Identifying Alternatives: Some Old, a Little New, by Daniel Deacon
*This post is part of a symposium on Modernizing Regulatory Review. For other posts in the series, click here.
I’m going to focus on OMB’s proposed revisions to Circular A-4’s section on “alternative regulatory approaches,” which is housed at what would be section 6 of the revised Circular.
First, some background. To do cost-benefit analysis—or any other form of comparative policy analysis—it’s important to specify the alternatives available to the policymaker. Those alternatives then represent the options from which the policymaker can choose in order to maximize net benefits.
The question is, how to come up with the alternatives that merit inclusion in the policymaker’s analysis? That question can’t be answered by cost-benefit analysis, because at that point the costs and benefits associated with the alternatives are unknown. I have a recently posted article exploring how to identify alternatives for purposes of judicial review. The considerations are different when it comes to agencies’ own internal cost-benefit analyses. But the basic problem is the same: An agency cannot feasibly explore literally all possible alternatives, and its decision of which to analyze is likely to be highly dependent on the policy context and the agency’s own judgment.
Nevertheless, Circular A-4 provides general guidance to agencies on categories of alternatives that may merit consideration. And the proposed revisions to Circular A-4 alter that guidance in some respects. What follows are a few of my thoughts.
First, to my eye the revisions make few, if any, fundamental changes. By and large, the changes elaborate on what was already in place. I think it’s fair to say that the existing Circular A-4 has a certain flavor consistent with its Clinton-era roots. In its section on alternatives, agencies are counseled to consider performance standards in addition to design standards. To consider market-oriented approaches along with “direct controls.” To consider substituting informational approaches for mandates. You get the picture.
The revisions largely add to the basics. The section on informational approaches, for example, is broadened to include attention to “nudges.” Accordingly, agencies are advised to think about setting “sensible default rules” and “increasing the salience of certain factors or variables.” Similar additions abound.
This is not meant as a criticism of the proposed revisions. Things like nudges that were understood much less well when the existing Circular took shape certainly deserve a place at the table, and in terms of updating I think the proposed revisions do quite well. But those hoping for a more thoroughgoing revolution in how the government does business may be disappointed.
Second, although you have to squint a bit to find changes, you will find them. But they are subtle and, on occasion, perhaps too subtle. One example. The existing Circular A-4 has a section entitled “The Presumption Against Economic Regulation.” That section states that “a particularly demanding burden of proof is required to demonstrate the need for” certain kinds of regulation, including “price controls in competitive markets.”
In the proposed revisions to Circular A-4, that section is moved down and retitled “A Note Regarding Certain Types of Economic Regulation.” The note cautions that “it is particularly difficult to demonstrate positive net benefits” for certain kinds of regulation, including “price controls in well-functioning competitive markets.”
What to make of this? Luke Herrine explores the issue at the LPE Blog, and I recommend his analysis. I would express the puzzle as follows. If price regulation would make an improvement over the market, doesn’t that demonstrate the market isn’t “well-functioning”? But merely demanding that price controls (or the other listed types of economic regulation) would make an improvement over the relevant alternatives, including the market alternative, is just asking that they pass “normal” cost-benefit analysis. There isn’t need for a special section to make that point.
I think the idea must be that the types of economic regulation listed should normally just not be considered by the agency as part of its detailed cost-benefit analysis—presumably because, as mentioned at the outset, agencies cannot undertake detailed consideration of every alternative and should therefore prioritize those alternatives that are most likely to bear fruit. Stated abstractly, that sounds sensible enough, though it may result in agencies failing to consider approaches that would, upon analysis, turn out to be net beneficial (in my neck of the woods, Tejas Narechania has made a case for broadband rate regulation). It also doesn’t sound very different than what the current version of Circular A-4, with its “presumption against economic regulation,” was trying to communicate. If the changes are meant to be meaningful, if the addition of “well-functioning” is meant to make a difference, it would be good to have a better sense of how.
Finally, and in a similar vein, I think the revised Circular A-4 could do more to explain how the new emphasis on distributional concerns may make a difference when it comes to the range of alternatives agencies consider. To be sure, the proposed revisions state in the introductory matter to the section on identifying alternatives that “it may be worthwhile to consider preliminarily analyzing regulatory alternatives that may have important differences in distributional effects” and refer the reader to the section on analyzing such effects, which also mentions the interaction between distributional effects and the identification of alternatives. But I came away thinking the guidance provided was a little thin. At minimum, it may be worthwhile to devote a separate subsection (alongside current subsections on things like “different compliance dates”) to the issue, if only to symbolically elevate it and ensure it makes its way onto agencies’ checklists.
Daniel Deacon is an assistant professor of law at the University of Michigan Law School.