Social Welfare Functions

Some fifty years ago, an economist who was deeply involved in conducting benefit-cost analysis of governmental actions opined on the importance of  disclosing the income distribution effects of federal actions.

Read for example this paper published in 1969 which concluded ( p. 5):

Obviously if there exist more efficient ways to redistribute income and if such alternatives are politically feasible, then public works projects should not be justified on the basis of their contribution to this objective. However, it does not follow that their redistributive effects – whether to low or high income classes -should not be assessed and presented to the public.

Centralized Regulatory Review began in 1971 when the Director of OMB instituted the Quality of Life Review which required agencies to:

(1) perform a benefit-cost analysis of proposed regulations, and

(2) submit the aforementioned analysis to OMB for review.

During the past one-half a century the aforementioned process has withstood criticism, threats and even unconscionable  reductions in staff levels. It has, however, made modifications to its operating procedures in response to some of the aforementioned  criticisms.

In the the immediate future there is currently available a methodology for addressing income distribution in the rulemaking process by addressing “opportunity cost neglect”.  Opportunity cost neglect has been a subject well vented in Europe and it is beginning to make a headway in the United states.

Some fifty years ago, when a CRE employee was a career civil servant, not only was a strategy developed to address “opportunity cost neglect” but it was actually implemented for a short period until which time its use was abolished by an act of Congress, see page 16 of this post.

Two days after the election CRE published a paper titled: “Questions to Nominees for the Administrator of OIRA” which was distributed widely to affected parties.

Option #2 received considerable attention in that it deals with OIRA assuming a proactive role in addressing existential threats.

Option #3 at least until now, received considerably less attention. The thrust of this option is the need for OIRA to develop a multi-year, multi-agency regulatory program which is reviewed by the public, the Congress and stakeholders.

Subsequent to the discussion and review by experts who attend the Annual Conference of the  Society for Benefit Cost Analysis’s  on March 24, CRE will publish three alternatives on the aforementioned topic accompanied by notable comments on this website.

Background