Costs and Benefits of Quantification. Daniel Farber UC Berkeley

Transcription

1 Costs and Benefits of Quantification Daniel Farber UC Berkeley

2 The Masur & Posner Proposal M&P strongly favor of quantification. In some cases, they argue that data exists or could be readily obtained. Where that is not true, they propose a process of Bayesian earning.

3 Overview of Comment A meta-application of M&P s call for quantification: What are the costs and benefits of their proposal? Can we quantify those? A foundational issue: quantifying the costs and benefits of CBA more generally.

4 What does CBA cost the federal government? What is the marginal cost of M&P? COSTS

5 How Much Does A CBA Cost? Hard to find anything recent on this. A 1996 paper gives a cost of $4.5 million (in 2015 dollars) for a contingent valuation study. 31 JEnv.Econ.&Management 79 A 1997 study by CBO of the cost of drafting the RIA itself (not prior data collection) at $720,000 (2015 dollars). P. 30 n

6 Delay Costs OIRA says the average net benefit per regulation is $4 billion. draft_2014_cost_benefit_report-updated.pdf At a 5% discount rate, the average social cost of a one-year regulatory delay is $200 million.

7 Delay Costs (2) RIAs take almost three years, though some overlaps with other RM activities. Time for formal consideration by OIRA has varied considerably, as high as 180 days in %20OIRA%20Report%20Re-posted% pdf p. 28

8 Delay Costs (3) A half year is a plausible estimate of the total delay caused by CBA including delays due to research and preparation of the RIA, and informal/formal OIRA review). So, at a rough estimate: Average delay cost due to CBA is $100 million/reg.

9 Opportunity Costs Every dollar spent on CBA is a dollar diverted from some other use such as research or enforcement. Suppose the cost of CBA/OIRA review results in one fewer reg. per year across the whole government. That s a $4 billion social cost.

10 M&P Proposal Direct costs for additional empirical studies could be estimated. Incremental delay and opportunity costs would be harder to determine. Opportunity and delay costs of CBA are not insignificant.

11 What are the quantifiable benefits of CBA? What would be the quantifiable benefits of M&P? BENEFITS

12 Improved Regulatory Outcomes No benefit when statute precludes reliance on CBA, or if policymakers ignore CBA. Negative benefit if CBA creates bias against regulation. We have very little empirical evidence. And priors differ widely.

13 OIRA and Regulatory Costs Hahn argued argued little improvement in outcomes. A recent study found that the average costs of rules increased between proposed and final rules. [Sam Batkins in American Action Forum] There are many open questions, but this should give us less confidence that OIRA review is helping to cut regulatory costs.

14 Regulatory Benefits of M&P Three incremental benefits of the M&P proposal: A. Benefit of more studies at time of original RIA. B. Benefit of making priors explicit. C. Net benefit of Bayesian learning. All are unknown quantities.

15 CONCLUSIONS

16 CBA in General Major data gaps. More research would help, but some gaps could be hard to fill. At this point, it is very difficult to say whether the benefits of CBA outweigh the costs. OIRA should hold itself to the same standard as it holds agencies.

17 The M&P Proposals Determining the incremental costs and benefits of the M&P proposal is even more difficult. M&P provide their own priors and a bit of supporting evidence. Their proposal suggests the need for greater efforts to use current data and do follow-up empirical studies.

18 When Should We Quantify? M&P suggest that All quantifiable benefits should be quantified. This suggestion is correct only if it is interpreted to mean All quantifiable benefits should be quantified when the benefits of doing so exceed the costs. That may be true in some cases, but clearly not in others for instance, when the statute precludes CBA.

19 Closing with the Classic Ending... More research is needed.

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