This paper explores the role of microeconomic analysis in policy formulation by assessing how the regulatory impact analyses (RIAs) that federal regulatory agencies prepare for important proposed rules may affect outcomes when regulations are challenged in court. Conventional wisdom among economists and senior regulatory officials in federal agencies suggests that high-quality economic analysis can help a regulation survive such challenges, particularly when the agency explains how the analysis affected decisions. However, highlighting the economic analysis may also increase the risk a regulation could be overturned by inviting court scrutiny of the RIA. Using a dataset of economically significant, prescriptive regulations proposed between 2008 and 2013, we put these conjectures to the test, studying the relationships between the quality of the RIA accompanying each rule, the agency's explanation of how the analysis influenced its rulemaking decisions, and whether the rule was overturned when challenged in court. The regression results suggest that higher-quality RIAs are associated with a lower likelihood that the associated rules are later invalidated by courts, provided that the agency explained how it used the RIA in its decisions. Similarly, when the agency described how the RIA was used, a poor-quality analysis appears to increase the likelihood that the regulation is overturned, perhaps because it invites a greater level of court scrutiny. In contrast, when the agency does not describe how the RIA was utilized, there is no correlation between the quality of analysis and the likelihood that the regulation will be invalidated.

Over the last century, the United States has witnessed three approaches to achieving better regulatory outcomes: the removal of " economic " regulations in certain sectors; regulatory impact analysis (RIA) of new " social " regulations; and retrospective analysis of existing regulations. This article reviews the rationale for each approach, the results to date, and the remaining challenges. It finds that both institutional and technical factors influence the success of reform efforts.

Aligica et al. 2019 ) posit that a form of public administration founded in the classical liberal tradition should recognize value heterogeneity, which would create a need for coproduction of rules and polycentricity in the production of rules. Utilizing a dataset of 130 economically significant executive branch regulations proposed between 2008 and 2013, this paper assesses whether US regulators act in a manner consistent with the predictions of their theory. US federal agencies use several methods that could facilitate coproduction of rules by stakeholders. Statistical analysis finds that agencies are more likely to employ some stakeholder participation strategies for the types of regulations that may involve more heterogeneous values. However, there is scant evidence that the stakeholder participation strategies that agencies employ more extensively when values are more heterogeneous are associated with consideration of a wider variety of alternatives. There is no evidence that agencies consider a wider scope of alternatives for regulations that may involve more heterogeneous values. Therefore, value heterogeneity and stakeholder participation have not by themselves been sufficient to move the US toward a polycentric regulatory system.

Requirements for regulatory impact analysis in the United States vary greatly. Executive branch regulatory agencies in the United States are required to conduct regulatory impact analysis before issuing regulations, and statutes sometimes require agencies to conduct some economic analysis. But when Congress considers legislation that mandates prescriptive regulations, legislators are under no obligation to conduct or even consider impact analysis. This paper documents the diverse degrees of discretionary authority Congress grants US executive branch agencies. It then presents a case study that systematically compares the quality of impact analysis that informed legislative and regulatory decisions on positive train control, a technology mandated by statute in 2008. The legislation was adopted with virtually no consideration of impact analysis. Given that major regulations are often required by statute, we conclude that regulatory legislation should be subject to the same kinds of impact analysis that US presidents have required regulatory agencies to conduct for almost four decades. Congress could develop this capability by creating a regulatory analysis division of the Congressional Budget Office (CBO) to evaluate the social benefits and costs of bills, similar to the way CBO scores the federal budgetary consequences of bills.

This article reviews the quality of the economic analyses for the most important (economically significant) tax regulations reviewed by the Office of Information and Regulatory Affairs in the past year. The primary strength in the IRS economic analysis of these regulations is that it recognizes that many important benefits and costs of tax regulations flow from tax-induced distortions (or prevention of distortions) in private parties’ decision-making. The analysis also acknowledges the economic inefficiency of expenditures by individuals or organizations to capture or avoid wealth transfers (that is, tax avoidance). But there is also significant room for improvement. The IRS needs to assess the economic efficiency of statutory provisions before it can know whether its regulations help or hinder economic efficiency. It should stop trying to justify “clarity” as a benefit of tax regulations and instead strive to quantify the number of affected taxpayers, tax revenue, effective changes in marginal tax rates, and benefits or costs that arise from changes in behavior from tax rate changes.

Federal appeals courts have vacated several Securities and Exchange Commission (SEC) rules due to inadequate economic analysis. The SEC, pledging to do better, published staff economic analysis guidance in March 2012 that covers many of the same topics executive branch agencies address in regulatory impact analyses (RIAs) of major regulations. This paper employs the Mercatus Center at George Mason University's Regulatory Report Card methodology to evaluate the quality of the SEC's regulatory analysis. The economic analysis accompanying a sample of final SEC regulations published in 2010 and 2011 was seriously incomplete and rarely used. The SEC analyses scored well below the RIAs produced by executive branch agencies during the same period. The SEC often ignored relevant academic literature and declined to examine alternatives, benefits, and costs that expert financial regulators should have been aware of. Thus, our baseline assessment of pre-2012 regulations shows that the SEC's new economic analysis guidance was necessary and appropriate.

Independent regulatory agencies face increasing pressure to conduct high-quality economic analysis of regulations, similar to the regulatory impact analysis conducted by executive branch agencies. Such analysis could be required by evolving judicial doctrines, regulatory reform statutes, or executive order. This article explains how regulatory impact analysis can contribute to smarter regulation, documents the current low quality of such analysis at many independent regulatory agencies, and offers a blueprint that independent agencies can use to build their capacity to conduct objective, high-quality analysis.

The Federal Communications Commission’s (FCC’s) current strategic plan lists four priority goals: closing the digital divide; promoting innovation; protecting consumers and public safety; and reforming the FCC’s processes. Economists at the FCC contribute toward the realization of each of these goals, through analysis of the nature and significance of the underlying problems that regulations are intended to solve, as well as assessments of alternative solutions. Three major FCC initiatives demonstrate the role that economic analysis played in Commission decisions in 2017–2018: the Restoring Internet Freedom Order; the new hedonic pricing model that was used in the International Broadband Data Report; and the order that reorganized Commission economists into the Office of Economics and Analytics.

The Mercatus Center at George Mason University initiated its Regulatory Report Card project in 2009 to assess how well executive branch regulatory agencies conduct and use regulatory impact analysis and to identify ways to motivate improvement. Report Card evaluations reveal that agencies often adopt regulations that affect several hundred million Americans and impose hundreds of millions of dollars in costs without knowing whether a given regulation will really solve a significant problem, whether a more effective alternative solution exists, or whether a more targeted solution could achieve the same result at lower cost. Extensive statistical analysis of Report Card scores suggests that institutional reforms are the most promising means of improving the quality and use of regulatory impact analysis.

As the quantity and scope of regulations in Florida grow, so does the degree to which they affect the economy. In these circumstances, a little reform to the process of creating regulations can go a long way toward crafting an environment that fosters competitiveness and economic efficiency. This paper proposes two simple yet effective regulatory reforms that Florida could adopt to make new regulations more economically efficient. First, beforedesigning a regulation, regulators should define the problem the regulation is supposed to address, which should include determining whether a widespread and systemic problem exists and identifying its causes. Second, once a problem has been identified, regulators should consider a wide range of alternatives before selecting a course of action. Both suggested reforms could be usefully applied to all regulatory actions, thereby improving Florida's competitiveness and helping to prevent unnecessary regulatory burdens to its economy.

This paper examines the various statutory standards that require agencies to conduct some form of economic analysis and explores which standards correlate with more rigorous judicial review when a rule is challenged in court and with more rigorous regulatory analysis by the agency preparing the rule. It finds that more explicit statutory standards, in which Congress both affirmatively directs the agency to consider the economic effects of proposed rules and sets forth specific factors for agencies to consider, correlate both with more stringent judicial review and with higher quality economic analysis. By contrast, when Congress sets a vague statutory standard, such as encouraging the agency to "consider" economic costs and/or benefits, the stringency of judicial review and the quality of agency economic analysis varies from case to case and rule to rule. The authors recommend that Congress adopt more explicit standards in order to achieve greater consistency in agency economic analysis and the judicial review thereof.

Americans expect federal regulation to accomplish many important things, such as protecting the country from financial fraudsters, preventing workplace injuries, preserving clean air, and deterring terrorist attacks. Regulation also requires tradeoffs—there is no such thing as a free lunch. Depending on the regulation, consumers may pay more, workers may receive less, retirement savings may grow more slowly, and Americans may have less privacy or personal freedom. In a democratic society, these tradeoffs require government regulators to carefully and completely disclose the likely effects of individual rules and of the regulatory system as a whole. In this and other ways, our regulatory system has fallen short. Congress needs to address the shortcomings of this system with comprehensive regulatory reform.

Regulatory agencies often produce mediocre economic analysis to inform their decisions about major regulations. For this reason, Congress is considering proposals that would require regulatory agencies to conduct regulatory impact analysis and subject it to judicial review. For judicial review to work, judges must be able to verify agency compliance with quality standards even if they are not experts in the subject matter the agencies deal with. This Article demonstrates that courts could effectively review the quality of agencies' regulatory impact analysis if they were given more concrete statutory guidance on what a regulatory impact analysis must include and the stringency with which a court will review that analysis. We propose a regulatory reform that would accomplish this goal: amend the Administrative Procedure Act to spec the main elements a regulatory impact analysis must include and clarify the standard of review by implementing a requirement that agencies use the best available evidence in their analysis.

Railroads haul thousands of different commodities between thousands of different origins and destinations. Prior to 1980, all rates were subject to federal regulation. However, financial ruin and bankruptcies in the 1970s led to legislation that placed a greater emphasis on the marketplace in regulating rates. The regulatory agency was mandated to have a costing model in place that allocated costs to specific movements and established thresholds which, if established, gave the regulatory agency jurisdiction over rates. In our previous work, Wilson and Wolak (2016), we provide both theoretical and empirical criticisms of the costing methodology and concluded it should be abandoned. In this paper, we offer a benchmark approach to identifying shipments that may warrant further investigation for whether rates are reasonable or not. __________ *This paper evolved from the authors’ participation in a National Academy of Sciences review of regulation in the railroad industry. The other members provided a number of invaluable comments throughout the process. These are: Richard Schmalensee, Ken Boyer, Jerry Ellig, José A. GómezIbáñez, Anne Goodchild, and Thomas Menzies. In addition, earlier versions have been presented to the Association of Transport, Trade, and Service Studies, Railroad-Shipper Transportation Advisory Council, the Advanced Workshop in Regulation and Competition. The authors gratefully acknowledge comments and discussions that emanated from the audiences.

When Congress passes legislation that mandates prescriptive regulations, legislators are under no obligation to understand the problem they are trying to solve, assess alternative solutions, or understand the benefits and costs of their choices. Passage of the positive train control mandate in response to several high-profile train accidents amply illustrates how haphazardly the legislative branch can authorize regulations. Congressional hearings and committee reports on the Rail Safety Improvement Act of 2008 contain no analysis of the causes and extent of the safety problem, alternative solutions, and the benefits and costs of alternatives to this $12.5 billion mandate. Given that major regulations are often required by statute, the time has come for Congress to subject regulatory legislation to the same kind of analysis that presidents have required regulatory agencies to conduct for more than three decades.

The dramatic improvement in railroad safety since the 1970s has been accompanied by a substantial increase in safety regulation and a substantial reduction in economic regulation after 1980. We assess the effects of both regulatory changes on railroad safety with the use of RegData: a new data set that was developed by one of the authors that measures the amount of regulation that is imposed by specific regulatory agencies on specific industries. We find that partial economic deregulation is associated with improved safety. Safety regulation was most closely associated with improved railroad safety during the period when economic regulation curtailed railroads' incentives to operate safely.

Numerous regulatory reform proposals would require federal agencies to conduct more thorough economic analysis of proposed regulations or expand the resources and influence of the Office of Information and Regulatory Affairs (OIRA), which currently reviews executive branch regulations. Such reforms are intended to improve the quality of economic analysis agencies produce when they issue major regulations. We employ newly gathered data on variation in current administrative procedures to assess the likely effects of proposed regulatory process reforms on the quality of agencies’ regulatory impact analyses (RIAs). Our results suggest that greater use of advance notices of proposed rulemakings for major regulations, advance consultation with regulated entities, use of advisory committees, and expansion of OIRA’s resources and role would improve the quality of RIAs. They also suggest pre-proposal public meetings with stakeholders are associated with lower quality analysis.

Several D.C. Circuit decisions that remanded regulations to the Securities and Exchange Commission (SEC) between 2005 and 2011 provide a natural experiment that permits researchers to identify the correlation between judicial review and the quality of regulatory agencies’ economic analysis and its use in regulatory decisions. Subsequent to the D.C. Circuit decisions, the SEC staff in 2012 issued new guidance for economic analysis. This paper offers a structured assessment of the economic analysis accompanying a sample of post-2012 SEC regulations, using the evaluation method developed for the Mercatus Center at George Mason University’s Regulatory Report Card. SEC economic analysis improved substantially following the 2012 guidance. Improvement occurred on all major elements that the SEC staff identified as important in its guidance: explanation of the justification for the rule, clear definition of the baseline against which to measure the rule’s economic impacts, identification and discussion of reasonable alternatives, and analysis of the benefits and costs of the proposed rule and the principal alternatives. The improvement occurred both on criteria that address “conceptual” economic analysis and on criteria that require quantification of benefits or costs to receive full credit. Although substantial room for improvement still exists, the court decisions appear to have motivated the SEC, in just a few years, to close the gap between the quality of its economic analysis and the average quality of economic analysis produced by executive branch agencies.

This study estimates the effects of state regulations affecting funeral markets. It accounts for multiple major categories of regulations and demand inducement as well as direct price effects. While concurring with prior studies that find ready-to-embalm regulations increase funeral costs and decrease the percentage of cremations, this study finds that several other state regulations are associated with significantly higher receipts per death. The regulation with the largest apparent effect on average funeral costs is the direct disposition license, which is associated with a $1250 reduction in receipts per death. Restrictive regulations affect the revenues of funeral homes and services to a much greater extent than they affect the revenues of cemeteries and crematories, and in some cases the regulations even increase funeral homes and services’ share of industry revenues. Thus, it appears that funeral homes receive most of the benefits of regulation.

Federal agencies issued eight major interim final regulations in 2010 to quickly implement major provisions of the Affordable Care Act. Our previous reviews found that the regulatory impact analyses for these regulations were seriously incomplete, often omitting significant benefits, costs, or regulatory alternatives. Analysis of equity was cursory at best. For these regulations, the quality and use of regulatory analysis fell well below the standards set by other federal agencies and even by HHS. This paper demonstrates that the low-quality analysis was a predictable result of the way that the administration and Congress chose to manage the regulatory process. Presidential and congressional decisions, in turn, reflected the political incentives both actors faced in 2010. This suggests that institutional rather than personal factors explain the poor quality of analysis and decisions that occur when agencies implement important presidential priorities in the face of tight legislative deadlines. To promote transparency and informed decision making, additional checks and balances in the regulatory process are needed to prevent politics from short-circuiting analysis.