Posted by Jonathan Adler:
Revesz on Rehabilitating Cost-Benefit Analysis:
http://volokh.com/archives/archive_2008_05_11-2008_05_17.shtml#1210518408
NYU Law Dean Richard Revesz has written an [1]interesting essay for
Grist arguing that environmentalists should reconsider their
opposition to cost-benefit analysis of regulations. It is based upon
his new book, [2]Retaking Rationality: How Cost Benefit Analysis Can
Better Protect the Environment and Our Health, co-authored with
Michael Livermore. While CBA is largely viewed as an "anti-regulatory"
tool, Revesz argues cost-benefit analysis, if conducted properly, can
support a pro-regulatory environmental agenda. In his view,
environmentalists have been wrong to oppose the use of CBA in
regulatory review, and should now seek to mend, not end, its use in
regulatory policy.
Since Ronald Reagan placed cost-benefit analysis at the center of
his deregulatory agenda in 1981, environmentalists have developed a
strong allergy to economic analysis. They rarely participate in the
debates over how cost-benefit is conducted, and do not place
economic analysis at the center of their arguments for new and
stronger regulation. On the other hand, antiregulatory groups like
trade associations representing industrial polluters and
conservative think tanks have embraced cost-benefit analysis. They
argue that economic analysis shows deregulation is a good thing.
The asymmetry of participation has had several negative
consequences. First, proregulatory interests consistently lose
ground before the courts and OBM, which for nearly three decades
has reviewed all "significant" regulations. Because OMB and the
courts look to cost-benefit analysis, groups that cannot frame
their arguments in economic terms are bound to lose.
Second, cost-benefit itself has become biased against regulation.
It has been shaped by antiregulatory interests with little input
from proregulatory interests, resulting in the adoption of several
flawed techniques that tend to underestimate regulatory benefits
and overestimate regulatory costs.
Finally, proregulatory interests have lost public approval as they
have allowed themselves to be portrayed as extremists in pursuit of
"big government." This loss of public support saps political will
for new and updated regulatory programs.
Environmentalists made a particularly grave error by failing to
advocate for more neutral cost-benefit analysis during the Clinton
administration. When Bill Clinton took office, many expected him to
drop cost-benefit analysis from the process of regulatory review.
Instead, he embraced it, and took some steps to make it more
transparent and fair. Environmentalists had eight years to try and
remove the antiregulatory biases from cost-benefit analysis, but
they let the opportunity pass. I served on an EPA committee charged
with making recommendations about cost-benefit analysis to the
agency, and during all of our meetings -- which were always well
attended by industry groups pushing an antiregulatory agenda --
environmentalist never came. When negotiations are conducted with
an empty chair in the room, it is hardly surprising when the
results come out skewed.
The environmentalist antipathy to cost-benefit analysis is somewhat
ironic because environmentalists once championed the use of CBA for
public works projects. Applying cost-benefit principles to dams,
reclamation projects, and the like, they argued, would reveal these
projects to be as economically wasteful as they were environmentally
harmful. This idea worked for a time, until the Bureau of Reclamation,
Corps of Engineers, and other agencies hired their own economists and
learned to use the process to their advantage.
Revesz is certainly correct that CBA, neutrally applied, is not
inherently "anti-regulation." During the Bush Administration, the
reliance upon CBA led OMB to issue several [3]"prompt letters" urging
agencies to adopt additional regulatory measures that appeared to be
cost-justified. True CBA devotees follow the numbers, not their own
preference for or against regulatory interventions. While CBA is often
used to criticize regulations, in some instances CBA methodology has
an inherently pro-interventionist bias, insofar as it elevates
collective net welfare maximization over consideration of individuals'
subjective value preferences. Just because a given project or
regulation is "net-beneficial" does not mean it makes for good policy.
We also must be wary of overly precise cost-benefit calculations that
understate uncertainties or gloss over the difficulties of quantifying
important variables.
There is little doubt that more complete information about the likely
consequences of government action should improve government
decision-making. Just as the National Environmental Policy Act (NEPA)
can foster improved public decision-making by forcing government
agencies to consider the environmental consequences of their actions,
CBA requirements can foster a more complete consideration, and public
accounting, about the pros and cons of regulation. CBA can inform
public debate, but it cannot resolve all regulatory policy disputes.
Even the best CBA is no substitute for discussion and debate over
competing policy agendas and the normative preferences upon which they
rest.
References
1. http://gristmill.grist.org/story/2008/5/7/23402/33234
2.
http://www.oup.com/us/catalog/general/subject/Politics/AmericanPolitics/PublicPolicy/?view=usa&ci=9780195368574
3. http://www.whitehouse.gov/omb/pubpress/2001-35.html
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