Legal Commentary

Kindler, Gentler Cost-Benefit Analysis

By Jonathan H. Adler

In the new issue of Regulation I review Retaking Rationality: How Cost Benefit Analysis Can Better Protect the Environment and Our Health by NYU?s Richard Revesz and Michael Livermore, a progressive defense of cost-benefit analysis, albeit reformed to make it more regulation-friendly.  My review is available here (beginning on the third page of the PDF).  Here is how I conclude:

Revesz and Livermore claim their reformswould yield ?an administrative state that is more efficient and fair, and deliversmore environmental, health, and safety protection for less cost.? Who could be against that? They argue that ?the most appropriate and natural role for cost-benefit analysis is to help find the regulatory sweet spot, the optimal point that is between not enough and too much.? Yet at other places, it is unclear whether their aimismore ?neutral? regulatory analysis or simply more regulation. While they often stress the importance of ?neutral? analysis, they also presume such analysis will produce particular results, and trumpet this claim to their presumably progressive audience.

They are correct to highlight the need to consider the distributional implications of regulatory decisions. But they ignore the broader ethical questions about when government intervention in private economic decisions is appropriate. Cost-benefit analysis can inform regulatory policy, but it is
insufficient to determine when regulation is itself desirable. It is a powerful tool that can enhance the understanding of a regulation?s likely effects, but it is also prone to misuse. It can provide a veneer of technical precisionto regulatory judgments and augment the political case for action.

As the authors show, pro-regulatory interests could have much to gain by deploying a regulation-friendly cost-benefit analysis. Yet this will not make it any more ?neutral,? nor will it ensure that better regulatory policies result.

Full post as published by The Volokh Conspiracy on January 12, 2010 (boomark / email).