Advice on Guidance: Peer Review of Draft Circular A-4 “Regulatory Analysis”

Abstract Benefit–cost analysis is a protocol for assessing alternative public policies, primarily in terms of efficiency. An important complementary element can be estimating distributional impacts to show net benefits for groups of interest. The fundamental advantage is enabling decision-makers to see and weigh the importance of changes in efficiency and changes in distribution. Rigorous estimates of any distributional effects should incorporate credible baselines, private behavior, and markets. Estimation for groups with limited evidence and data is hard. Primary estimates of net benefits should be based on conventional market values. Any estimates based on distributional weights should be supplementary estimates. Combining them into a single number, risks masking the impacts of efficiency and distribution. The values of regulatory effects to U.S. citizens and residents depend on where the risks of damage take place. Willingness to pay values by U.S. citizens and residents to adopt a global value of benefits to increase the probability of international agreements can be positive but will reflect uncertain negotiation and compliance. The primary analysis should focus on benefits and costs to U.S. citizens and residents within domestic borders. The recommended rate of 1.7% does not reflect the rates relevant for all members of society. Given the emphasis on distribution effects, rates should include those facing rates of 3% or more. Sensitivity analysis should include several rates. The onus should be on making the case for a specific behavioral bias and nudge that will successfully address the perceived problem. Recent meta-analyses of nudge interventions indicate difficulty in implementing effective nudges.