Regulatory Analysis and Regulatory Reform

November 29, 2011

Congress and the executive branch have attempted to improve the quality of regulatory decisions by adopting several laws and executive orders.  These laws and orders require agencies to follow a system of decision-making that is meant to optimize policies and ensure that they will address their tailored problems, all while minimizing costs: identify the root cause of a problem, define the goal to be achieved, establish a list of possible means of attaining the goal, assess the benefits and costs of each option, and select the policy that maximizes benefits over costs.  Yet, despite the logical coherence of this process and its ability to bring about sound regulatory policy, federal agencies have consistently ignored this call and circumvented this system, say Jerry Ellig and Sherzod Abdukadirov of the Mercatus Center.

A research team recently evaluated economically significant regulations from the years 2008 and 2009 (spanning administrations) on 12 criteria to assess the degree to which the acting agency followed the aforementioned process.  The criteria fall into three broad categories: openness (can interested citizens find the analysis and understand it?), analysis (does the analysis define and measure the outcomes or benefits the regulation seeks to provide?) and use (how much did the analysis affect decisions in the proposed rule?).

Scoring each policy on each of the 12 criterions with a maximum of 60 points possible, the research team found that regulatory policies consistently perform poorly, and that this poor performance spanned administrations.

  • The average score for regulations proposed in 2008 and 2009 was virtually the same -- about 27 points out of a possible 60.
  • The highest-scoring regulation was in 2009 with a score of 48 out of 60.
  • For budget regulations, which often fail to follow the established guidelines, it was found that they score an average of 40 percent to 47 percent lower than non-budgetary regulations.

That these problems persist between administrations, and that federal agencies fail to follow protocols regardless of the party in the White House, suggests that true institutional reform is necessary to rein in regulatory agencies.  Particularly, they ought to ensure the independence of economists in assessing options and collect post-regulation data to measure success.

Source: Jerry Ellig and Sherzod Abdukadirov, "Regulatory Analysis and Regulatory Reform," Mercatus Center, November 2011.

 

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