Beware of Unaudited Benefit Analyses

One of the first things people learn when they move to Washington is that government agencies are just as self-interested as the rest of us. They have an eternal incentive to expand their missions and grow their budgets, and they behave accordingly. One consequence of this is that their cost-benefit analyses cannot be trusted. Because the analyses are done in-house instead of by an independent third party, you can bet that cost estimates will be understated, and benefit estimates will be overstated. Over at Investor’s Business Daily, Wayne Crews and I expand on that theme:

The biggest problem lies in the simple question: Benefits compared with what? Government is hardly the only regulator; governance doesn’t always require government. Competitive markets have disciplinary mechanisms — including reputation, loss, insurance, and liability — to punish bad actors. Consumers are harsh sovereigns. Private organizations like Underwriters Laboratory set high standards for its sought-after product certifications.

If a new government regulation codifies best practices for an industry, a common result is stasis. Technology and on-the-ground best practices evolve much more quickly than the Code of Federal Regulations does. When regulations hold back advances, they wipe out many potential benefits to consumers and producers alike.

Read the whole thing here. Also see Wayne’s new working paper, “Tip of the Costberg.”

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s