Federal Regulations: Efforts to Estimate Total Costs and Benefits of Rules Page: 6 of 21
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Each of these types of regulations may have direct or indirect costs and benefits.
For example, direct costs of environmental or other social regulations include the
capital equipment and labor needed to meet the environmental or health and safety
standard. Indirect costs can include lost productivity or competitive disadvantages
caused by the need to pay for the direct compliance costs. Most cost and benefit
estimates for non-economic rules do not include indirect effects because they are
extremely difficult to measure (and therefore may understate the total effects of the
rules). Estimates for economic rules are primarily indirect.
In general, the benefits of regulation are harder to measure than regulatory costs,
particularly in dollar terms. For example, the benefits of environmental protection
are often presented in terms of improved health, quality of life, preservation of
ecosystems, and other outcomes of environmental quality that are not traded in the
marketplace. As a result, the value of these benefits is often estimated by economists
through indirect "willingness to pay" models and statistical techniques. These
estimation methods have been strongly criticized by some who consider placing a
value on human life or health inappropriate, particularly when regulatory benefits
occur in the future and are discounted in present value terms.1
Some form of cost-benefit analysis underlies at least some part of most attempts
to assess the cumulative effects of regulations on society. Conceptually, cost-benefit
analysis is a rigorous procedure that involves systematically weighing the costs and
benefits of various alternatives to a proposed action. The analysis is supposed to
account for all of the effects of a regulatory action, including effects that are difficult
to quantify or monetize. Although most economists view cost-benefit analysis as a
useful tool in making decisions about a particular rule, others consider the technique
inherently flawed because (among other things) they believe that the difficulty
associated with measuring regulatory benefits often causes those benefits to be
Since 1981, cabinet departments and independent agencies such as EPA have
been required to prepare cost-benefit analyses before issuing "major" or
"economically significant" rules (e.g., rules with a $100 million impact on the
economy).2 Independent regulatory agencies such as the SEC and the FCC are
generally not required to conduct those analyses, and no agency is required to do so
for rules that are not major or economically significant. Also, as the Supreme Court
affirmed in 2001, some statutes prohibit the consideration of costs when setting
certain health standards.3
1 See, for example, Lisa Heinzerling and Frank Ackerman, Pricing the Priceless: Cost-
BenefitAnalysis of Environmental Protection (Washington: Georgetown University, 2002).
2 The most widely applicable cost-benefit analysis requirements currently in place are in
Executive Order 12866, "Regulatory Planning and Review," 58 Federal Register 51735,
Oct. 4, 1993.
3 Whitman v. American Trucking Associations, U.S., No. 99-1257, Feb. 27, 2001.
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Federal Regulations: Efforts to Estimate Total Costs and Benefits of Rules, report, May 14, 2004; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc805490/m1/6/: accessed May 20, 2019), University of North Texas Libraries, Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.