Incorporating equity in regulatory and benefit-cost analysis using risk-based preferences

Area of Science:

• Environmental policy
• Public administration
• Economics

Background:

• Standard benefit-cost analysis (BCA) for federal regulations prioritizes economic efficiency.
• Reductions in risk are typically quantified as benefits, with variability addressed through sensitivity or simulation.
• Distributional consequences, or how costs and benefits affect different groups, are often neglected in current regulatory analysis.

Purpose of the Study:

• To highlight the limitations of standard benefit-cost analysis in federal regulatory review.
• To propose specific improvements for the Office of Management and Budget (OMB) to incorporate distributional impacts.
• To advocate for a more comprehensive assessment of regulatory effects, including both efficiency and equity.

Main Methods:

• Review of current federal regulatory analysis practices.
• Analysis of existing guidance from the Office of Management and Budget (OMB).
• Proposal of actionable steps for OMB to enhance distributional impact assessment.

Main Results:

• Current benefit-cost analysis for federal regulations primarily focuses on economic efficiency.
• Distributional consequences are mentioned in OMB guidance but lack specific analytical methods.
• Proposed OMB actions include prioritizing distributional impacts, defining descriptive statistics, identifying subgroup protections, and requiring distributional sensitivity tests.

Conclusions:

• Integrating distributional analysis alongside economic efficiency can significantly enhance the relevance of regulatory impact assessments.
• Specific guidance and enforcement from OMB are crucial for improving the analysis of equity in federal regulations.
• While incurring data and analysis costs, incorporating equity measures leads to more comprehensive and equitable regulatory outcomes.