Performance Standards vs. Design Standards: Facilitating a Shift toward Best Practices

Abstract

Performance standards are typically viewed as a preferable regulatory approach to design standards. Presidential administrations and offices have consistently instructed regulatory agencies to favor performance standards when feasible. Nevertheless, research shows that in many instances, agencies opt for design standards even when performance standards would likely lead to better outcomes. Following a discussion of the benefits and drawbacks of performance standards, we lay out some general principles for agencies when considering alternative regulatory approaches. These principles are intended to help agencies determine whether performance standards are preferable to design standards given the particular aspects of any regulatory issue, and to help agencies avoid potential pitfalls when crafting performance standards. We then present two case studies of recent actions by regulatory agencies — the Federal Railroad Administration and the Federal Aviation Administration — that demonstrate how to shift from design standards to performance standards.

Keywords: regulation, regulatory process, administrative procedure, administrative law, regulatory design, performance standards, design standards, regulatory impact analysis, benefit-cost analysis, regulatory reform

JEL Classification: D73, K2