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Here’s how federal agencies can write more effective regulations — and win regulatory battles in court

Where do agencies put their economists? The answer matters.

- June 17, 2019

The Trump administration’s track record in federal court has not been great. According to a new database from New York University’s Institute for Policy Integrity, courts have repeatedly rejected administration efforts to eliminate regulations.

The main culprit? Typically, courts have found that agencies have exceeded their authority or failed to allow sufficient public comment. But a new issue is likely to dominate in upcoming deregulatory battles. Until now, the Trump administration has been working on undoing Obama administration regulations. It’s about to shift to unwinding regulations that have been on the books for a long time. And for those fights, the courts are likely to look closely at the quality of agencies’ supporting analyses. Whether an agency is initiating a new rule or undoing an old one, courts expect reasoned explanations and evidence. Often that includes economic analysis of the costs and benefits of agency choices.

Our new research suggests that how federal agencies group their economists can affect the quality of their analyses. Here’s why.

How we did our research

In a working paper the Federal Communications Commission released in early April, we suggest that regulatory agencies can improve their economic analysis by giving economists more freedom to be objective. In particular, when an agency separates economists from the program office that writes a particular regulation, the resulting economic analysis tends to be higher quality.

Executive branch agencies must analyze the regulatory effects of any proposed regulations that could have a significant economic impact, as required by President Bill Clinton’s Executive Order 12866. We compared the quality of the analysis produced by agencies that housed regulatory economists in their own unit and those that housed regulatory economists in the program offices that write regulations.

Some agencies locate the economists who analyze regulatory effects together in their own office or bureau, separate from the program offices that write the regulations. Other agencies keep those economists with the program offices. For example, the Environmental Protection Agency’s economists who draft most regulatory impact analyses are seated within each program office, whether that’s air, water, pesticides or some other group. But at the Office of the Comptroller of the Currency (OCC), economists who conduct regulatory and policy analysis are located with all the other OCC economists in a separate economics department.

We studied two samples of economically significant regulations adopted or proposed by 15 executive branch departments between 2000-2009 and 2008-2013 — 229 regulations in total. For both samples of regulations, the quality of analysis had previously been scored by two different sets of researchers using rubrics based on the Office of Management and Budget’s guidance.

We controlled statistically for other factors that might affect the quality of analysis — such as the number of economists in the department, the size of the agency’s regulatory workload, and whether the regulation was produced under a statutory or judicial deadline. Here’s what we found: when economists were grouped together, the quality of their regulatory impact analyses tended to be higher than when they resided within the program offices that wrote the rules.

Some observers worry that separating economists from the program offices will exclude them from rule-making, giving them less influence on regulatory decisions. We found no statistical support for this hypothesis. Some agencies address this concern by including economists on cross-functional teams and allowing the head of the economics office to make independent recommendations directly to decision makers.

Why does organization matter?

First, organization theory suggests that grouping economists together encourages development of a common framework for analysis and makes it easier for them to develop and share ideas on new analytical methods. Having economists supervised and managed by other economists also facilitates quality control of their work, and economist managers are more likely to identify and reward economic expertise.

Second, placing economists in a separate unit where they are managed by other economists frees them to conduct more objective analysis. That’s what Rutgers political scientist Stuart Shapiro found when he interviewed 16 economists and 16 environmental assessors in federal agencies for his 2016 book “Analysis and Public Policy.” It’s harder to be objective when your performance is evaluated by the decision-makers whose proposals you must analyze.

Retired FDA economist Richard Williams reached similar findings when he interviewed economists in most major federal health, safety and environmental agencies. Several recounted times when their supervisors — who were not economists — changed the analyses to support decisions they had already made.

The Federal Trade Commission and the Department of Justice’s Antitrust Division illustrate how housing economists in a separate bureau or division can improve both the quality and the use of economic analysis. Both agencies attract highly-skilled economists, and their research is often published in top peer-reviewed economics journals. Economics is also integrated extensively into antitrust decisions. In its 2015 evaluation, the FTC’s Office of Inspector General wrote, “Virtually all stakeholders interviewed recognized the importance of the [Bureau of Economics’] purpose in providing unbiased and sound economic analysis to support decision-making — a function that is facilitated by its existence as a separate organization.”

Legal scholars — including Cass Sunstein, Jonathan Masur, and Eric Posner — predict that courts will require agencies to consider economic factors more extensively in the future. They point to Michigan v. EPA, a case in which the Supreme Court declared that when developing regulations, regulatory agencies should consider costs if the law does not prohibit them from doing so. If courts pay more attention to economic analysis, the Trump administration’s success in court — and that of future administrations — could depend on how they choose to organize agency analytical teams.

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Jerry Ellig (@ElligJerry) is a research professor at the Regulatory Studies Center, George Washington University. He served as chief economist at the FCC from July 2017-July 2018.

Catherine Konieczny (@CAKonieczny) is an economist at the Standards Evaluation & Analysis Division, United States Coast Guard. She served as an intern in the FCC’s Office of Strategic Plans and Policy in 2018.

The analyses and conclusions set forth in this article are those of the authors and do not necessarily reflect the view of the FCC, other Commission staff members, or any Commissioner, nor are they intended as comment on the organization of the U.S. Coast Guard.