Discussion Paper

The Challenges of Improving the Economic Analysis of Pending Regulations


Federal regulatory policy and the evaluation of regulations using benefit-cost analysis continue to be quite contentious. Advocates for more regulation claim that benefit-cost analysis loses information andimpedes our understanding of the real beneficial consequences of regulatory action. Against this backdrop, economists and advocates of economic analysis have sought to improve the quality and technical content of benefit-cost analysis. This paper examines key changes made by the 2003 guidelines in Circular A-4 for regulatory analysis issued by the U.S. Office of Management and Budget in an effort to strengthen such analysis. This paper discusses the motivation and basis for these changes—the treatment of discount rates and uncertainty and the cost-effectiveness analysis for rules affecting health and safety—and evaluates the EPA’s response to the A-4 changes in its analysis of environmental rules.