Cost-Benefit Analysis
Bad Numbers, Bad Decisions
CPR’s Member Scholars have written extensively on the many methodological and conceptual deficiencies built into the way cost-benefit analysis is applied to regulations aimed at protecting the health, safety and the environment. The distortion and over-reliance on cost-benefit analysis is just one of several problems with the way the White House Office of Management and Budget (OMB) exercises its control over the federal regulatory process.
On January 30, 2009, President Obama issued a memorandum directing the Office of Management and Budget, working in consultation with the heads of executive departments and agencies, to submit recommendations for a new Executive Order on regulatory review. Several days later, the President revoked President George W. Bush's Executive Order 13422, which essentially established that Administration's regulatory process, one that had come under withering criticism for hampering regulatory agency efforts to protect health, safety and the environment. President Obama's memorandum called for recommendations for a new regulatory process by mid-May 2009.
On February 20, 2009 Center for Progressive Reform Member Scholar Rena Steinzor wrote a letter to OMB chief Peter Orszag submitting preliminary comments for OMB consideration as it prepares its recommendations and calling for a formal comment period. OMB took that advice, and solicited comments. On March 16, 2009, CPR Member Scholars John Applegate, Robert Glicksman, Thomas McGarity, Sidney Shapiro, Amy Sinden, Rena Steinzor, and Robert Verchick (collectively the CPR board) filed formal comments calling on OIRA to abandon its role of conducting centralized regulatory review. The Scholars further wrote:
The new Executive Order must replace cost-benefit analysis as a determinative factor in regulatory decision-making for two reasons: (1) it is inconsistent with the law in most cases and (2) it has failed as a tool of regulatory analysis.
Noting that only 2 of the 31 statutory provisions undergirding the regulatory system mandate the use of cost-benefit analysis (see chart), the scholars recommend that OIRA instead use “pragmatic regulatory impact analysis” (PRIA). They wrote that PRIA:
starts from the premise that the agency should employ the particular standard-setting method that Congress specified in the relevant statute….The key characteristics of a pragmatic regulatory impact analysis are its emphasis on all the factors specified by the statutes, and its reliance on informed judgments by a full range of scientific, technical, legal, and managerial experts at agencies with respect to those central issues. These characteristics make for a decision-making process that is more transparent, inclusive, and effective.
CPR's work on OMB and cost-benefit analysis includes:
- EO 12866 Anniversary. The Executive Order that made cost-benefit analysis what it is today turned 20 in October 2013. Read posts from a blog carnival on the topic, featuring CPR Member Scholars, as well as previous posts on the Order's impact and OIRA's failure to observe the Order's limits on its authority.
- Reforming OIRA. Read Protecting People & the Environment by the Stroke of a Presidential Pen: Seven New Executive Orders for President Obama’s Second Term, CPR Issue Alert 1215, December 2012, which includes proposed reforms for OIRA and its use of cost-benefit analysis.
- Obama Administration's First-Year Report Card. In January of 2010, CPR Member Scholars Rena Steinzor and Amy Sinden, joined by Executive Director Shana Jones and Policy Analyst James Goodwin, issued Obama’s Regulators: A First-Year Report Card (CPR White Paper 1001), evaluating the Obama Administration's initial efforts on the regulatory front. (Their overall grade: a B-.) The report also graded each of the five "protector" agencies responsible for guarding against hazards to public health, safety and the environment -- theEnvironmental Protection Agency (EPA), the Occupational Safety and Health Administration (OSHA), the National Highway Traffic Safety Administration (NHTSA), the Consumer Product Safety Commission (CPSC) and the Food and Drug Administration (FDA). Read more about the report card, here.
- Regulatory Process Executive Order. Read CPR's November 20, 2009 Editorial Memo on the Obama Administration's Forthcoming Executive Order on Regulatory Process, by Rena Steinzor and Robert Glicksman. And the very similar press backgrounder.
- Another Approach. Read A Return to Common Sense: Protecting Health, Safety, and the Environment Through “Pragmatic Regulatory Impact Analysis” (700kb download), CPR White Paper 909, by CPR Member Scholars Rena Steinzor, Amy Sinden, and Sidney Shapiro, and CPR Policy Analyst James Goodwin.
- Costs of Delay. Read The Hidden Human and Environmental Costs of Regulatory Delay (700kb download), CPR White Paper 907, by Catherine O’Neill, Amy Sinden, Rena Steinzor, James Goodwin, and Yee Huang.
- Dysfunctional Agencies. Regulatory Dysfunction: How Insufficient Resources, Outdated Laws, and Political Interference Cripple the "Protector Agencies" (1 meg download), CPR White Paper 906, by CPR Member Scholars Sidney Shapiro and Rena Steinzor, and CPR Policy Analyst Matthew Shudtz.
- Reforming OIRA Conference: Listen to mp3 files of CPR's May 22, 2009 conference, Reforming OIRA: The Future of Regulatory Review.
- Op-Ed. Read "The Cost-Benefit Dodge," by Amy Sinden and Catherine O'Neill, in the May 12, 2009 Philadelphia Inquirer..
- Congressional Testimony. On April 30, 2009, CPR President Rena Steinzor testified before the House Science and Technology Committee’s Subcommittee on Investigations and Oversight on clean science and regulatory issues. Read the testimony. Read the news release.
- CPR's Final Comments on Obama Regulatory Review Process. Read the March 16, 2009 comments Comments Regarding Executive Order on OMB Regulatory Review from John Applegate, Robert Glicksman, Thomas McGarity, Sidney Shapiro, Amy Sinden, Rena Steinzor, Robert Verchick (collectively the CPR board). The comments call for OIRA to give up centralized regulatory review, and replace its use of cost-benefit analysis with pragmatic regulation impact analysis. Read the web article. And Preliminary Comments on Obama Regulatory Review Process Memo. Read Rena Steinzor's February 20, 2009 letter to OMB chief Peter Orszag submitting preliminary comments for OMB consideration as it prepares recommendations for President Obama on ways to reform the regulatory process. The letter also called for a formal review period for OMB's proposal once a draft was prepared.
- Only 2 of 31… Just 2 of the 31 statutory provisions undergirding the nation’s health, safety and environmental regulatory structure call for cost-benefit analysis. One is the Consumer Product Safety Act. Can you guess the other? Use CPR’s chart to impress your friends.
- Poisoned for Pennies: The Book. Read Frank Ackerman's 2008 book, Poisoned for Pennies, on the failings of cost-benefit analysis in the regulatory process.
- CPR White Papers: Is C-B Neutral?. Read David Driesen's June 2005 White Paper, "Is Cost-Benefit Analysis Neutral? An Analysis of the Bush Administration's Approach to Environmental, Health, and Safety Protection."
- Testimony. Read Sidney Shapiro's April 12, 2005 congressional testimony on OMB's regulatory "hit list." Also, CPR White Paper: An Alternative. Advocates of cost-benefit analysis frequently claim that rational regulation requires CBA and suggest that all other ways of setting standards are irrational. CPR believes that several competing approaches to standard-setting are rational, and ethically superior to CBA. CPR’s rationality series explains why these alternatives offer rational approaches to limiting pollution. Read the first in this series of white papers, David Driesen's "Feasibility Principle." Also, Lisa Heinzerling and Frank Ackerman's "Applying Cost-Benefit Analysis to Past Decisions: Was Protecting the Environment Ever a Good Idea?," with Rachel Massey, published July 2004.
