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On Balance: Review of Economical Writing by Deirdre Nansen McCloskey

Over four decades ago I struggled through my first year of graduate school in economics, a struggle made palatable by the extraordinary professor who taught my first economics course. Deirdre McCloskey was (and is) smart, fun, and eccentric, and she enthusiastically led us through our first pass at economics. Part of that passage included learning to write, for McCloskey held – a notion considered eccentric – that economists should write well. Although good writing remains suspect among economists, Deirdre McCloskey taught me long ago that good writing makes for good economics.

 

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On Balance: Interview With Richard Zeckhauser

In the following interview I asked Richard Zeckhauser to recount what it was like to be part of the “Whiz Kids,” the name given to a group of experts with which Robert McNamara (then Secretary of Defense and later President of the World Bank) surrounded himself in order to turn around the management of the United States Department of Defense in the 1960s. The group sought to shape government decision making by bringing in economic analysis, operations research, game theory, and computing, as well as by implementing new methods, such as Planning Programming Budgeting System (PPBS). Their efforts did a lot to extend and solidify the influence of the principles of benefit cost analysis in U.S. Federal government decisions.

 

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On Balance: Using Congressional Hearings to Identify Policy Impacts

The field of benefit-cost analysis is replete with guidance on theoretical and empirical valuation of impacts. Many fewer resources, however, are available for analysts to consult when determining the set of policy impacts to value in the first place. This post describes a new article published with co-authors Joseph Ripberger, Wesley Wehde, Hank Jenkins-Smith, Carol Silva, Kuhika Gupta, Benjamin Jones, and Robert Berrens, in the Spring 2019 Issue of the Journal of Benefit-Cost Analysis. The article, entitled, ‘Benefit-Cost Analysis, Policy Impacts, and Congressional Hearings,’ proposes a method for identifying policy impacts that contributes a degree of systematism, transparency, and replicability to the process.

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On Balance: Looking Below the Surface at Regulatory Compliance Costs

Academic researchers and government institutions have both encouraged retrospective analysis of the costs and benefits of regulation to facilitate evidence-based review and possibly revision of the design and stringency of existing regulations (White House 2012; Morgenstern 2015). However, rigorous examples of these types of ex post analyses are relatively rare. This post describes a study comparing the retrospective costs (evaluated ex post) of a U.S. Environmental Protection Agency (EPA) regulation to the cost estimates reported during the regulatory process (calculated ex ante). These findings are reported in more detail in a recent article, “Retrospective Evaluation of the Costs of Complying with Light-Duty Vehicle Surface Coating Requirements,” published in the Spring Issue of the Journal of Benefit Cost Analysis, with co-authors Nathalie Simon and Ann E. Ferris.

 

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On Balance: Assessing Ohio’s Use of Benefit-Cost Analysis

Since Ronald Reagan’s 1981 Executive Order 12291 established benefit-cost analysis as standard practice for major rule changes, benefit-cost analysis has been commonly used to assess the efficiency of proposed federal regulations. Because of this and subsequent executive orders, all federal regulations that are projected to have a total economic impact of over $100 million are subject to a full benefit-cost analysis. Despite this prevalence at the federal level, benefit-cost analysis is much less common at the state level. In 2013, the Pew-MacArthur Results First Initiative released a study of the use of benefit-cost analysis in the states (study results were subsequently reported in the Journal of Benefit Cost Analysis in 2015). The study found that, over the four years from 2008 to 2011 states conducted only 36 full cost benefit analyses and 312 partial cost-benefit analyses. This averaged out to 9 full analyses and 78 partial analyses per year across all 50 states.

 

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On Balance: The Costs and Benefits of Deregulation

Administrative agencies, courts, and litigants are just coming off two years of intense debates over the legality of agency deregulation through delay. One fascinating development has been how significant cost-benefit analysis has been in these debates. Cost-benefit analysis has formed the basis for several important court losses suffered by the administration. (See Air Alliance 2018; California 2017.) Now agencies have proposed to repeal many big-ticket rules, including the Clean Power Plan, the Clean Water Rule, and vehicle emissions standards. A key question is what role cost-benefit analysis will play in the upcoming legal battles over repeals.

 

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On Balance: From the SBCA President: Impressions of the 11th Annual Conference

The 2019 Annual Conference and Meeting of the Society for Benefit-Cost Analysis took place March 13-15 at George Washington University’s Marvin Center. The conference was attended by 329 friends of benefit-cost analysis, the largest number of attendees since the first conference in 2008. The attendees were treated to a cornucopia of benefits and costs, eminent speakers, and good conversation.

Forty-three conference sessions covered topics presented by researchers and practitioners from around the world, reflecting the global applications of benefit-cost analysis and the reach of the Society. Presentations tackled subjects as diverse as the Olympics, taxes, crime prevention, international environmental agreements, sanitation, prohibition, deregulation, drawbridges, nudges, and the statistical value of a dog life. Discussants’ perspectives, questions and comments from audiences, and spirited talk during breaks and evening receptions were often as enlightening as the presentations themselves. It all came together to create an ideal event for those who care about benefit-cost analysis.

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On Balance: Trump’s Deregulatory Record

In his campaign for the US presidency, candidate Donald Trump advocated widespread deregulation of the US economy. Upon taking office, President Trump quickly issued policies to fulfill his campaign promises. Midway through his term, it is fair to ask: Is deregulation being accomplished?

To answer this question, we recently completed a study of the Trump deregulatory record at the two-year mark (Belton and Graham 2019). We interviewed dozens of regulatory experts, reviewed the literature, searched regulatory databases, and conducted original analysis. We deliberately chose not to take a position on whether deregulation is in itself good or bad, but rather to focus on whether the Trump Administration has been effective in deregulation.

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On Balance: Books of Interest

The editorial staff have identified these books that are a bit off the beaten track of Benefit-Cost Analysis, but yet might have some interesting lessons.

 

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On Balance: How Expanding Health Insurance Coverage Reduces Financial Risks

When researchers and policy analysts consider the benefits of expanding health insurance coverage, they understandably focus first on the health benefits, such as reduced infant mortality, increased longevity, lower rates of illness, and improved quality of life. However, access to insurance also lowers financial risk exposure—i.e., it protects the household against major shocks to its financial well-being—by mitigating lost earning capacity and helping to cover out-of-pocket health care expenditures. This post describes a new article published in the JBCA, Valuing Protection against Health-Related Financial Risks  with co-authors Kalipso Chalkidou and Dean Jamison, which is part of an open access Special Issue, Conducting Benefit-Cost Analysis in Low- and Middle-Income Countries, edited by Lisa Robinson (Harvard T.H. Chan School of Public Health).

 

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On Balance: Social Welfare Effects of Smoking Bans in Bars and Restaurants

Since the 1964 Surgeon General’s report linking smoking cigarettes to adverse health outcomes, numerous federal, state, and local governments have passed regulations designed to reduce the prevalence of smoking and related externalities. Examples of such regulations include cigarette taxes, public health campaigns, minimum purchasing ages for tobacco, and – the focus of this post – smoking bans in bars and restaurants. While the links between smoking and health are clear, the effects of these bans on social welfare, which includes other types of risky behavior as well as smoking, are less well understood. This post describes work-in-progress to address some of the gaps. Preliminary results will be presented at the Annual Conference and Meeting of the Society for Benefit-Cost Analysis in March 2019.

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On Balance: Using Retrospective Analysis to Increase Policy Learning in Europe

A retrospective exercise is an opportunity to learn and improve. With this in mind, an international consortium led by CSIL (Centre for Industrial Studies) recently developed an evaluation framework to carry out a retrospective assessment of infrastructure projects in several environmental sectors. The framework was developed as part of a study being carried out on behalf of the European Commission (Directorate-General for Regional and Urban Policy) to look retrospectively at 10 of the major infrastructural projects co-financed by the Commission over the period 2000 to 2013. While it will come as no surprise that, in retrospect, forecasts are imperfect, learning from mistakes or unexpected outcomes may improve the quality of forecasts. In turn, better forecasts may lead to better policy-making. This post reports some preliminary results from the study; more complete results will be presented at the Society for Benefit-Cost Analysis Conference in March 2019.

 

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On Balance: Can Cost Benefit Analysis Tell Us If Our City Should Host the Olympics? It Does. But Could Do It Better.

There is growing skepticism among both academics and government officials about the benefits of large-scale sport and cultural events. Although Input-Output (IO) has long been the dominant approach to estimating the impacts of these events, the method faces criticism for both its lack of realism and the incompleteness of its results. Consequently, economists have begun to turn to two alternative approaches: computable general equilibrium (CGE) and cost-benefit analysis. These approaches can take into account effects not captured within an IO framework. They also often produce strikingly different results than those obtained using an IO model. This post reports some preliminary results from ongoing research evaluating nearly 60 studies that use cost-benefit methods to evaluate events. More complete results will be presented at the Society for Benefit-Cost Analysis Conference in March 2019.


An IO approach is fundamentally a multiplier approach, converting expenditures (on infrastructure, for example) into gross production in the host city. One limitation is that IO treats expenditures, such as those for infrastructure or by the local population, as fully additional; since this approach does not take account of substitution (i.e., that these resources have been diverted from other uses), it may overstate the favorable economic impact of an event. Another concern is IO’s focus only on gross domestic product and other related impacts, rather than on welfare, which also recognizes externalities and opportunity costs (Massiani 2018).

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On Balance: Review of The Cost-Benefit Revolution by Cass R. Sunstein

Fomenting revolution brings to mind crowds storming the barricades, not analysts struggling to debug a spreadsheet or craft a clear sentence. Yet in his book, The Cost-Benefit Revolution, Cass Sunstein (Robert Walmsley University Professor, Harvard Law School) argues that benefit-cost analysts are doing exactly that. The barricades we surmount are decision-making errors resulting from overreliance on intuition and emotion, our weapons are science and economics, and our achievements are better policies.

As a previous Administrator of the Office of Information and Regulatory Affairs in the U.S. Office of Management and Budget, which oversees the U.S. regulatory program, it is not surprising that Sunstein focuses on the use of benefit-cost analysis in the regulatory realm. However, his insights and conclusions are broadly applicable to wherever benefit-cost analysis is practiced.

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On Balance: Two quick fix solutions to baseline estimation challenges: good enough for practical analysis?

Since 2010, I have been a practitioner of practical benefit-cost analysis at Environment and Climate Change Canada (ECCC), working with colleagues to inform policymakers and stakeholders about the likely impacts of proposed federal environmental regulations. I would like to examine a key issue in developing estimates of the benefits and costs of these regulations: the development of the baseline in a benefit-cost analysis.

In recent years, a number of articles in the Journal of Benefit Cost Analysis have addressed the question of how best to conduct—and evaluate—a regulatory benefit-cost analysis. Two of these subsequently resulted in posts to On BalanceConsumers Guide to Regulatory Impact Analysis, by Susan Dudley, and Two Decades of Benefits and Costs: Promise and Pitfalls, by Clark Nardinelli. Another article by Richard Morganstern, Retrospective Analysis of U.S. Federal Environmental Regulation, examines various estimates for environmental rules and analyzes issues relevant to developing credible baselines.

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On Balance: What’s the Score? The Congressional Budget Office and its Role in the Policy Process

The Congressional Budget Office (CBO) plays an important role in the federal legislative process. CBO’s score on a given bill—that is, its estimate of how it would affect the federal budget deficit—can determine whether Congress decides to go forward with the bill, modify it to get a more favorable estimate, or simply drop it. Given their importance, debates over CBO’s scores and the methods they use to produce them can be as controversial as the bills that are being considered. While this controversy can be politically motivated (with advocates on either side of an issue arguing for a score that is more favorable to their position), it also stems from limited understanding of CBO’s intended role in the process—and reflects the difficulty of conducting analyses of benefits and costs in the context of policy decisions.

 

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On Balance: Using Cost-Benefit Analysis to Make the World a Better Place

If you had billions of dollars to make the world a better place, and could spend it however you wanted, how would you maximize your impact? This is not just a thought experiment, but a daily concern for the world’s governments, philanthropists, and multilateral institutions. Since 2004, Copenhagen Consensus has been using cost-benefit analysis to help decision makers identify highly effective interventions. While most cost-benefit analysis seeks the best solution for a single problem, Copenhagen Consensus takes a wider view, looking across all major domains for policies that improve social welfare.

 

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On Balance: Nudging Electricity Consumption

Nudges are all the rage in behavioral economics and public policy applications around the world because of their potential for doing good at little or no cost. Economists, including Kip Viscusi (2018), have begun examining previously unexplored sides of nudges including some involving energy consumption. An often employed nudge in the area of conserving energy and reducing pollution is the home energy report, where after a home energy survey a household receives a message, usually monthly, that compares its energy use to that of neighbors and suggests ways to reduce electric or gas use and, in turn, its carbon footprint. Each month the consuming unit can also see how its energy use compares to its own past usage too. The subtleties of the benefits of home energy surveys and home energy reports is the subject of a recent article, "Differential and Distributional Effects of Energy Efficiency Surveys: Evidence from Electricity Consumption," available open access at the Journal of Benefit-Cost Analysis.

 

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On Balance: Review of "Cost Benefit Analysis" by Per Olov Johansson and Bengt Kristrom

Cambridge Elements has created a series on Public Economics, edited by Robin Boadway, Frank Cowell and Massimo Florio. This is part of a major project by Cambridge University Press, which is intended to provide peer-reviewed analytical surveys and frontier topics in all the disciplines. We happily note that the first published “Element” in this series is Cost Benefit Analysis, by Per-Olov Johansson and Bengt Kriström (2018). Cost-Benefit Analysis is available as a free download for a limited time, and is for sale (relatively inexpensively) in print at Cambridge and at online booksellers, such as Barnes and Noble. The Element is just above eighty pages (plus a short technical annex and a long list of references).

Encompassing the whole of Cost-Benefit Analysis in such a reduced volume is a tour de force, as acknowledged by the authors in the prologue. The aim is to provide a comprehensive and non-technical state of the art overview of Cost-Benefit Analysis, including both basic classical results and some new frontiers. It has been successfully reached.

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On Balance: Executive Order 12866 and the Durability of Core Regulatory Principles

On September 24, 2018, experts gathered at the George Washington University (GW) to commemorate the 25th anniversary of Executive Order (E.O.) 12866Regulatory Planning and Review—and discuss the implications of its provisions and future prospects. The Society for Benefit-Cost Analysis (SBCA) cosponsored the event with the GW Regulatory Studies CenterABA Section of Administrative Law and Regulatory Practice, and the Trachtenberg School of Public Policy and Public Administration. (Additional information on the event, including commentaries by the speakers, and videos when they become available, are posted on the GW website.)

 

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