
´ Listing phase:
EPA decides whether to regulate power plants
´ no mention of cost
´ Standard-setting phase:
EPA determines stringency of the standards
´ mention of cost

5. The Decision in Michigan
´ HOLDING:
EPA acted unreasonably in not considering
costs at the listing phase

6. Michigan’s major contribution: cost/rationality
nexus
´ An agency that ignores costs acts arbitrarily
´ The agency must provide reason that
regulation “does more good than harm”

7. Research Issue
´ Why cost consideration must be a requirement
of administrative rationality?
´ How does the practice of cost consideration
improve administrative rationality?

8. 2. Proposed Conceptual
Framework
Cost determination Cost quantification

9. Step. 1 The Nature of Cost
´ Cost is interest-specific:
always defined with respect to someone’s
interests
´ Cost is right specific:
function of the allocation of legal rights

10. Determination
´ Whose interests must be
made a cost to whom
´ It is independent of the
concept of cost – based
on ethical propositions
´ Pertains to: decision
whether to regulate
Quantification
´ How much one set of
interests must be made a
cost to someone else’s
interest
´ It must assume cost-
determination to operate at
all
´ Pertains to: choice between
different levels of protection
Step 2: Determination v Quantification

11. Step 3: Cost/Rationality Nexus
´ At the cost determination stage, cost consideration
improves the rationality of administrative action
inasmuch as it ensures a transparent, accountable
definition of the set of interests.

12. Step 4: Institutional Dimension
´ How decision-making power is allocated across
legal institutions
´ The key variable is the degree of determinacy of
statutory rights

13. 3. Michigan revisited

14. Listing Phase
´ It pertains to cost determination – ‘whose interests
should be made a cost to whom’
´ Cost-determination is unambiguously defined by
the statute
´ EPA must only conduct a factual inquiry into the
concrete sources pollution – i.e., no room for cost-
quantification

15. Listing Phase(Con’t)
´ The SCC mistakenly applied the logic of cost
quantification to the listing phase
´ At the listing phase the relevant question is:
“whether EPA acted consistently with Congress’ cost
determination”
´ Instead, the SCC posed the wrong question:
‘whether regulation does more good than harm’

16. Conclusions
1. Cost/rationality nexus must be examined in light of
the interest- and rights-specific nature of cost
2. Cost consideration enhances rationality by
improving the accountability of the definition of
the set of relevant interests
3. The rationality assessment should distinguish
between cost-determination and quantification
4. In Michigan, the SCC mistakenly applied the logic
of cost quantification to the listing phase

17. Why Michigan v. EPA
requires that the meaning of the cost/
rationality nexus be clarified
Daniele Bertolini
Ryerson University – Ted Rogers School of Management
daniele.bertolini@ryerson.ca
Carolina Arlota
University of Oklahoma, College of Law
carolarlota@ou.edu