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Against Feasibility Analysis

A long time ago, I wrote about President Obama's nomination of Cass Sunstein to head OIRA and noted that some academics and commentators opposed it because of Sunstein's support for cost-benefit analysis. Sunstein is not yet confirmed many months later, not because of the opposition of critics on the left, but because some senators took fright at Sunstein's views about protecting animals from cruelty. This is hardly germane to the nomination to head OIRA, and one hopes that now that the political point has been made, confirmation will come in due course.

Meanwhile, the academic debate about cost-benefit analysis continues. Critics of cost-benefit analysis have argued that a better approach is to use "feasibility analysis." Feasibility analysis requires the regulatory agency to identify hazards and regulate the activities that cause them to the extent possible without causing widespread economic disruption—which is cashed out in terms of revenue or profit loss for the affected industry, bankruptcies, or plant closings. My colleague Jonathan Masur and I have written a new paper that argues that feasibility analysis is a conceptually confused and economically incoherent approach to regulation. It should appeal to neither pro- nor anti-regulatory forces. The abstract is below.

Feasibility analysis, a method of evaluating government regulations, has emerged as the major alternative to cost-benefit analysis. Although regulatory agencies have used feasibility analysis (in some contexts called 'technology-based' analysis) longer than cost-benefit analysis, feasibility analysis has received far less attention in the scholarly literature. In recent years, however, critics of cost-benefit analysis have offered feasibility analysis as a superior alternative. We advance the debate by uncovering the analytic structure of feasibility analysis and its normative premises, and then criticizing them. Our account builds on two examples of feasibility analysis, one conducted by OSHA and the other by EPA. We find that feasibility analysis leads to both under- and over-regulation, and we conclude that it lacks a normative justification and should have no place in government regulation.

Crunchy Frog:

Feasibility analysis requires the regulatory agency to identify hazards and regulate the activities that cause them to the extent possible without causing widespread economic disruption...

Shudder.
8.17.2009 12:43pm
David Schwartz (mail):
So regulations that do more harm than good are fine, so long as they are a response to an identifiable hazard and they don't cause widespread economic disruption.

Talk about an irrational response to risk!
8.17.2009 12:50pm
johnd:

People make up their mind before reading the underlying paper.


Shudder.
8.17.2009 12:50pm
Mark N. (www):
It strikes me that some of the pragmatic differences are similar to those between pure utilitarianism (cost-benefit analysis) and rule utilitarianism (feasibility analysis). Proponents of the latter tend to argue from a viewpoint that, while pure accounting of the pros/cons of every decision might be theoretically superior, applying such a process in practice will result in a lot of error, and so it's preferable to come up with a simpler rule that can be applied more accurately.

Similar concerns seem to drive some Supreme Court justices' skepticism of "balancing tests", because they're difficult for lower courts to consistently apply. Isn't cost-benefit analysis essentially a balancing test?
8.17.2009 1:18pm
SuperSkeptic (mail):
I think the SCOTUS justices who are "balancing tests" averse has more to do with the way those who support balancing tests fail to account for the fundamental rights they should, in theory, be balancing. Scalia is all for balancing "reasonableness" under the 4th, but not about to let Breyer or Ginsburg "balance" the 2nd.
8.17.2009 1:50pm
M. Gross (mail):
Regarding Mark N's response, I just don't find the argument that cost-benefit analysis will result in a lot of error to be very persuading at all.

If they plan to critique it, they need to come up with some evidence. No one is proposing a pure utilitarian approach to weighing every single decision, but simply that we apply reason and logic to our decisions.
8.17.2009 1:52pm
AnthonyJ (mail):
I can think of two basic arguments for feasibility analysis:

1) Cost-benefit analysis is only practical where costs and benefits can reasonably be calculated. Environmental regulations often have extremely high uncertainties, making the analysis not particularly practical.
2) Cost-benefit analysis, done by the regulatory agency, gives the agency too much discretionary power that properly belongs to the legislature, and makes it particularly vulnerable to regulatory capture and similar problems.
8.17.2009 2:03pm
frankcross (mail):
There's actually a decent pragmatic argument for feasibility analysis, notwithstanding its logical incoherence.

Although cost-benefit analysis makes sense in practice, it's hard to implement. Not only are costs and benefits difficult to measure, but the requirement introduces considerable additional administrative effort and uncertainty. I think you have to look at the pragmatic effects of different standards.
8.17.2009 2:58pm
CJColucci:
Sunstein is not yet confirmed many months later, not because of the opposition of critics on the left, but because some senators took fright at Sunstein's views about protecting animals from cruelty. This is hardly germane to the nomination to head OIRA, and one hopes that now that the political point has been made, confirmation will come in due course.

That might be what one would "hope," but is there any reason to think it is true? Was there ever a "political point"? If so, what was it? How has it been "made"? And why would the Senators who thought it worth making think they have now gotten their pound of flesh and will start acting sensibly?
8.17.2009 3:34pm
David Driesen (mail) (www):
Frank is right that feasibility is clearly more pragmatic than CBA in light of data limitations. It's main normative justification is that it does take distribution of costs and benefits into account, by focusing on maximizing avoidance of concentrated harms (e.g. deaths from cancer to a subset of the population; and layoffs that seriously disrupt lives). CBA only makes sense if you think that distribution does not matter. There have been attempts to deal with that, but they aren't very satisfactory.
8.19.2009 2:00pm

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