Cost-Benefit Analysis at a Crossroads: A Symposium on the Future of Quantitative Policy Evaluation

PUBLISHED

Frank Pasquale (@FrankPasquale) is a Professor of Law at Brooklyn Law School, and author of New Laws of Robotics (2020) and The Black Box Society (2015).

PUBLISHED

Frank Pasquale (@FrankPasquale) is a Professor of Law at Brooklyn Law School, and author of New Laws of Robotics (2020) and The Black Box Society (2015).

This is the introductory post to a symposium on the future of Cost-Benefit Analysis. Read the rest of the symposium here.

Quantitative methods have an uneasy place in administration. They promise to bring rigor and objectivity to policy evaluation; however, their application has often accelerated predictable injustices, marginalization, and alienation. The Biden Administration, recognizing these problems, wants to do something about them. As announced in the memorandum “Modernizing Regulatory Review,” the Director of the Office of Management and Budget (OMB) has been charged with proposing “procedures that take into account the distributional consequences of regulations, including as part of any quantitative or qualitative analysis of the costs and benefits of regulations, to ensure that regulatory initiatives appropriately benefit and do not inappropriately burden disadvantaged, vulnerable, or marginalized communities.” This symposium on cost-benefit analysis (CBA) will highlight leading scholars’ work on these topics.

The legitimacy of the modern administrative state rests on its ability to balance three sources of authority: legal regularity, politics, and expertise. The Environmental Protection Agency, for example, makes decisions that implicate its attorneys’ knowledge of law, its scientific staff’s expertise in toxicology, ecology, and related fields, and the values of the current presidential administration. A ruthless partisan may try to radically undermine the agency’s statutorily defined mission. But if rules of law and expertise hold, legal regularity and scientific findings will combine to constrain the political leadership’s will.

In addition to scientific and legal expertise, another form of “expert constraint” has arisen in the administrative context: cost-benefit analysis. Regulators, guided by the Office for Information and Regulatory Affairs (OIRA), are required to add up and compare the costs and benefits for significant regulatory initiatives. If a proposed regulation fails to demonstrate appreciable benefits over and above costs, OIRA may instruct the agency to revise the regulation in order to enhance its economic rationality.

The central idea behind CBA seems indisputable, at least on utilitarian grounds: a regulation’s costs should not exceed its benefits. But behind this façade of pragmatic policy evaluation, there is a dark history and troubled present.

The history is well-known. Consolidating Carter-era neoliberalism, and then going well beyond it, the Reagan administration promoted CBA to rein in what it viewed as overzealous regulation. CBA was almost always presented as a check on regulation, rather than a way to promote more effective regulation. Expansive definitions of costs of regulation are coupled with narrow definitions of benefits. A procedural imbalance has compromised the legitimacy of White House-level CBA: it can gently nudge agencies to consider regulating more aggressively, but wields real power by blocking rules that fail to measure up to its standards. Until this imbalance is redressed, OIRA’s CBA will correctly be viewed as primarily a tool of deregulation.

The reluctance of Presidents to grant OIRA a broader role in promoting sound regulation is particularly troubling as new evidence of the benefits of health and safety regulation emerges. As Drew Shindell has estimated, decarbonization at rates necessary to keep to 2°C of warming would, over the next 50 years, “prevent roughly 4.5 million premature deaths, about 3.5 million hospitalizations and emergency room visits, and approximately 300 million lost workdays in the US.” (It is no surprise that the Trump Administration aggressively moved to discount such “cobenefits” in CBA.) COVID presents an even easier case for CBA experts to advocate for government action. As Adam Tooze noted recently, in July “the I.M.F. estimated that an investment of $50 billion in a comprehensive campaign for vaccination and other virus control efforts would generate some $9 trillion in additional global output by 2025 — a ratio of 180 to 1. What investment could hope to yield a higher rate of return?”

Crises like climate change, COVID, and racial injustice mean that the US needs entities in government promoting and accelerating regulation and market interventions, rather than questioning and slowing them down. Fortunately, President Biden’s modernization memorandum also orders the Director of OMB to “consider ways that OIRA can play a more proactive role in partnering with agencies to explore, promote, and undertake regulatory initiatives that are likely to yield significant benefits.”

On a more philosophical level, though, the question remains: how does economic expertise inform rational policymaking? Economists and other quantitative analysts have often presented themselves as “meta-experts,” capable of judging who has the better case when, say, industry and university-based scientists disagree about the likely impact of a regulation. However, quantifying costs and benefits is difficult, and may presume a “view from nowhere” merely affecting (rather than embodying) objectivity. As Frank Ackerman and one of our symposiasts, Lisa Heinzerling, argued in 2004:

The basic problem with narrow economic analysis of health and environmental protection is that human life, health, and nature cannot be described meaningfully in monetary terms; they are priceless. When the question is whether to allow one person to hurt another, or to destroy a natural resource; when a life or a landscape cannot be replaced; when harms stretch out over decades or even generations; when outcomes are uncertain; when risks are shared or resources are used in common; when the people ‘buying’ harms have no relationship with the people actually harmed–then we are in the realm of the priceless, where market values tell us little about the social values at stake.

There are, of course, earnest quantifiers out there eager to tell us the monetary value of a pollution-free day at the Grand Canyon, or the existence of kakapos. The Gradgrind of Chicago, Richard Posner, once asked us to suppose that “the cost of extinction of the human race…can be very conservatively estimated at 600 trillion dollars,” as part of his attempt to estimate the risk of fundamental physics research going catastrophically wrong. The presumption necessary to make such an estimate is remarkable, as is the willingness to gloss over of problems of incommensurability. And while Posner’s estimate may be extreme, too-casual discounting of mortality risks was at the core of many disastrous “public health or the economy” framings of COVID response.

As these examples make evident, quantification is not a particularly neutral or scientific mode of policy evaluation. Nor is it the only game in town: Scenario analysis, narrative, and thick description are just as valuable, and often moreso.

The challenge to CBA is now clear. If it is to be a tool of policy evaluation worth supporting, we must embed it in political frameworks that make CBA just as prone to catalyzing regulation, as to derailing it. Moreover, the limits of quantification must be squarely addressed. Posts in this symposium demonstrate a way forward on both fronts, enriching CBA with both immanent and transcendent critiques of past OIRA missteps. We will be thrilled to welcome the symposiasts over the coming weeks: Beth Popp Berman, James Goodwin, Lisa Heinzerling, Zachary Liscow, Melissa Luttrell, Jorge Romano-Romero, Mark Silverman, Amy Sinden, and Karen Tani. Each has done important work in the field, and LPE Blog is honored to host their contributions.

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