On Balance: Modernizing Regulatory Review

Modernizing Regulatory Review, a Presidential memorandum published January 20, 2021, serves as a preface to the regulatory policies of the Biden Administration. As such, the memorandum complements three executive orders (E.O 13993: Revocation of Certain Executive Orders Concerning Federal Regulation; E.O. 13990: Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis; and E.O. 13979: Ensuring Democratic Accountability in Agency Rulemaking) that collectively rescind the previous administration’s regulatory policy. The regulatory policy foreshadowed in the memorandum and other documents, however, goes beyond rescinding the Trump administration’s program or restoring previous regulatory regimes.

Modernizing Regulatory Review calls for “improving and modernizing” regulatory review. Regulatory review includes, among other things, the benefit-cost and other analyses that Executive Order 12866 (Regulatory Planning and Review) requires for all significant executive branch regulations; agencies include these analyses in the Regulatory Impact Analyses or Economic Analyses reviewed by the Office of Information and Regulatory Affairs. Regulatory review as now practiced has been in place for 28 years, although there have been occasional hiccups, such as in the last administration when -- most notably -- E.O. 13771 made regulatory costs primary and created new regulatory categories in parallel to existing measures.

The memorandum calls for reform because it finds current regulatory review deeply flawed: “When carried out properly, [regulatory review] can help to advance regulatory policies that improve the lives of the American people.” Regulatory review could of course be done better; benefit-cost analyses do not always follow best practices (Farrow and Viscusi 2011), and the assessment of distributional effects is often spotty.

The memorandum recognizes earlier efforts to address flaws, noting that E.O. 13563 took “important steps” toward modernizing regulatory review. E.O. 13563 re-emphasized the principles of E.O. 12866, with added emphases on retrospective reviews of existing regulations, full assessment of alternative regulatory approaches, and scientific objectivity. Modernizing Regulatory Review does not suggest ways to improve benefit-cost analysis; the only mention of benefits and costs states that analyses must take account of “distributional consequences.”

The values the memorandum identifies include promoting public health, safety, economic growth, social welfare, racial justice, environmental stewardship, human dignity, equity, and the interest of future generations, with others appearing in executive orders. Some of the values could be (as methods develop or data availability expands) newly or more thoroughly incorporated into benefits and costs but the memorandum apparently does not intend for that to happen; the criteria are presented as standing apart from the usual benefit-cost analysis.

What, then, does the memorandum mean for regulatory review? The surprising and unwelcome (to me) conclusion is that Modernizing Regulatory Review implicitly recommends both a reduction in the use of benefit-cost analysis to inform regulatory policy and an increased reliance on qualitative assessments. The memorandum does not explicitly criticize benefits and costs but the almost exclusive emphasis on qualitative effects – most of which can be found in existing guidance and are often included in regulatory reviews – tells me that the reason the memorandum finds regulatory review not “carried out properly” can be traced to distrust of benefit-cost analysis.

Benefit-cost analysis, as based on applied welfare theory, balances the monetary value of gains or benefits (willingness to pay for outcomes such as health, safety, or environmental amenities) against the value of losses or costs (usually compliance costs). As recommended in OMB Circular A-4, “where all benefits and costs can be … expressed in monetary units, benefit-cost analysis provides decision makers with a clear indication of the most efficient alternative.” If non-quantified or non-summable effects are important, reviewers include them in their assessments in some other manner. For example, social welfare, racial justice, social justice, environmental stewardship, human dignity, and various forms of equity often cannot be expressed as monetary benefits or costs, and even where otherwise, the results are not amenable to tallying (Acland 2021).

Why, then, should anyone want to eliminate or handicap benefit-cost analysis ? The memorandum does not say. The values it espouses are all included in E.O 12866 and various guides to regulatory impact analysis. For example, the memorandum states that regulatory reviews should account for new developments in science and economics: benefit-cost regularly does so as both government and private guidance and practices regularly incorporate such developments.

The real objection to benefit-cost may come not from alleged flaws but from the desire to turn away from efficiency and its organizing structure that allows for combining and comparing disparate types of impacts in a manner that is evidence-based and has principles for avoiding double-counting.

If benefit-cost analysis is downgraded or even eliminated from regulatory review, what does the memorandum suggest we do? The memorandum does not spell out an alternative but it might be an economic feasibility analysis combined with qualitative descriptions of the social welfare or other improvements brought about by the regulation. Economic feasibility may be a popular alternative to benefit-cost analysis but conceptual and practical problems make its use problematical (Masur and Posner 2010, Belzer 2020).

If we look at actual regulatory impact analyses and benefit-cost analyses so far in the new administration, we see many rules and regulatory impact analyses. A quick, unscientific look at the current crop not surprisingly reveals that much of it looks like the earlier reviews—namely, traditional benefit-cost analyses dominate. If change comes, it will come later.

One signal of what may come, however, comes from the Occupational Safety and Health Administration’s emergency temporary standard to protect unvaccinated employees of large employers (100 or more employees) from COVID–19 (Federal Register 86, November 5, 2021, p. 61402). The interim final rule requires covered employers to “develop, implement, and enforce a mandatory COVID–19 vaccination policy.” For the vaccination mandate rule, OIRA waived compliance with E.O. 12866 sections 6(a)(3)(B) and (C), which require benefit-cost analysis for significant regulatory actions. The review contained an economic feasibility analysis, with its associated problems. Although E.O. 12866 [section 6(a)(3)(A)] allows the practice, the interim final rule’s waiver on benefit-cost analysis may be a harbinger of things to come under modernized regulatory review.

Acland, Dan. 2021. “What’s In, What’s Out? Towards a Rigorous Definition of the Boundaries of Benefit-Cost Analysis.” Economics and Philosophy, 1-17. doi:10.1017/S0266267120000486.
Belzer, Richard B. 2020. “Achieving Economically Feasible Drinking Water Regulation.” Journal of Benefit-Cost Analysis 11(2):294–318.
Farrow, Scott and Viscusi, W. Kip. 2011. "Towards Principles and Standards for the Benefit-Cost Analysis of Safety." Journal of Benefit-Cost Analysis 2(3), article 5.
Masur, Jonathan and Eric Posner. 2010. "Against Feasibility Analysis." University of Chicago Law Review 77 (2010):657-716.

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