It’s Time to Think Strategically About Retrospective Benefit-Cost Analysis

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Retrospective regulatory review should concentrate not only on reducing costs but also on creating benefits, like improving societal well-being.

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Both supporters and critics seem to agree that President Donald Trump broke new ground when he issued an executive order last year calling on government agencies to identify two existing regulations to eliminate for every new one they issue. Supporters see the President’s order as creating real incentives for agencies to eliminate unproductive, costly regulations. Critics see the order as an unprecedented presidential overreach.

And yet, President Trump’s Executive Order 13,771 actually breaks little new ground in at least one important respect: it focuses on reducing the costs of existing regulations. The order simply extends a historical emphasis on using retrospective review to reduce regulatory costs—an important but severely limited goal. A better approach to retrospective review would emphasize the assessment of both costs and benefits, and it would aim to promote regulatory learning even more than regulatory reform.

Admittedly, the current Administration’s fixation on regulatory cost-reduction is more extreme than in prior administrations, but every modern White House has focused on reducing regulatory costs. President Jimmy Carter called on federal agencies to reduce regulatory “burdens” and “overlapping and duplicative” requirements. The Reagan Administration targeted both new and existing rules in order to “reduce…burdens.” President George H.W. Bush dramatically called on agencies “to weed out unnecessary and burdensome government regulations, which impose needless costs…and substantially impede economic growth.”

President William Clinton took his own executive action “to reduce the regulatory burden on the American people.” The second Bush White House issued three separate requests for nominations of existing rules to modify or rescind. President Barack Obama launched a government-wide regulatory “lookback” initiative that gave priority to reviews that could generate “significant quantifiable monetary savings or significant quantifiable reductions in paperwork burdens.”

Yet any meaningful review of existing rules should consider both sides of the equation: that is, costs as well as benefits. It is time to take a more strategic approach to retrospective review of existing regulations. For too long, retrospective regulatory review has focused predominantly on reducing costs and eliminating outmoded regulations. These are worthy goals, but an emphasis on costs is only part of the equation. Benefits matter too.

Although the search for burden- and cost-reduction has dominated previous retrospective review efforts, in fairness it should be noted that past administrations have given at least a passing nod to the prospect of increasing regulatory benefits. The second Bush Administration, for example, expressed some receptivity to finding ways to “increase net benefits…by either reducing costs and/or increasing benefits.” The Obama Administration sought ways to make regulation “less burdensome” but also “more effective.”

By contrast, President Trump’s Executive Order 13,771 contains nary a mention of regulatory benefits. Although White House guidance on implementing the Trump order does require analysis of benefits of new rules, nothing in that guidance guarantees any consideration will be given to foregone benefits from modifying existing regulations.

Perhaps not surprisingly, last October a federal court ruled that the Trump Administration’s Bureau of Land Management (BLM) acted unlawfully by failing to consider foregone benefits from a regulatory change it tried to make. The court said that BLM was “only considering one side of the equation.”

In addition to considering both sides of the equation, meaningful retrospective review will accomplish much more if it is used strategically as a tool for helping regulators learn better how to improve regulatory quality and enhance societal well-being. In fact, learning is the most fundamental reason to look back at existing regulations. Some of this learning may help a regulator decide whether to keep or modify a rule under examination. But still more importantly, a strategic approach to retrospective review will allow agency officials to gain a broader and deeper understanding about when, why, and how regulations work—and do not work.

More concretely, taking a strategic approach to retrospective review would shift prevailing practices in two important ways.

First, if agencies are to follow a strategic emphasis on learning instead of merely on cost-reduction, they need to design retrospective reviews to be able to support inferences about whether a regulation has caused improvement or harm. This kind of analysis—akin to program evaluation—is the only way to learn with confidence whether a regulatory intervention is making a difference. Such analysis requires careful consideration of research design, data collection, and statistical analysis.

Right now, most regulatory “lookbacks” have not involved such serious analysis. They tend instead to be driven by anecdotal data, expert opinion, or complaints from regulated entities. Rather than systematic empirical investigations, previous reviews have tended to amount to little more than quick glances in the regulatory rearview mirror. Of course, looking in a rearview mirror is vital when driving an automobile—and even in the regulatory context, a glance back may be better than no look at all. But if the goal is to design regulation that causes better outcomes—both in terms of benefits as well as costs—then much more rigorous analysis is needed.

Second, adopting a strategic approach to retrospective review demands that agencies take into account a wider range of factors when deciding which rules to review. When agencies seek to learn from retrospective analysis, they need to consider more than just whether a rule might have become outmoded. They need to consider first what it is that they seek to learn. They can and should use retrospective analysis to learn answers to fundamental questions essential to regulation. For example, under what conditions do different kinds of rules yield greater (or lesser) compliance? What types of rules foster or allow valuable innovation by industry? Do some types of rules (or rules under certain conditions) prove more prone to evasion? Getting answers to big questions like these could potentially yield large payoffs—not merely from the improvement of the rules studied, but from understanding and improving regulation more generally.

Across a range of problems and industries, regulatory agencies encounter similar kinds of challenges. To meet these challenges better, they need to learn from the systematic analysis of their existing rules—and from such analysis of other agencies’ rules. Strategic retrospective review will lead agencies to seek answers to common challenges and to understand better the advantages and disadvantages of common solutions. For example, rigorous, causally-oriented study of existing uses of different regulatory instruments—such as technology and performance standards, management-based regulation, or information disclosure—would prove highly informative to any regulatory agency.

Taking a strategic approach to retrospective review will better ensure that regulators’ investment of time and effort yields credible answers to relevant questions. Sometimes retrospective analysis will yield insights that lead to the amendment or even repeal of existing rules—but that should not be the exclusive or even principal aim of retrospective review.

The federal government has for too long taken an unduly narrow approach to retrospective benefit-cost analysis. It is time to take a more strategic approach: to look for ways to enhance benefits as well as to lower costs, and to strive to understand better the underlying relationships between regulations, behavior, and outcomes. In the end, a strategic approach to retrospective review recognizes that what regulators can do most valuably with their existing rules is to learn from them.

Cary Coglianese

Cary Coglianese is the Edward B. Shils Professor of Law and Political Science, Director of the Penn Program on Regulation, and faculty advisor to The Regulatory Review.

This essay is part of an eight-part series, entitled New Developments in Regulatory Benefit-Cost Analysis.