On the Accuracy of Regulatory Cost Estimates
AbstractThis study compares ex ante estimates of the direct costs of individual regulations to ex post assessments of the same regulations. A review of more than two dozen environmental and occupational safety regulations indicates that ex ante estimates of total (direct) costs have tended to exceed actuals. The authors find this to be true of 12 of the 25 rules in their data set, while for only 6 were the ex ante estimates too low. The overestimation of total costs is often due to errors in the quantity of emission reductions achieved by the rule which, in turn, suggest that the rule's benefits may also be overestimated. The quantity errors are driven by both baseline and compliance issues. At least for EPA and OSHA rules, overestimation of per-unit abatement costs occurs about as often as underestimation. In contrast, for those rules that use economic incentives, per-unit costs are consistently overestimated. Much of the overestimation can be attributed to technical innovations unanticipated at the time the rule is issued, and to quantity errors. In addition, several methodological and procedural explanations also apply: changes in the regulation after the cost estimate is prepared, use of maximum cost estimates, and asymmetric error correction. Since a number of environmental laws encourage the development of cost estimates that reflect a maximum rather than a mean, regulatory agencies could issue a "best estimate" along with the statutorily preferred cost estimate. Likewise, they could ensure that rule changes made in the course of the regulatory development process are manifest in revised cost estimates. Indeed, discovering how and when to adjust ex ante estimates provides the strongest possible justification for more credible ex post studies�a research activity that merits greater emphasis.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Resources For the Future in its series Discussion Papers with number dp-99-18.
Date of creation: 01 Jan 1999
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-01-24 (All new papers)
- NEP-ENE-2006-01-24 (Energy Economics)
- NEP-REG-2006-01-24 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Revesz, Richard L. & Stavins, Robert N., 2007. "Environmental Law," Handbook of Law and Economics, Elsevier.
- Hau, Timothy D., 1992. "Congestion charging mechanisms for roads : an evaluation of current practice," Policy Research Working Paper Series 1071, The World Bank.
- 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.
- Pizer, William & Morgenstern, Richard & Shih, Jhih-Shyang, 1998.
"The Cost of Environmental Protection,"
dp-98-36, Resources For the Future.
- James Quirk & Katsuaki Terasawa, 1986. "ple Selection and Cost Underestimation Bias in Pioneer Projects," Land Economics, University of Wisconsin Press, vol. 62(2), pages 192-200.
- 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.
- James Hammitt, 2000. "Are The Costs of Proposed Environmental Regulations Overestimated? Evidence from the CFC Phaseout," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 16(3), pages 281-302, July.
- Adam B. Jaffe et al., 1995. "Environmental Regulation and the Competitiveness of U.S. Manufacturing: What Does the Evidence Tell Us?," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 132-163, March.
- Harris, Milton & Raviv, Artur, 1979. "Optimal incentive contracts with imperfect information," Journal of Economic Theory, Elsevier, vol. 20(2), pages 231-259, April.
- 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.
- Kwerel, Evan, 1977. "To Tell the Truth: Imperfect Information and Optimal Pollution Control," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 595-601, October.
- Salop, Steven C & Scheffman, David T, 1983. "Raising Rivals' Costs," American Economic Review, American Economic Association, vol. 73(2), pages 267-71, May.
- Spulber, Daniel F., 1988. "Optimal environmental regulation under asymmetric information," Journal of Public Economics, Elsevier, vol. 35(2), pages 163-181, March.
- Maloney, Michael T & McCormick, Robert E, 1982. "A Positive Theory of Environmental Quality Regulation," Journal of Law and Economics, University of Chicago Press, vol. 25(1), pages 99-123, April.
- Weitzman, Martin L, 1980. "Efficient Incentive Contracts," The Quarterly Journal of Economics, MIT Press, vol. 94(4), pages 719-30, June.
- Dale W. Jorgenson & Peter J. Wilcoxen, 1990. "Environmental Regulation and U.S. Economic Growth," RAND Journal of Economics, The RAND Corporation, vol. 21(2), pages 314-340, Summer.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Webmaster).
If references are entirely missing, you can add them using this form.