Decision-Making 101: Regulatory Impact Analysis

1. Decision-Making 101:
Regulatory Impact Analysis
Jerry Ellig
Senior Research Fellow
Mercatus Center at George Mason University
Arlington, Virginia USA

3. Key Steps in Regulatory Analysis
1. Assess evidence of market failure or other
systemic problem
2. Identify regulatory and non-regulatory
alternatives
3. Assess benefits of alternatives
4. Assess costs of alternatives

4. In Plain English …
1. What’s the problem and what caused it?
2. What are the alternative solutions?
3. What will each solution accomplish?
4. What does each solution require us to give
up?

5. Why Does Analysis of the Problem Matter?
USDA catfish reg. Vs. DOI bird hunting reg.

6. Why Do Alternatives Matter?

7. Why Does Good Benefit Analysis Matter?
FDA proposed animal food rule:
$13-17 million benefits, $87-129 million costs
Apply to pet food only:
$12-15 million benefits, $6-9 million costs

8. Why Does Good Cost Analysis Matter?
TSA Budget
$4.3 billion (2005)
Reduced air travel
Increased waiting time
Increased fatalities due to
substitution from flying to driving
$2.35 billion (2005)
$2.76 billion (2005)
116 individuals (4th
Quarter 2002)

9. www.mercatus.org/reportcards
Why Are We Doing This Project?
1) Agency accountability
2) Better analysis likely means better rules
3) Academic research
4) Stakeholder participation

10. 1) Six criteria from E.O. 12866 and Circular A-4
2) Proposed “economically significant” regulations
3) Team of economists
4) Read RIA and entire Federal Register preamble
5) Qualitative evaluation with numerical scores
6) 2008 to present
Project Description

11. 1. Systemic Problem: How well does the analysis identify
and demonstrate the existence of a market failure or other
systemic problem the regulation is supposed to solve?
2. Alternatives: How well does the analysis identify and
analyze alternative approaches?
3. Benefits (or Other Outcomes): How well does the
analysis identify the benefits or other desired outcomes
and demonstrate that the regulation will achieve them?
Scoring Criteria

12. Scoring Criteria (cont.)
4. Costs: How well does the analysis assess costs?
5. Use of Analysis: Does the proposed rule or the RIA
present evidence that the agency used the Regulatory
Impact Analysis in any decisions?
6. Cognizance of Net Benefits: Did the agency maximize
net benefits (benefits-costs) or explain why it chose
another alternative?

13. Evaluation Scale
5 Complete analysis of all or almost all
aspects, with one or more “best
practices”
4 Reasonably thorough analysis of
most aspects and/or shows at least
one "best practice"
3 Reasonably thorough analysis of
some aspects
2 Some relevant discussion with some
documentation of analysis
1 Perfunctory statement with little
explanation or documentation
0 Little or no relevant content
6 criteria
0-5 points each
Total Score: 0-30 points

14. Average 2008-12:
15.4 points (51%)
Highest Possible Score = 30 points
Best score ever: A
28/30 points (93%)

15. Average scores

16. Average Scores by criterion (2008-2012)
Criteria Score*
Systemic problem 2.1
Alternatives 2.8
Benefits (or other
outcomes)
3.2
Costs 2.5
Use of analysis 2.2
Cognizance of net
benefits
2.5
* Scores out of 5 possible points

17. Use of analysis poorly explained

18. Research findings
• Little difference in average quality of analysis between
administrations
• Lower-quality analysis comes from agencies whose policy
preferences (ideologies) are closer to the administration’s
• “Midnight” regulations and regulations left for the next
administration to finalize have worse analysis
• Agencies are more likely to claim they used an analysis if its
quality is higher

19. Research findings (cont.)
• Securities and Exchange Commission has worse analysis
than executive branch agencies
• Interim final rules that implement presidential priorities have
worse analysis (early DHS and early ACA)
• Longer OIRA review is associated with higher-quality
analysis
• Many proposed regulatory process reforms would likely
generate better analysis

20. Potential regulatory reforms
• Require Regulatory Impact Analysis by law
• Judicial review
• Quality of analysis
• Was use of analysis explained?
• Require publication of analysis for comment before
proposed regulation is written

21. Why does it matter?