Comments on the 2001 Draft Report to Congress on the Costs and Benefits of Federal Regulations

Abstract

OMB-overseen regulatory cost-benefit analysis (CBA) requirements distort the regulatory decision-making process in ways that cause serious harm to public health, safety and the environment. The methodologies used in these analyses are fatally flawed. In general, no real effort is made to measure changes in consumer and producer surplus; instead, industry estimates of compliance costs are compared with poorly-monetized and incomplete estimates of a portion of expected short-term regulatory benefits, with long-run benefits disappearing due to overzealous discounting. For example, society’s willingness-to-accept (WTA) environmental and other regulated risks is generally considered by welfare economists to be the best measure of the value of risk regulation. By relying on willingness-to pay (WTP) estimates — which are generally a small fraction of WTA estimates — regulatory CBAs systematically understate the value of environmental, health and safety goods. In addition, although experts disagree over whether all goods properly may be discounted, to the extent that an academic consensus with respect to discounting intergenerational, nonmarket goods can be said to exist, the consensus is to use a much lower rate than seven percent. Use of the seven-percent discount rate significantly undervalues all benefits that are expected to accrue in the future, and thus seriously distorts evaluation of the benefits of public protection. In application, a seven-percent discount rate means that saving a single life this year will be considered more valuable to society than saving ten lives thirty-five years from now. This simply does not reflect our actual preferences as a nation that cares about its children. Finally, regulatory CBA gives equal weight to monetized goods no matter to whom they accrue. This makes it impossible for the promotion of justice, fairness, and equity — goods that are often among the intended goals of the statutes agencies operationalize — to receive any weight in the analysis whatsoever. Proposals to add distributional weights to CBA (or to otherwise adjust CBA practice to accommodate agency efforts to uphold principles) have been repeatedly rejected.