The Evolution of Benefit-Cost Analysis into Federal Rulemaking

Editor’s Note: Please see the detailed discussion of Dr. Schmid’s pioneering work here. Also see EPA’s internal review of its use of benefit-cost analysis which states, “Beginning with the “Quality of Life” reviews under the Nixon Administration, the requirements for review by OMB have evolved from a relatively simple analysis of costs to the comprehensive benefit-cost analyses required for the current Regulatory Impact Analyses. Often, the factors required for review by OMB are not the same as those specified for consideration in the environmental statutes.

From: Yale Notice & Comment | A Blog from the Yale Journal on Regulation and the ABA Section of Administrative Law & Regulatory Practice

by Jim Tozzi

Nearly fifty years ago Alan Schmid, a visiting professor working at the Office of the Secretary of the Army, made a game changing announcement to his colleagues in the Systems Analysis Group housed in the Pentagon. Schmid argued that the then use of benefit-cost analysis, which was applied to capital expenditure projects such as dams and waterways, should be extended to federal regulations. The systems analysts in attendance were dumbfounded by the idea of applying benefit-cost analysis to a pile of paper as well as to a pile of concrete.

The staff of the Systems Analysis Group made an immediate search of the then-existing benefit-cost literature to determine if there were others that shared Schmid’s views—there were none. Subsequent to Schmid’s departure from the Systems Analysis Group it became apparent that if benefit-cost analyses were to be applied to regulations then some entity had to check the accuracy of the benefit-cost analyses thereby leading to centralized regulatory review.

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