NCPA - National Center for Policy Analysis

Inefficient Transfer Regulations

July 3, 2003

Every year, Congress authorizes funds to be distributed to beneficiaries of entitlement programs like Medicare, victims of misfortunes such as natural disasters, and pork barrel programs. Agencies charged with distributing these funds issue regulations to specify who receives money, how much and how to apply for it.

However, these "transfer" regulations are not subjected to the same rigorous cost-efficiency analysis as other federal regulations. However, these regulations can be inefficient too. Consider the example of a recent dairy farming bailout:

  • In 1998, farm prices collapsed and Congress approved $200 million for dairy producers who lost money, to be distributed by the U.S. Department of Agriculture.
  • The Secretary of Agriculture decided to award a fixed amount of compensation per unit of milk produced in 1997 (an average year); she also capped compensation at 2.5 million pounds of milk.
  • In 2000, Congress appropriated $325 million more for dairy producers, and the Secretary automatically enrolled producers who had been in the 1998 program into the 2000 program, even if they had gone out of business in 1999 or 2000.
  • Thus, the transfer regulations favored smaller producers and compensated those who were no longer producing milk.

Clearly, those transfer funds were not distributed in the most efficient manner possible. According to Eric A. Posner of the University of Chicago Law School, these regulations must be analyzed using cost-efficiency tools to make sure that tax dollars are being spent wisely.

Source: Eric A. Posner, "Transfer Regulations and Cost-Effectiveness Analysis," Working Paper No. 184, April 2003, University of Chicago Law School.

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