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06-02 "The Unbearable Lightness of Regulatory Costs"

Listed author(s):
  • Frank Ackerman

Will unbearable regulatory costs ruin the US economy? This specter haunts official Washington, just as fears of communism once did. Once again, the prevailing rhetoric suggests, an implacable enemy of free enterprise puts our prosperity at risk. Like anti-communism in its heyday, anti-command-and-control-ism serves to narrow debate,promoting the unregulated laissez-faire economy as the sole acceptable goal and standard for public policy. Fears of the purported costs of regulation have been used to justify a sweeping reorganization of regulatory practice, in which the Office of Management and Budget (OMB) is empowered to, and often enough does, reject regulations from other agencies on the basis of intricate, conjectural, economic calculations. This article argues for a different perspective: what is remarkable about regulatory costs is not their heavy economic burden, but rather their lightness. Section 1 identifies two general reasons to doubt that there is a significant trade-off between prosperity and regulation: first, regulatory costs are frequently too small to matter; and second, even when the costs are larger, reducing them would not always improve economic outcomes. The next three sections examine evidence on the size and impact of regulatory costs. Section 2 presents cost estimates for a particularly ambitious and demanding environmental regulation, REACH -- the European Union's new chemicals policy. Section 3 discusses academic research on the "pollution haven" hypothesis, i.e. the assertion that firms move to developing countries in search of looser environmental regulations. Section 4 reviews the literature on ex ante overestimation of regulatory costs, including the recent claims by OMB that costs are more often underestimated (and/or benefits overestimated) in advance. Turning to the economic context, Section 5 explains why macroeconomic constraints may eliminate any anticipated economic gains from deregulation. Section 6 introduces a further economic argument against welfare gains from deregulation, based on the surprising evidence that unemployment decreases mortality. Section 7 briefly concludes.

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Paper provided by GDAE, Tufts University in its series GDAE Working Papers with number 06-02.

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Handle: RePEc:dae:daepap:06-02
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  1. Brian R. Copeland & M. Scott Taylor, 2004. "Trade, Growth, and the Environment," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 7-71, March.
  2. Jayadevappa, Ravishankar & Chhatre, Sumedha, 2000. "International trade and environmental quality: a survey," Ecological Economics, Elsevier, vol. 32(2), pages 175-194, February.
  3. Christopher J. Ruhm, 2000. "Are Recessions Good for Your Health?," The Quarterly Journal of Economics, Oxford University Press, vol. 115(2), pages 617-650.
  4. Morgenstern, Richard & Harrington, Winston & Nelson, Per-Kristian, 1999. "On the Accuracy of Regulatory Cost Estimates," Discussion Papers dp-99-18, Resources For the Future.
  5. Kahn Matthew E & Yoshino Yutaka, 2004. "Testing for Pollution Havens Inside and Outside of Regional Trading Blocs," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(2), pages 1-32, October.
  6. Kevin P. Gallagher & Francisco Aguayo & Ana Citlalic González, "undated". "01-07 "Dirt is in the Eye of the Beholder: The World Bank Air Pollution Intensities for Mexico"," GDAE Working Papers 01-07, GDAE, Tufts University.
  7. Cole, Matthew A., 2004. "US environmental load displacement: examining consumption, regulations and the role of NAFTA," Ecological Economics, Elsevier, vol. 48(4), pages 439-450, April.
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