National Academy of Sciences on OMB Cost-Benefit Analayis (1990)

Editor’s Note: Since criticism of OMB’s regulatory review duties continues to be in fashion among even the most distinguished administrative law scholars, it is worth reviewing reviewing the 1990 report by the National Research Council on OMB’s cost-benefit analysis.

From: The Politics Of Benefit-Cost Analysis (Chapter 3: Valuing Health Risks, Costs, and Benefits for Environmental Decision Making: Report of a Conference)

R. Shep Melnick

It is hardly surprising that the use of cost-benefit analysis, quantitative risk assessment, and similar analytic tools generates substantial political controversy in the United States. The risks, costs, and benefits under scrutiny are usually difficult to estimate with precision. As one Environmental Protection Agency (EPA) scientist so colorfully put it, “One of the nice things about the environmental standard setting business is that you are always setting the standard at a level where the data is lousy” (quoted in Melnick, 1983:244). Moreover, quantitative analysis frequently spotlights politically and ethically troublesome distributional issues, issues that pit citizen against citizen, nation against nation, and even generation against generation. Sometimes the choices involved are “tragic” in that they require us to decide not just who shall live but who must die (Calabresi and Bobbitt, 1978). Such analysis, in short, is never a purely technical undertaking; it exposes rather than resolves hard political choices. For this reason, most practitioners insist that benefit-cost analysis is a “decision helping” rather than a “decision making” tool.


Some members of Congress go one step further. They say they have little trust in OMB or in other non-agency personnel to produce fair benefit-cost analyses, however open the process. Just as OMB’s budgetary mission is to cut spending, its regulatory mission is slowing or even reversing the growth of regulation. As former OIRA Deputy Director James Tozzi explained, OMB reviewers “start with the idea, ‘Do you really need this reg?’ People say, ‘That’s such a negative view,’ but I say that’s a good role for them” (National Journal, May 30, 1987:1406). The fact that OMB’s principal mechanism for controlling agency action is its ability to delay or veto administrative rules compounds the problem. Benefit-cost analysis becomes a rationale for stalling and weakening regulations, never for initiating or strengthening them. Given the amount of discretion involved in conducting benefit-cost analysis, this institutional-bias argument against OMB review has significant force. Even those individuals within regulatory agencies who most fervently advocate the use of benefit-cost analysis have come to resent OMB review. For this reason, it is important to distinguish between analysis per se and its use by OMB.


In short, without quantitative evidence, it is difficult to set reasonable environmental priorities.

Blame avoidance is contagious: agency officials frequently question why they should admit that some risks are acceptable when no one else will. Yet responsibility may prove contagious as well. If administrators (preferably those in regulatory agencies rather than in OMB) are forthright and explicit about the need to balance costs and risks and if the courts give them sufficient leeway (as the D.C. Circuit and the Supreme Court now seem to be doing), then the onus will be on Congress to provide more precise and honest statutory guidance. This situation was what occurred with deregulation of the airlines, the trucking industry, and telecommunications. Administrators acted first, the courts deferred, and Congress was forced to decide whether to defend regulatory regimes that benefited only a small group of producers and unions. The status quo crumbled with remarkable swiftness (Derthick and Quirk, 1985). The same process may be occurring with regard to hazardous air pollutants. Once the courts accepted EPA’s policy of balancing costs and risks, the burden developed on Congressman Waxman and his allies to garner support for a tougher alternative. So far, Congress has taken no action.

Environmental advocates in Congress and in environmental organizations should view these developments not as defeats but as opportunities. As environmental protection programs grow in number and complexity, it is important to weed out those that focus on lesser problems in order to make scarce resources—expertise, agency money, public support, corporate investments—available for more important programs. This approach will make regulatory policy less of a morality play but more successful in protecting the environment.

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