Deregulatory Cost-Benefit Analysis and Regulatory Stability

by Caroline Cecot

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Abstract

Cost-benefit analysis (“CBA”) has faced significant opposition during most of its tenure as an influential agency decisionmaking tool. As advancements have been made in CBA practice, especially in more complete monetization of relevant effects, CBA has been gaining acceptance as an essential part of reasoned agency decisionmaking. When carefully conducted, CBA promotes transparency and accountability, efficient and predictable policies, and targeted retrospective review.

This Article highlights an underappreciated additional effect of extensive use of CBA to support agency rulemaking: reasonable regulatory stability. In particular, a regulation based on a well-supported CBA is more difficult to modify for at least two reasons. The first reason relates to judicial review. Courts take a “hard look” at agency findings of fact, which are summarized in a CBA, and they require justifications when an agency changes course in ways that contradict its previous factfinding. A prior CBA provides a powerful reference point; any updated CBA supporting a new course of action will naturally be compared against the prior CBA, and the agency will need to explain any changes in CBA inputs, assumptions, and methodology. The second reason relates to the nature of CBA. By focusing on the incremental costs and benefits of a proposed change, CBA can make it difficult for an agency to justify changing course, especially when stakeholders have already relied on the prior policy. Together, these forces constrain the range of changes that agencies could rationally support. CBA thus promotes regulatory stability around transparent and increasingly efficient policies.

But, admittedly, this CBA-based stabilizing influence gives rise to several objections. This Article responds to, among others, concerns about democratic accountability and, most importantly, the use of alternative methods of policy modification. Overall, the Article concludes that CBA and judicial review of CBA play a desirable role in stabilizing regulatory policy across presidential administrations.

Deregulatory Cost-Benefit Analysis and Regulatory Stability

by Caroline Cecot

Click here for a PDF file of this article

Abstract

Cost-benefit analysis (“CBA”) has faced significant opposition during most of its tenure as an influential agency decisionmaking tool. As advancements have been made in CBA practice, especially in more complete monetization of relevant effects, CBA has been gaining acceptance as an essential part of reasoned agency decisionmaking. When carefully conducted, CBA promotes transparency and accountability, efficient and predictable policies, and targeted retrospective review.

This Article highlights an underappreciated additional effect of extensive use of CBA to support agency rulemaking: reasonable regulatory stability. In particular, a regulation based on a well-supported CBA is more difficult to modify for at least two reasons. The first reason relates to judicial review. Courts take a “hard look” at agency findings of fact, which are summarized in a CBA, and they require justifications when an agency changes course in ways that contradict its previous factfinding. A prior CBA provides a powerful reference point; any updated CBA supporting a new course of action will naturally be compared against the prior CBA, and the agency will need to explain any changes in CBA inputs, assumptions, and methodology. The second reason relates to the nature of CBA. By focusing on the incremental costs and benefits of a proposed change, CBA can make it difficult for an agency to justify changing course, especially when stakeholders have already relied on the prior policy. Together, these forces constrain the range of changes that agencies could rationally support. CBA thus promotes regulatory stability around transparent and increasingly efficient policies.

But, admittedly, this CBA-based stabilizing influence gives rise to several objections. This Article responds to, among others, concerns about democratic accountability and, most importantly, the use of alternative methods of policy modification. Overall, the Article concludes that CBA and judicial review of CBA play a desirable role in stabilizing regulatory policy across presidential administrations.