In Defense of the Economic Analysis of Regulation

In Defense of the Economic Analysis of Regulation

Download file This press release is also available here as an Adobe Acrobat PDF.

FOR IMMEDIATE RELEASE: February 18, 2005

Local and national governments throughout the world require extensive use of cost-benefit analysis and related tools to make multimillion- and multibillion-dollar decisions that significantly affect their citizens’ health and welfare. Recently, however, some legal scholars have criticized the economic analysis of regulation as fundamentally unsound and unusable. The debate over analysis of environmental, health, and safety regulations—which cost $200 billion annually—has been particularly heated. The benefits, which are difficult to accurately estimate, may be even larger.

In a landmark study of this issue, In Defense of the Economic Analysis of Regulation, Robert W. Hahn, an economist who supports the use of economic analysis in measuring regulatory impacts, agrees that placing monetary values on the costs and benefits of regulation is difficult. Nevertheless, Hahn demonstrates that quantitative analysis has provided scholars and practitioners with useful insights into the policy process and has fostered more efficient regulation.

Hahn shows how differences in the cost-effectiveness of different investments in life-saving activities could have important implications for public policy. For instance, it matters whether the government chooses to require reductions in radiation exposure from X-ray equipment ($23,000 per life saved) or radiation emission controls at uranium fuel cycle facilities ($34 billion per life-year saved). Similarly, economic analysis is helpful in deciding whether to pass a mandatory seat belt use law ($69 per life-year saved) or require airbag installation in cars ($120,000 per life-year saved). Governments may, in fact, choose to pursue all of these measures, but since resources are limited, we must have tools to help us prioritize our options.

Using the government’s data from regulatory decisions, Hahn applies economic analysis to the most comprehensive set of federal regulations to date. He finds that cost-effectiveness varies over several orders of magnitude and, most important, that approximately half of the individual regulations would not pass a strict cost-benefit test using the government’s numbers. Hahn shows that reallocating funding to life-saving alternatives in developing countries could save substantially more lives at the same or lower cost.

Rather than eliminate the quantitative analysis, Hahn recommends responding to legitimate concerns raised by the critics by gaining a deeper understanding of its strengths and weaknesses and using it wisely.


# # #

Also Visit
AEIdeas Blog The American Magazine

What's new on AEI

AEI Election Watch 2014: What will happen and why it matters
image A nation divided by marriage
image Teaching reform
image Socialist party pushing $20 minimum wage defends $13-an-hour job listing
AEI on Facebook
Events Calendar
  • 27
    MON
  • 28
    TUE
  • 29
    WED
  • 30
    THU
  • 31
    FRI
Monday, October 27, 2014 | 10:00 a.m. – 11:30 a.m.
State income taxes and the Supreme Court: Maryland Comptroller v. Wynne

Please join AEI for a panel discussion exploring these and other questions about this crucial case.

Tuesday, October 28, 2014 | 9:30 a.m. – 12:15 p.m.
For richer, for poorer: How family structures economic success in America

Join Lerman, Wilcox, and a group of distinguished scholars and commentators for the release of Lerman and Wilcox’s report, which examines the relationships among and policy implications of marriage, family structure, and economic success in America.

Tuesday, October 28, 2014 | 5:30 p.m. – 7:00 p.m.
The 7 deadly virtues: 18 conservative writers on why the virtuous life is funny as hell

Please join AEI for a book forum moderated by Last and featuring five of these leading conservative voices. By the time the forum is over, attendees may be on their way to discovering an entirely different — and better — moral universe.

Thursday, October 30, 2014 | 2:00 p.m. – 3:00 p.m.
A nuclear deal with Iran? Weighing the possibilities

Join us, as experts discuss their predictions for whether the United States will strike a nuclear deal with Iran ahead of the November 24 deadline, and the repercussions of the possible outcomes.

Thursday, October 30, 2014 | 5:00 p.m. – 6:15 p.m.
The forgotten depression — 1921: The crash that cured itself

Please join Author James Grant and AEI senior economists for a discussion about Grant's book, "The Forgotten Depression: 1921: The Crash That Cured Itself" (Simon & Schuster, 2014).

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled today.
No events scheduled this day.