Cost-Benefit Analysis as a Commitment Device

54 Pages Posted: 30 Jul 2015 Last revised: 9 Mar 2021

See all articles by Matthew Wansley

Matthew Wansley

Yeshiva University - Benjamin N. Cardozo School of Law

Date Written: July 29, 2015

Abstract

Cost-benefit analysis does not age well. As scientific understanding of health, safety, and environmental risks accumulates over time — and as the technology to mitigate those risks becomes more affordable — the assumptions underlying a rule’s cost-benefit analysis obsolesce. Yet because of agency inaction, rulemaking ossification, and inattention to priority setting, outdated rules persist. In order to combat obsolescence, agencies should use cost-benefit analysis as a commitment device. When an agency analyzes a rule, it should precommit to subsequently adopting a more stringent rule than the one it initially promulgates, if and when a private actor credibly demonstrates that the stricter rule has become cost-benefit justified. Using cost-benefit analysis as a commitment device would (1) more accurately calibrate rules over time, (2) induce innovation in risk-mitigating technologies by signaling to investors that future regulation would create demand, (3) improve the adversarial dynamic of the rulemaking process by encouraging innovator firms to defect from entrenched anti-regulatory coalitions, and (4) reorient the way administrations and agencies set regulatory priorities. Cost-benefit analysis has been used to constrain regulation, but it can — and should — be used to compel regulation and expedite the regulatory state’s reduction of risks over time.

Keywords: cost-benefit analysis, regulation, commitment device, risk

JEL Classification: K23

Suggested Citation

Wansley, Matthew, Cost-Benefit Analysis as a Commitment Device (July 29, 2015). 87 Temple Law Review 447 (2015), Harvard Public Law Working Paper No. 15-14, Available at SSRN: https://ssrn.com/abstract=2637508

Matthew Wansley (Contact Author)

Yeshiva University - Benjamin N. Cardozo School of Law ( email )

55 Fifth Ave.
New York, NY 10003
United States

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