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On the accuracy of regulatory cost estimates

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  • Winston Harrington

    (Resources for the Future, Washington, D.C.)

  • Richard D. Morgenstern

    (Resources for the Future, Washington, D.C.)

  • Peter Nelson

    (Resources for the Future, Washington, D.C.)

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    Abstract

    This study compares ex ante estimates of the direct costs of individual regulations to ex post assessments of the same regulations. For total costs the results support conventional wisdom, namely that the costs of regulations tend to be overestimated. This is true for 14 of the 28 rules in the data set discussed, while for only 3 rules were the ex ante estimates too low. For unit costs, however, the story is quite different. At least for EPA and OSHA rules, unit cost estimates are often accurate, and even when they are not, overestimation of abatement costs occurs about as often as underestimation. In contrast, for those rules that use economic incentives, unit costs are consistently overestimated. The difference between the total-cost and the unit-cost results is caused by frequent errors in estimates of the effects of individual rules, which suggests, in turn, that the rule's benefits may also be overestimated. The quantity errors are driven both by difficulties in determining the baseline and by incomplete compliance. In cases of unit-cost overestimation, unanticipated technological innovation appears to be an important factor - especially for economic incentive rules, although procedural and methodological explanations may also apply. © 2000 by the Association for Public Policy and Management.

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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Journal of Policy Analysis and Management.

    Volume (Year): 19 (2000)
    Issue (Month): 2 ()
    Pages: 297-322

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    Handle: RePEc:wly:jpamgt:v:19:y:2000:i:2:p:297-322

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    Web page: http://www3.interscience.wiley.com/journal/34787/home

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    References

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    1. Hau, Timothy D., 1992. "Congestion charging mechanisms for roads : an evaluation of current practice," Policy Research Working Paper Series 1071, The World Bank.
    2. Salop, Steven C & Scheffman, David T, 1983. "Raising Rivals' Costs," American Economic Review, American Economic Association, vol. 73(2), pages 267-71, May.
    3. Burtraw, Dallas & Palmer, Karen & Darmstadter, Joel & McVeigh, James, 1999. "Winner, Loser, or Innocent Victim? Has Renewable Energy Performed As Expected?," Discussion Papers dp-99-28, Resources For the Future.
    4. Hazilla, Michael & Kopp, Raymond J, 1990. "Social Cost of Environmental Quality Regulations: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 853-73, August.
    5. Karen Palmer & Wallace E. Oates & Paul R. Portney, 1995. "Tightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm?," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 119-132, Fall.
    6. Cropper, Maureen L & Oates, Wallace E, 1992. "Environmental Economics: A Survey," Journal of Economic Literature, American Economic Association, vol. 30(2), pages 675-740, June.
    7. Garber, Steven & Hammitt, James K., 1998. "Risk Premiums for Environmental Liability: Does Superfund Increase the Cost of Capital?," Journal of Environmental Economics and Management, Elsevier, vol. 36(3), pages 267-294, November.
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    Citations

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    Cited by:
    1. Pizer, William & Kopp, Raymond, 2003. "Calculating the Cost of Environmental Regulation," Discussion Papers dp-03-06, Resources For the Future.
    2. Evens Salies & Jackie Krafft, 2008. "Why and how should innovative industries with high consumer switching costs be re-regulated ?," Sciences Po publications 2008-13, Sciences Po.
    3. David Popp & Richard G. Newell & Adam B. Jaffe, 2009. "Energy, the Environment, and Technological Change," NBER Working Papers 14832, National Bureau of Economic Research, Inc.
    4. repec:spo:wpecon:info:hdl:2441/6143 is not listed on IDEAS
    5. Norman, Catherine S. & DECANIO, STEPHEN J & Fan, Lin, 2007. "Opportunities and Challenges for the 20th Anniversary of the Montréal Protocol," University of California at Santa Barbara, Economics Working Paper Series qt3t90g0gr, Department of Economics, UC Santa Barbara.
    6. Johannes Urpelainen, 2011. "Frontrunners and Laggards: The Strategy of Environmental Regulation under Uncertainty," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 50(3), pages 325-346, November.
    7. Burtraw, Dallas & Palmer, Karen & Kahn, Danny, 2010. "A symmetric safety valve," Energy Policy, Elsevier, vol. 38(9), pages 4921-4932, September.
    8. Harrington, Winston & Krupnick, Alan, 2012. "Improving Fuel Economy in Heavy-Duty Vehicles," Discussion Papers dp-12-02, Resources For the Future.
    9. Managi, Shunsuke & Opaluch, James J. & Jin, Di & Grigalunas, Thomas A., 2006. "Stochastic frontier analysis of total factor productivity in the offshore oil and gas industry," Ecological Economics, Elsevier, vol. 60(1), pages 204-215, November.
    10. Burtraw, Dallas & Paul, Anthony & Woerman, Matt, 2011. "Retail Electricity Price Savings from Compliance Flexibility in GHG Standards for Stationary Sources," Discussion Papers dp-11-30, Resources For the Future.
    11. Harrington, Winston, 2006. "Grading Estimates of the Benefits and Costs of Federal Regulation," Discussion Papers dp-06-39, Resources For the Future.
    12. Hahn, Robert W. & Olmstead, Sheila M. & Stavins, Robert N., 2001. "National Environmental Policy During the Clinton Years," Working paper 511, Regulation2point0.
    13. Stavins, Robert N., 2001. "Economic Analysis of Global Climate Change Policy: A Primer," Working paper 397, Regulation2point0.
    14. A. Myrick Freeman III, 2002. "Environmental Policy Since Earth Day I: What Have We Gained?," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 125-146, Winter.
    15. Gregor Schwerhoff, 2013. "Leadership and International Climate Cooperation," Working Papers 2013.97, Fondazione Eni Enrico Mattei.
    16. David Simpson, 2011. "Do Regulators Overestimate the Costs of Regulation?," NCEE Working Paper Series 201107, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Dec 2011.

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