Bringing Cost-Benefit Analysis to the States

Two Harvard professors have a plan to improve state-level regulation.

This illustration can only be used with the Sarah Smith story that originally ran in the 10/31/2015 issue of National Journal magazine.

Two Harvard professors—law school professor Cass Sunstein, who served for three years as the head of the White House Office of Information and Regulatory Affairs (OIRA), and Kennedy School professor Edward Glaeser—have an idea that they think would help improve state-level regulation. States, they say, should have offices modeled on the federal OIRA that would conduct cost-benefit analyses on proposed regulations. I recently spoke with Sunstein about the idea. Our exchange has been edited and condensed.

—Sarah Smith

What problem would this idea address?
The basic idea is that we have regulations all over the United States, some of which are doing a lot of good, some of which aren’t, and most of which have never been subject to careful assessment of costs and benefits. If you have a regulation that requires people to get licenses to cut hair, or engage in home services of some kind, there’s a pervasive question of whether those are justified. The same is true of environmental regulations or purported safety regulations emerging from state and local governments. On the federal side, we’ve moved in the last decade toward a cost-benefit state, where there’s careful assessment of costs and benefits, and the reason for that is to get a handle on the human consequences of what governments are doing. Notwithstanding the imperfection of cost-benefit as it’s practiced, it’s a very valuable tool to make sure we aren’t hurting people without compensating benefits and to make sure we aren’t leaving off the table opportunities for really helping people.

What kind of regulating bodies do states have, if any?
Some states are very careful before issuing regulations, mostly through political checks. There are others that are less careful. I’m not aware of any state that has something very close to the national process of careful cost-benefit analysis.

What would a version of OIRA look like at a state level?
One size does not fit all. I think states should consider the following models: One is to have a formal office, which could be relatively small. It could have four people, it could have 15 people. It would operate as a clearinghouse for regulations, at least those that have a certain economic impact. It would make sure that an adequate analysis of the impact in economic terms has been done and have the authority to block regulations subject possibly to override by the governor. That’s similar to the national model. Another possibility is to have a small office that would be like a filter in a way that wouldn’t be as economically insistent but would require a more qualitative demonstration that there was a genuine problem being solved and that the solution is better than the problem. It could be a less elaborately economistic office—just people acting as a screen. A third possibility is to use an existing institution—the governor’s office—and to empower people already there as the designated regulatory clearinghouse.

What kind of people should be in these offices?
The best path is one in which the office does not consist of political people. Exactly what we want to get away from is undue politicization of the regulatory process. They may be people with advanced degrees in economic analysis; they could be lawyers; they could be graduates of public-policy school.

What would it take to make this happen?
Political will. It shouldn’t be hard. Take your preferred state: If the governor wants something like this, there’s a good chance it can happen. I know from informal discussions that some governors really want to do this—especially in states that are having real economic problems. I was privileged to head the White House Office of Information and Regulatory Affairs, and one thing I saw close up is whether you’re a Republican or a Democrat, you’re likely to favor an institution of that kind because it can help prevent regulations that really aren’t justified. We think it would be more feasible to do it at the state level than small towns. You could easily imagine Los Angeles or San Francisco or Boston having at least a small office of this kind, but it’s probably more feasible to think that New York state or Texas should have one.