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Michael A. Livermore, Cost-Benefit Analysis and Agency Independence, 81 U. Chi. L. Rev. (forthcoming, 2014), available at SSRN.

The Office of Information and Regulatory Affairs (OIRA) in the Office of Management and Budget (OMB) has been applying cost-benefit analysis (CBA) to major rules issued by exec­­­utive branch agencies for over thirty years. The practice has long been controversial among legal academics but the debates have taken place against a generally-agreed set of beliefs about the effects of OIRA application of CBA—it increases the power of the President to control policy making by the bureaucracy. Michael Livermore’s meticulously researched and well argued article challenges this enduring belief.

Livermore argues that the relationship between OIRA application of CBA to major rules and presidential influence over policy making by the bureaucracy is far more complicated than the standard account can capture. He contends that the practice has actually increased agency autonomy by providing agencies a means of protecting themselves from presidential control. In Livermore’s view, the practice of OIRA application of CBA to agency rules provides agencies with a “safe harbor” they can access by dominating the process for developing the methodology government uses to apply CBA.

Livermore’s research and analysis focuses almost entirely on the relationship between OIRA and the Environmental Protection Agency (EPA)—the agency that has issued by far the largest number of rules that have been subjected to OIRA review through application of CBA. Livermore documents in detail the ways in which EPA has determined the methodology that OIRA uses to apply CBA. EPA has hired large numbers of staff economists and consulting economists who write studies, books, and articles that dominate the field of CBA.

EPA can, and has, hired far more economists than OIRA, and EPA has consulting contracts with the most prolific and most respected economists who write in the field of CBA. As a result, OIRA has no choice but to adopt as its own the methodologies that EPA supports. Livermore documents the history of every important component of CBA methodology to show how each component that OIRA now applies had its origin in studies conducted by economists under contract with EPA.

The history of two of the most important components of CBA methodology illustrates Livermore’s point well. The most important single input to any CBA of a potential life-saving rule is the estimate of the value of the statistical lives saved by the rule. The methods OIRA uses for this purpose were derived entirely from EPA studies. More recently, estimates of the social cost of carbon dioxide emissions have occupied center stage in the heated debates about whether to continue to use coal as our primary source of electricity. Livermore describes the ways in which EPA has used its position as the dominant source of expertise on regulatory economics to persuade OIRA to adopt EPA’s estimate of the social cost of carbon to evaluate the costs and benefits of the rules EPA is proposing to reduce dramatically use of coal to generate electricity in the United States.

As Livermore recognizes, his research raises many important questions that he is unable to answer. To what extent are his findings applicable to agencies other than EPA? If the traditional simplistic explanation for the decisions of each of the last five Presidents to instruct OIRA to apply CBA to agency rules is unsupportable, in what ways does OIRA application of CBA help Presidents influence policy making? Perhaps each President believed that agencies should use CBA to make major policy decisions and that instructing OIRA to apply CBA to agency rules would further that goal by forcing agencies to retain the services of large numbers of economists as a means of insulating their decisions from presidential control? Perhaps each President created a decision making process that favors EPA because each was more comfortable with the views of his EPA Administrator than his OIRA Administrator? Scholars need to test each of these and scores of other hypotheses that are suggested by Livermore’s article. Livermore has forced us to think more deeply about the inherently complicated relationship between OIRA application of CBA and presidential influence over rulemaking by executive branch agencies.

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Cite as: Richard Pierce, What Is the Real Effect of OIRA Application of Cost Benefit Analysis?, JOTWELL (November 1, 2013) (reviewing Michael A. Livermore, Cost-Benefit Analysis and Agency Independence, 81 U. Chi. L. Rev. (forthcoming, 2014), available at SSRN), http://adlaw.jotwell.com/what-is-the-real-effect-of-oira-application-of-cost-benefit-analysis/.