Multiple-Rule Cost-Benefit Analysis

Federal agencies must conduct regulatory analysis on potential rules to make sure that they work for the benefit of the public. When doing this, agencies conduct cost-benefit analysis (CBA) on a rule individually. This ‘piecemeal’ approach holds other rules in the regulatory environment fixed. But an agency’s ability to pass multiple rules means the regulatory environment is not otherwise fixed. Rules can have ‘positive interdependencies,’ whereby one rule can increase the effectiveness of another rule. They can also have ‘negative interdependencies,’ whereby one rule can decrease the effectiveness of another rule. Large numbers of rules can also display ‘macro-interdependencies.’ In a world where agencies pass large numbers of rules, interdependencies between rules often confound the validity of individual CBA estimates. In such situations, current CBA practices lead to improper rule promulgation and review, a problem that we term ‘interdependency error,’ and which is pervasive in U.S. agency rulemaking. While agencies have begun to consider interdependencies between rules, this analysis remains at a nascent stage and does not fully account for the issues newly identified in this paper. Nonetheless, the consideration of how to prudently incorporate rule interdependencies into multiple-rule analysis presents theoretical difficulties. This paper provides support for a Multiple-Rule Cost-Benefit Analysis (MCBA) approach and provides principles and tools that an agency can use when implementing, removing, updating, or replacing a rule. MCBA is compared to current trends towards regulatory budgets and retrospective review; Multiple-Rule Cost-Benefit Analysis extends retrospective review and offers a superior means to address the concerns of regulatory budgeting proponents