On Balance: Prospects for Regulatory Analysis in the Biden Administration

President Biden's regulatory-reform calls for an updating of OMB Circular A-4, the obscure technical guidance that governs how regulatory agencies perform benefit-cost analysis (BCA) and how OMB reviews agency analyses.  Here are some issues ripe for reconsideration, as A-4 has not been updated since 2003.



  1. How should BCA incorporate concerns about distributional equity? When the Kaldor-Hicks efficiency test was proposed in the 1930s, critics argued that it should be accompanied by a distributional equity test.  That never happened but BCA flourished any way.  There are simple and complex ways to address this difficult issue, but modernization is long overdue.  OMB could focus on whether rules are good or bad for low-income Americans, or OMB could follow the efforts of some European countries that tried weighting functions for different groups.
  2. What rates of discount should be applied to future benefits and costs compared to impacts that occur today? The case for discounting is the same today as it was in 2003 but the specific rates recommended by OMB in 2003 (3% and 7%) should be updated based on the best available evidence. The interest-rate environment today is completely different than it was decades ago. Intergenerational issues also merit a new look, given the tremendous amount of scholarship written on the subject.
  3. What willingness-to-pay values should be used for prevention of premature death, injury and illness? Most agencies are currently using outdated values that are uniform, without regard to regulatory context or known variations in consumer preferences.  And much more focus is needed on valuation of nonfatal health impacts and ecological values.  
  4. How should double counting of benefits and costs, some which occurs due to unrealistic baselines, be addressed in OMB's new guidance? Some agencies continue to utilize unrealistic baselines that do not incorporate up-to-date forecasts of market developments and evolution of related state and federal regulatory programs.  Double counting can occur when more than one program addresses the same problem.  The most recent regulatory analysis of Corporate Average Fuel Economy standards by NHTSA ignored the state-level Zero-Emission Vehicle (ZEV) programs led by California.
  5. What are the special challenges that occur when performing retrospective BCA? OMB Circular A-4 focuses primarily on ex ante BCA but agencies also seek guidance on how to perform BCA after a regulation has been adopted and implemented. Agencies would welcome guidance from OMB on how to structure a new regulation so that necessary information can be collected on its effectiveness, side effects, costs and benefits.  The conceptual issues are the same but, when a new rule is drafted, the agency is in an ideal position to set in motion the data-collection efforts necessary to inform retrospective analysis.
  6. What process should be used to amend A-4? Much of A-4 is fine as it is.  Preparing an improved version will not be an easy task.  Consulting with experts inside and outside of government is crucial, as is an open, public participation process.  It is particularly important that OIRA subject its revised version of A-4 to independent peer review by qualified experts, and then explain in the final Circular how they have addressed the comments of independent reviewers.
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