Thanks Danny!
For those who are unaware, Benefit Cost Analysis (BCA) is the main form of quantitative evaluation of cost-effectiveness in the US, UK, and beyond. Two of the biggest problems with it as a method are its counting of the value of a dollar equally for all people (which leads to valuing people themselves in proportion to their income) and a high, constant, discount rate. So the action on both of these are big improvements to quantitative priority setting in the US!
Thanks very much for writing this up! It seems like some very exciting changes.
My understanding is that US regulatory cost-benefit analysis are often quite weak in practice, because the Clinton administration changed the rules away from "benefits exceed costs" to a much more subjective "benefits justify costs". It sounds strange but apparently benefits can justify costs without exceeding them! Do you think it is worthwhile providing feedback that it would be good to return to the prior Reagan administration standards that benefits had to exceed costs?
I think you're referring to the difference between Executive Order 12866 (from the Clinton Administration in 1993) and Executive Order 12291 (From the Reagan Administration in 1981).
The Office of Management and Budget is only asking for comment on Circular A-4 and Circular A-94, not on Executive Order 12866, so I would not suggest making comments on that.
Also, the administration released a new Executive Order 14094 on the same day that the A-4 and A-94 updates were released, which reaffirmed executive order 12866 but made some important changes, for instance increasing the definition of significant regulatory action from $100 million to $200 million, which in my view is a reasonable/helpful thing to do to save administrative capacity. Executive order 12291 required OIRA to look over every regulatory impact assessment regardless of the size, which in consequence meant that they were in inundated with reviewing ~2400 rules a year and therefore it was more difficult to carefully review proposed regulations. OMB is not seeking comment on Executive Order 14094, so I would not suggest making comments on that either.
The part of Executive Order 12866 that is highlighted in the draft A-4 update is: "...in choosing among alternative regulatory approaches, agencies should select those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity), unless a statute requires another regulatory approach." So they are interested in maximizing net benefits. You're right that there is one line in 12866 (which is a 10-page order) that says "Each agency shall assess both the costs and the benefits of the intended regulation and, recognizing that some costs and benefits are difficult to quantify, propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs." My sense is that this was written because there are often important categories of benefits and costs that are difficult to place a reliable value on (or at least one that would get through OIRA review and taken seriously if the regulation is challenged in court). But it's still important to state and discuss important unmonetized in BCA (this is covered on pages 43-47 of the new draft A-4.). Catastrophic impacts that have highly uncertain probabilities often fall in this category (see my discussion in the main post around how break-even analysis is useful in this context). 12866 is making sure that analysts have the option to account for these unmonetized benefits and costs.
In practice, my sense is that agencies do typically want to show that monetized benefits exceed costs, because this makes it more likely that things will pass OIRA review and that the regulation will make it through the courts. I'd highly recommend this interview with OIRA chief Ricky Revesz if you're curious on this: a typical administration has ~70% of its rules upheld when challenged in courts, and a strong benefit cost analysis supporting the rule certainly helps with that process. And in any case, 12866 and the draft A-4 does direct agencies to choose the option that maximizes net benefits. My sense is that the one line of language around benefits justifying costs was intended to address situations where important benefits or costs cannot be reasonably monetized in a way that would pass OIRA review/make it through litigation but are still important. But even so, my sense is that it is rare for monetized costs to exceed benefits in BCAs, and that there was not some type of step-change when 12866 was passed in 1993 where a bunch of regulations were proposed with monetized costs exceeding monetized benefits.
So to summarize, I actually think that small change in language from 12291 to 12866 thirty years ago was on net a good thing and not a bad thing, and in any case they are not asking for comment on the executive orders. But if there are things in the draft A-4/A-94 you like (or not) I'd highly recommend writing a comment.
FYI - OMB has extended the comment period deadline for Circular A-4 to June 20th https://twitter.com/jacklienke/status/1665818966818799617?s=20
However, the Circular A-94 comment deadline is still today.
A-4 comment submission link: https://www.regulations.gov/document/OMB-2022-0014-0001
A-94 comment submission link: https://www.regulations.gov/document/OMB-2023-0011-0001
On April 6, 2023, the U.S. Office of Management and Budget released a draft of the first update to the Federal benefit-cost analysis (BCA) guidelines in 20 years. I saw a nice article in Vox Future Perfect and a nice EA forum post that covered this. These posts cover some of the key points, but I think there are other important updates that might be overlooked. I will highlight some of those below.
The key new documents stipulating the new draft BCA guidelines are:
Why is the update important? Since 1993, U.S. agencies have been required to conduct a regulatory analysis of all significant regulatory actions (the definition of which was just revised from a rule with an annual impact of more than $100 million to $200 million), which includes an assessment of the costs and benefits of the action. Essentially, all major regulatory actions in the U.S. are subject to BCA, guided by Circular A-4.
However, these updated guidance documents are still drafts. They are subject to public comment and peer review and may be changed significantly in light of the feedback received in this process.
If you think that some of these highlights or other parts of the new A-4 and A-94 are a good idea (or if you don’t) I’d highly recommend submitting a public comment via the Regulations.gov system (A-4 link and A-94 link). The deadline for public comments is June 6th.
Positive comments that support the approach taken in the document are equally and often more useful/impactful than critical comments. If everyone who dislikes something criticizes it, and everyone who supports something doesn’t bother mentioning their support, it looks like everyone who had an opinion opposed it! So, if you like the approach taken (or don’t), please write a comment! Also, note that comments supported with the analytical reasons why the approach is (or is not) justified are generally more useful and taken more seriously.
Now on to the highlights:
Noting that I think that making substantive public comments on this draft (including positive comments about what it gets right) is one of the very best volunteer opportunities for EAs right now! I plan to send a comment on the draft before the deadline of 6 June.