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On the accuracy of regulatory cost estimates

  • 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.)

Registered author(s):

    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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    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
    Contact details of provider: Web page: http://www3.interscience.wiley.com/journal/34787/home

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    1. 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.
    2. 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.
    3. 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.
    4. Hau, Timothy D., 1992. "Congestion charging mechanisms for roads : an evaluation of current practice," Policy Research Working Paper Series 1071, The World Bank.
    5. Salop, Steven C & Scheffman, David T, 1983. "Raising Rivals' Costs," American Economic Review, American Economic Association, vol. 73(2), pages 267-71, May.
    6. 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.
    7. 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.
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