Tag Archives: cost/benefit analysis

The Costs of Regulating–and Not Regulating

A few days ago, I wrote about the REINS Act, a Congressional effort to block administrative regulatory activity. A commenter asked for a discussion of what we know about the costs of regulation, so I did a bit of research.

What I discovered reinforced my belief that the answer to most questions is: “it depends,” and/or “it’s more complicated than that.”

It turns out that there is not a lot of research calculating the costs of regulatory activity, and what does exist comes to very inconsistent results. Scholars argue about how such costs should be measured, and how best to conduct accurate analyses.

Despite these uncertainties, it is standard procedure to subject proposed rules to a cost/benefit analysis before they are promulgated. Since those analyses are being conducted prior to the implementation of proposed regulations, they are based upon estimates of both the costs and the benefits, and no matter how good-faith those estimates, they are essentially guesswork.

Anti-regulation politicians who throw around huge numbers that “demonstrate” how burdensome regulations are rarely admit that there is very little agreement on those numbers, nor do they address the benefit side of the equation, so a concrete example, assessing the actual costs of regulations that have been in effect for a long enough period of time to permit more accurate assessment, is instructive.

Vanderbilt University recently studied the compliance costs the university incurred, and came up with a big number. 

So let’s see which of those nasty, costly regulations we could dispense with.

The great majority of the university’s compliance costs were connected to research. There are a number of stringent rules governing academic research: some require respecting the privacy of human subjects, others ensure that volunteers in medical studies have information they need in order to make informed decisions about their participation. Still others ensure that the research will not pose unnecessary risks to individuals or communities.

Which of those “costly” rules should we dispense with?

Universities also bear the costs of obtaining accreditation. Accrediting agencies require lots of information in order to ascertain whether a given institution of higher education is providing…what’s that called?…education. Without accreditation, students would have to make expensive decisions about attendance without knowing whether the “product” had been adequately vetted, and whether a degree from that institution would be valued or discounted by potential employers.  (Actually, I’d favor a far more rigorous examination, since some “accredited” schools hardly seem to merit that credential. But that is a post for another day.)

Universities must also comply with regulations that are generally applicable. They must, for example, abide by rules governing immigration. Would the Congressional critics of regulatory costs prefer that University personnel turn a blind eye to the immigration status of their students? What about Human Resources regulations requiring compliance with civil rights laws?

Whole industries must comply with costly regulations governing food and drugs. Even if we could measure those costs with reasonable accuracy, how should we count the benefits? How do we determine–let alone value– the number of lives saved? How do we calculate, let alone value, reductions in illnesses from impure drugs or spoiled foods?

It seems likely that the REINS Act is aimed at environmental regulations. How do we value the benefits of clean air and water?

None of this is to say that all regulatory activity is wonderful or necessary. The “take away” is that both purported costs and anticipated benefits should be viewed with healthy skepticism, and all regulations should be evaluated individually and on their own merits.

Bottom line: it is perfectly justifiable to argue that the benefits of a specific regulation are not worth the costs involved in complying with that particular regulation. But ideological arguments against an activity called “regulation” are–excuse the expression–bullshit.