Making Cost-Benefit Analysis Cool Again

With Some Speculations on the Right and the Left

For a number of years, cost-benefit analysis was on the ascendency. If an agency was proposing some regulation, it would be required to show that the benefits justified the costs. Executive Orders from Reagan, Clinton, and Obama imposed that requirement, and the Office of Information and Regulatory Affairs implemented it. Courts were increasingly insistent on some form of cost-benefit balancing. Even Congress got into the act.

Sophisticated and fascinating work was done, in the executive branch and in academic journals, on how to do cost-benefit analysis well. The United States seemed to be becoming a Cost-Benefit State.In short, cost-benefit analysis was cool.

Much of the relevant work emphasized that cost-benefit analysis was a way to test whether regulations would do more good than harm. If we care about social welfare, we ought to know the costs of (say) environmental rules and also their benefits. These kinds of points were developed in great detail by Eric Posner, Matthew Adler, W. Kip Viscusi, Richard Revesz, and many others; they did not seem to have an ideological valence.

A great deal of work was also done to handle hard questions of valuation. What is the value of a reduction in mortality and morbidity? What is the value of providing disabled people with access to public buildings? How can we value risks to children or to animals? What can and cannot be quantified? Lisa Robinson, James Hammitt, and many others did (and are doing) excellent work on such questions.

In government, Reagan was a principal force behind the rise of cost-benefit analysis, and conservatives often saw it as a terrific way to stop regulatory overreach. Those on the left came to it later (if they came to it at all). But Clinton and Obama embraced it, with Obama in particular seeing it as an essential tool (while also emphasizing human dignity). When I headed the Office of Information and Regulatory Affairs from 2009 to 2012, cost-benefit analysis played a significant role.

This is impressionistic, but cost-benefit analysis does not seem as central as it used to be. Here’s a plea: In the coming years, those who are focused on regulatory reform ought to prioritize making cost-benefit analysis cool again.