Regulatory Alternatives: Best and Worst Practices

March 1, 2012

Proposals for regulatory action have for the past three decades been required to undergo substantial vetting before they could be considered for implementation, say Jerry Ellig and James Broughel of the Mercatus Center.

However, studies by the Mercatus Center, which score regulations 0-5 for the agencies' thoroughness in evaluating alternatives, have found that the regulation vetting process is rarely fully performed.  In recognition of this fact, the Center has created a list of best and worst practices for agencies in creating new rules.  First, numerous alternatives must be considered for every proposed course of action.

  • Seven regulations out of 87 scored a zero on this criterion in 2008 and 2009, meaning they did not identify any alternatives to the proposed regulation.
  • The Department of Energy in one case stated that it considered a number of options, but fails to state what those options were.
  • To reverse this trend, agencies should not only identify alternatives but also consider each one thoughtfully.

Second, alternatives should be broad in scope, including perhaps non-federal and non-regulatory options.  Considering alternatives from a number of spheres of thought provides the greatest chance to find the most cost-effective solution.

Finally, in addition to these guidelines, the Mercatus Center also offered a number of other general rules for the creation of effective regulation:

  • Describe outcomes for each alternative and monetize them to facilitate comparison.
  • Identify all costs, both direct and indirect, for each alternative.
  • Calculate the net benefits associated with each alternative.
  • Calculate cost-effectiveness, defined as outcomes divided by total costs, for each alternative.

Source: Jerry Ellig and James Broughel, "Regulatory Alternatives: Best and Worst Practices," Mercatus Center, February 2012.

 

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