May 5, 2003

RIA Guidelines

  • Susan Dudley

    Director, George Washington University Regulatory Studies Center
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Draft Guidelines for the Conduct of Regulatory Analysis and the Format of Accounting Statements

Stated Purpose:

"This Circular provides OMB’s guidance to federal agencies on the development of regulatory analysis as required under Executive Order 12866 and a variety of related authorities."

Summary of RSP Comment:

Issuing clear analytical guidelines, and holding agencies accountable for complying with them, is an important step toward regulatory reform. Many aspects of the draft guidelines are sound. However, the circular should be more demanding of agencies’ initial justifications of regulatory action. It should stress the comparative analysis of market failure and regulatory failure, and not simply rely on the results of benefit-cost analysis to justify regulatory interventions. This is necessary to avoid the "Planner’s Paradox"--the tendency of planned solutions to appear superior to unplanned market solutions in any forecasting model or benefit-cost analysis.

The circular’s guidance for estimating benefits and costs has some serious flaws, particularly its recommendation for the use of non-market "contingent valuation" benefits and non-market "ethical" discount rates. These recommendations cannot be defended and would undermine the care and detail embodied in the rest of the guidelines. Taken together, they amount to a license to: "Imagine some benefits. Imagine they go on forever. . . ." If these techniques are permitted, then economic analysis will lose its capacity to impose scientific rigor on regulatory decisions. The guidelines should also recognize that regulatory transfer payments impose real costs on society and develop recommendations to account for the associated dead-weight losses.

OMB should leave the current (2000) guidelines in place while it revises the draft guidelines to address these concerns and make it clear that contingent valuation surveys and unrealistic discount rates will not be accepted.