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Getting the Numbers Right

| Oct 24, 2011 | Opinion

Those Stuart Shapiro.jpg of us who support benefit-cost analysis (BCA) as a tool to improve regulatory decisions have long sought ways to give such analysis more heft in agency decision making. Judicial review has often been hailed as the best way to make agencies to take more seriously the requirement to conduct BCAs of their major regulatory decisions.

Indeed, the recently proposed Regulatory Accountability Act would provide for judicial review of agency BCAs as one of its most significant reforms. The prevailing thinking seems to be that judicial review will overturn biased analyses and give agencies incentives to produce better analyses in the first place.
Although judicial review is likely to improve BCA somewhat, advocates of BCA would do well to recall the experience of judicial review of Environmental Impact Analyses (EIA), as that experience offers some more cautionary lessons. Like BCAs, EIAs are thorough, comprehensive-rational analyses of government decisions. First required by the National Environmental Policy Act (NEPA) in 1970, EIAs are meant to focus agencies’ attention on the environmental impact of their decisions.
Judicial Statistics.jpgreview of EIAs has hardly been a great success. Scholars have criticized EIAs for having grown into impenetrable documents “that no one can understand and no judge can overturn.” Judicial review has given agencies incentives to produce complex documents that essentially hide the true environmental impacts of their decisions. Agencies’ obfuscation has worked: the federal government has a stellar record before the Supreme Court in defending suits under NEPA. In addition, because of the time it takes to produce these complex EIAs, NEPA appears to some now to serve mainly as a roadblock to timely and efficient agency decision making.
The  threat of judicial review does not seem to reduce bias in agency EIAs either. The State Department’s EIA of its decision about whether to approve the Keystone XL pipeline was reportedly conducted by a firm that has the manufacturer of the pipeline as a “major client.” According to the New York Times, “such arrangements are nearly inevitable” and “federal agencies are supposed to review the findings, but often lack the expertise to do so.”
Judicial review is a double-edged sword, not a panacea. It will likely increase agency incentives to spend more time and effort on BCA. This additional time may even sometimes lead to better analysis and perhaps to better regulatory decisions too.
However, hopes that making BCA judicially reviewable will transform regulations are misplaced. BCA – maybe even more so than EIA – produces inherently variable results, any of which could be judicially defensible. If courts defer to agencies on BCAs, as they regularly do on EIAs, then judicial review will only encourage agencies to provide increasingly complex BCAs that slow down the regulatory process while still allowing agencies eventually to make the decisions they want to make.
Stuart Shapiro is Associate Professor and Director of the Public Policy Program at the Edward J. Bloustein School of Planning and Public Policy at Rutgers University.  From 1998 to 2003, he served as a policy analyst in the Office of Information and Regulatory Affairs within the Office of Management and Budget.

 


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