How Well Does the Government Do Cost-Benefit Analysis?

Abstract

To make prudent recommendations for improving the use of cost-benefit analysis in policy settings, some measures of how well it is actually done are essential. This paper develops new insights on the potential usefulness of government cost-benefit analysis by examining how it is actually performed.

We assess the quality of a particularly rich sample of cost-benefit analyses of federal regulations. The data set we use for assessing the quality of regulatory analysis is the largest assembled to date for this purpose. The 55 analyses we examine span the Reagan administration, the first Bush administration and the Clinton administration. The paper is the first to assess systematically how government cost-benefit analysis has changed over time.

There are three key findings. First, a significant percentage of the analyses in all three administrations do not provide some very basic economic information, such as information on net benefits and policy alternatives. For example, over 70 percent of the analyses in the sample failed to provide any quantitative information on net benefits. Second, there is no clear trend in the quality of cost-benefit analysis across administrations. Third, there is a great deal of variation in the quality of individual cost-benefit analyses.

Keywords: cost-benefit analysis, federal regulations, regulatory analysis

JEL Classification: H5, L5