Arnold Kling  

Ignoring Cost-Benefit Analysis

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The Washington Post reports,

The practice of estimating the costs and benefits of U.S. government regulations is "frequently done poorly," with scant evidence that it makes a difference on policymaking.

That's the dismal finding of a recent report concluding that economic analysis had little substantial impact on decisions made by regulators.

Why am I not surprised? Nobody wants to listen to cost-benefit analysis. In the private sector, however, you ultimately don't have a choice. You can't stay in business with a loser.

The analysis is by Robert Hahn and Robert Litan.

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COMMENTS (3 to date)
Matthew C writes:

The truth is, corporate America is almost as awful at engaging seriously with cost-benefit analyses.

Cost-benefit analysis crashes head-first into the agency problem. People in companies want influence and budget, and that depends on having your projects approved and funded to the greatest extent possible, regardless of their absolute or relative merits.

Of course, corporations are subject to the discipline of the market, while governments are much less so. I'd love to see Patri Friedman's idea of dynamic geography come to pass, where governments are subject to much higher levels of competition than today.

Matt writes:

Most of Washington, D.C. would soon be jobless if an executive imposed even a modicum of cost-benefit analysis on their regulations.

Wolfram Latsch writes:

I was delighted to see that in this week's issue The Onion also reflects on the topic - using less conventional but nonetheless incisive terminology:

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