Report to Congress on the Costs and Benefits of Federal Regulations

Chapter IV.

This report is to include "recommendations from the Director of OMB and a description of significant public comments to reform or eliminate any Federal regulatory program or program element that is inefficient, ineffective, or is not a sound use of the Nation's resources" (Section 645 (a)(4)). As indicated in the Introduction, we solicited comment on a wide range of issues related to our discussion of the methodology we used in evaluating total annual benefits and costs of Federal regulatory programs; estimates of the benefits and costs of "economically significant" or "major" rules; and direct and indirect impacts of Federal rules on the private sector and governmental bodies. We also sought comment on regulatory programs or program elements that are "inefficient, ineffective, or . . . not a sound use of the Nation's resources."
As we indicated in Chapter II, the current state of knowledge of benefits and costs of Federal regulatory programs is limited, although growing. While some aggregate estimates of the benefits and costs of Federal regulations have been made based on adding the results from various studies, these aggregate estimates are best viewed as valiant first attempts to summarize existing knowledge. They may also be viewed as general indicators of the importance of regulation to the American people and to the economy, but not as guides to specific regulatory reforms.
Although many difficult methodological problems have yet to be solved, we presented in Chapter II our own aggregate estimates of the costs and benefits of regulation to further the discussion and generate comments that we hope will lead to better estimates. We do not, however, believe that the existing evidence on aggregate costs and benefits rises to the level that would support a recommendation to eliminate any regulatory program. Virtually all of the evidence discussed above is based either on dated studies of existing regulations or on estimates for proposed regulations. These data are not appropriate for determining whether existing regulations should be repealed or significantly modified because of the sunk cost and rising baseline problems discussed above. Before supportable recommendations are made to eliminate existing regulatory programs or elements of programs, empirical evidence based on analytical techniques designed to solve the methodological problems discussed above must be developed.
Chapter III points out that we also need better evidence for determining whether proposed regulations are cost-effective and produce the greatest net benefits. Agencies have had difficulties generating sufficient data to make these determinations for individual regulations. In some instances, there are significant technical problems to assessing costs and, in particular, benefits. In other instances, the ability of the government to conduct analysis is limited by factors that direct use of limited agency resources -- for example, statutory and judicial deadlines -- forcing agency action within time frames that preclude adequate analysis. In some other instances, it is not at all clear that given limited financial and human resources, additional analysis would be useful. Finally, there are occasionally emergencies that demand swift federal action, where the public expect their elected officials to respond as best they can without the delay that careful analysis would entail.
In summary, based on our discussion and findings in chapters I, II and III above, we see three major themes:
  • Our estimates of the total costs and benefits of regulation in the $300 billion (4 % of GDP) range clearly indicate that regulation is important in providing both health, safety, and environmental benefits and a well functioning economy.
  • It is very difficult to draw strong conclusions about how to improve regulatory policy from macro data on benefits and costs. Micro data on individual regulations are needed.
  • Although considerable progress has been made in providing micro data in advance of regulatory proposals and in developing best practice guidance, further progress is needed to continue improving regulatory decisions. Specifically, we need to ensure that the quality of data and analysis used by the agencies improves, that standardized assumptions and methodologies are applied more uniformly across regulatory programs and agencies, and that data and methodologies designed to determine whether existing regulations need to be reformed is developed and used appropriately.
To improve the quality of data and analysis on individual regulations and on regulatory programs and program elements as a first step toward developing the evidence needed to propose major changes in regulatory programs, we recommend that:
  • OIRA lead an effort among the agencies to raise the quality of agency analyses used in developing new regulations by promoting greater use of the Best Practice guidelines and offering technical outreach programs and training sessions on the guidelines.
  • An interagency group subject a selected number of agency regulatory analyses to ex post disinterested peer review in order to identify areas that need improvement and stimulate the development of better estimation techniques useful for reforming existing regulations.
  • OIRA continue to develop a data base on benefits and costs of major rules by using consistent assumptions and better estimation techniques to refine agency estimates of incremental costs and benefits of regulatory programs and elements.
  • OIRA continue to work on developing methodologies appropriate for evaluating whether existing regulatory programs or their elements should be reformed or eliminated using its Best Practices document as the starting point.
  • OIRA work toward a system to track the net benefits (benefits minus costs) provided by new regulations and reforms of existing regulations for use in determining the specific regulatory reforms or eliminations, if any, to recommend.
Regulation and regulatory reform have the potential to do much good for society or much harm. The key to doing the former is having the information and analysis necessary for wise decision-making. The steps outlined above are aimed at continuing our efforts to improve our ability to make better regulatory decisions.
Chapter 3 Table of Contents Appendix

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