Rethinking the Role of Cost-Benefit Analysis

Abstract:     
In their excellent new book, Retaking Rationality, Richard Revesz and Michael Livermore make a strong case for reforming cost-benefit analysis (CBA). Too often, as they convincingly document, CBA has been identified with an anti-regulatory agenda rather than reflecting sound economic analysis - and I would add, too often CBA has served as a means of hindering the implementation of statutory mandates. Their specific proposals for reforming CBA seem sensible. So does their desire to reform the role of OMB in overseeing regulatory policy.

The trouble is that these reforms do not go far enough. The antiregulatory bias of OMB certainly has handicapped environmental policy, but more fundamental changes are needed if we are to achieve real progress. Toxics policy needs to be rethought from the ground up along the lines of the EU REACH Directive, while climate policy needs to be guided by a precautionary attitude toward mitigation and a search for robust adaptation strategies. As an institutional home for overseeing these efforts, we should consider revamping OMB into an Office of Management, Budget and Sustainability.

Number of Pages in PDF File: 51

Keywords: Cost-Benefit Analysis, environmental regulation, climate change, model uncertainty

JEL Classification: I18, K32

working papers series