As we embark on the creation of the OIRA Teaching Module we have encouraged the participation of a wide range of disciplines including, economics, law, public administration, political science and public polity.

Mr. Joe Vladeck, a student at Georgetown Law, prepared the attached paper on benefit/cost analysis.

Mr Vladeck opines,

As long as taking time will lower uncertainty, either passively or actively through an investment in information gathering, and some costs are irreversible, such as the potential costs of a sunk investment, a benefit can be assigned to the option to delay a decision. That benefit should be considered a cost of taking immediate action versus the alternative of delaying that action pending more information. However, the burdens of delay—including any harm to public health, safety, and the environment—need to be analyzed carefully.

..this Note seeks to illustrate the unavoidable shortcomings with ex ante analysis—that regulators simply cannot predict the future. This Note’s stylized models demonstrate how regulators could combine real options techniques for ex ante regulatory decisionmaking with empirical ex post regulatory review. This would further the laudable goal of using actual information, rather than predictive guesswork, to drive regulatory decisionmaking.

Read the article, Vladeck, “Valuing Regulatory Flexibility: A Real Options Approach to Cost–Benefit Analysis.”