Perspectives on the Conduct and Use of Economic Analysis in Federal Environmental Decisionmaking

Abstract

This article lays out the broad rationale for conducting economic analyses of major environmental regulations—principally, benefit-cost analysis—as well as some of the pertinent critiques. What can public agencies expect to gain from such activities? What are the reasons to be wary of the results? The paper reviews the recent experience of the federal government in conducting such analyses, with particular reference to the relevant Presidential Executive Orders issued over the past three decades. Finally, the paper examines some of the key methodological issues, often involving interdiscripliary topics, critical to the conduct of such analyses. Overall, it is concluded that the economic analysis of proposed environmental regulations can help improve the allocation of society's resources while at the same time engendering an understanding of who benefits and who pays for any given regulatory action. Additionally, properly conducted economic analyses encourage transparency and accountability in the decisionmaking process, provide a framework for consistent data collection and identification of gaps in knowledge, and allow for the aggregation of many dissimilar effects (e.g., those on health, visibility, and crops) into one measure of net benefits expressed in a single currency.