Center for Progressive Reform

Cost-Benefit Analysis

Bad Numbers, Bad Decisions

CPR’s Member Scholars have written extensively on the many methodological and conceptual deficiencies built into the way cost-benefit analysis is applied to regulations aimed at protecting the health, safety and the environment. The distortion and over-reliance on cost-benefit analysis is just one of several problems with the way the White House Office of Management and Budget (OMB) exercises its control over the federal regulatory process.

On January 30, 2009, President Obama issued a memorandum directing the Office of Management and Budget, working in consultation with the heads of executive departments and agencies, to submit recommendations for a new Executive Order on regulatory review.  Several days later, the President revoked President George W. Bush's Executive Order 13422, which essentially established that Administration's regulatory process, one that had come under withering criticism for hampering regulatory agency efforts to protect health, safety and the environment.  President Obama's memorandum called for recommendations for a new regulatory process by mid-May 2009.  

On February 20, 2009 Center for Progressive Reform Member Scholar Rena Steinzor wrote a letter to OMB chief Peter Orszag submitting preliminary comments for OMB consideration as it prepares its recommendations and calling for a formal comment period.  OMB took that advice, and solicited comments.  On March 16, 2009, CPR Member Scholars John Applegate, Robert Glicksman, Thomas McGarity, Sidney Shapiro, Amy Sinden, Rena Steinzor, and Robert Verchick (collectively the CPR board) filed formal comments calling on OIRA to abandon its role of conducting centralized regulatory review.  The Scholars further wrote:

The new Executive Order must replace cost-benefit analysis as a determinative factor in regulatory decision-making for two reasons: (1) it is inconsistent with the law in most cases and (2) it has failed as a tool of regulatory analysis.

Noting that only 2 of the 31 statutory provisions undergirding the regulatory system mandate the use of cost-benefit analysis (see chart), the scholars recommend that OIRA instead use “pragmatic regulatory impact analysis” (PRIA). They wrote that PRIA:

starts from the premise that the agency should employ the particular standard-setting method that Congress specified in the relevant statute….The key characteristics of a pragmatic regulatory impact analysis are its emphasis on all the factors specified by the statutes, and its reliance on informed judgments by a full range of scientific, technical, legal, and managerial experts at agencies with respect to those central issues. These characteristics make for a decision-making process that is more transparent, inclusive, and effective.

CPR's work on OMB and cost-benefit analysis includes:

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