The cost benefit analysis

The cost benefit analysis has been playing an increasing role in the development of the regulations that implement that legislation at least by executive branch agencies. I have to put aside the independent regulatory agencies which play by their own rules sometimes. How has this come to be? Well, summarizing thirty odd years in three minutes, let me say that cost benefit analysis began to be used in a few rule making proceedings in the ‘70s under Nixon, Ford and Carter. There were a few scholars who wrote about the subject, a few fans of the approach in the agencies and most importantly in office of the President and a few critics, primarily among the public interest groups. A significant step occurred under Regan and his regulatory executive order, which constructed the agencies to maximize the net benefits and used other words to that effect, and a place where responsibility for reviewing the agencies work in the hands of the OMB. Under Clinton continued this general scheme all be it emphasizing that costs and benefits that could not be quantified none the less had to be considered and also worked to increase the transparency of the process so that there was greater understanding of what was happening in the review by OMB and greater accountability.
President Bush kept President Clinton's executive order yet revised the guidelines for agencies conducting regulatory analysis, what were once guidelines, are now requirements. He issued, this is John Graham, in the office of Information and Regulatory Affairs issued new standards for data quality and threatened to impose peer review on agencies analysis. Throughout this history there has been debate- sometimes polite and civil, sometimes not so polite, not so civil. Questions such as whether there is in fact a level playing field, whether both sides of the equation- costs, benefits- are equally and readily able to be quantified and monetized or whether there is an inevitable tilt- whether the product of all of this effort, the results, are informative or dispositive and whether it is all worth the effort in terms of staff time and resources because cost benefit analysis is not cost free. Do the costs of cost benefit analysis justify- I got it backwards, do the benefits justify, let alone outweigh, the costs of cost benefit analysis. In short, is this the silver bullet or is this a misguided, possibly immoral folly.
We are fortunate to have together today people who have worked extensively and thoughtfully in this field. I'm looking at the audience now before I even get to the panel. I thank you all for coming and we will be hearing from you shortly, but first we want to hear from our panelists who are well worth listening to. In order of appearance, I bring you Lisa Heinzerling, who is a professor of law at Georgetown Law Center as John had mentioned. She comes to us from Princeton and then the University of Chicago law school where she was editor in chief of the law review. She clerked for Judge Posner and then Justice Brennan and has worked in the field for over twenty years as an expert in administrative - She's the vice president at the Center for Progressive Regulation, where she is working extensively in the area. Our next big speaker will be her co-author of the book, Frank Ackerman who is an assistant professor in the Department of Urban and Environmental Policy at Tuffs University. He comes to us from Swathmore College and has a PhD in economics from Harvard and a BA in mathematics and economics, actually that was the Swathmore piece but I wanted to stress the mathematics because that always intimidates me. He is the author of many books including, Why do we Recycle?, Markets, Values and Public Policy and has worked extensively in this field from the perspective with emphasis on the environmental issues. Our third speaker is Jim Tozzi, a living legend in his own time. He did his undergraduate at Carnegie Tech, University of Pittsburgh and has a PhD in economics and business administration from the University of Florida. He spent over twenty years, twenty plus, in the federal government and in 1996 started the Center for Regulatory Effectiveness. Most significantly for present purpose he was instrumental in establishing the Office for Information and Regulatory Affairs at OMB in the Regan administration. Without further ado I'd like to turn it over to Lisa.
Lisa Heinzerling: Thanks for coming this morning and thank you to the Center for American Progress for organizing the event. It's a mystery there's a lot of discussion about cost benefit analysis in policy circles today, a lot of the talk as if it's the ascendant, the dominant way of making decisions in health, safety, environmental policy. Just want to open by stressing something Sally actually referred to earlier a little bit, which is that in our law actually cost benefit analysis makes very few appearances. In our health, safety and environmental statutes, really among them there's only one that specifically contemplates a formal cost benfit analysis, in which costs and benfits are quantified and monetized, which is the decision making framework we talk about in our book.
Many other statutes, most other statutes in these field require the consideration of costs in setting standards but they do not require, or in my view, even allow, formal cost benefit analysis of the kind we're talking about today. Some statutes, most prominently the air quality standards program of the Clean Air Act forbid the consideration of costs in environmental standard setting. There's a bit of a puzzle. There's a lot of talk about cost benefit analysis.