Executive Order (EO) 13771 on “Reducing Regulation and Controlling Regulatory Costs” introduces a new regulatory budgeting system in the U.S. federal rulemaking process. International experience suggests that the new rule, aimed both at reducing the number of regulations and the volume of regulatory costs, will focus on a subset of regulatory impacts, most certainly the direct costs imposed by regulation on businesses, or even a subset thereof. The paper discusses possible ways to make sense of the new rule, without undermining the soundness of benefit-cost analysis mandated by EO12866. The paper concludes that the new system, while potentially promoting more retrospective regulatory reviews, will risk fundamentally affecting the quality of regulation in the United States, generating frictions and inefficiencies throughout the administration, to the detriment of social welfare.

Traditionally, benefit-cost analyses focus on average benefits and average costs. However, heterogeneous treatment effects and/or costs are most often present, which means that there is an efficiency potential hidden in the implementation of public programs, if policies can be targeted at those who, net of costs, benefit the most. We introduce efficiency potential defined as the ratio between the net benefit achieved under perfect selection of the individuals with significant positive net benefit of program participation, and the actually realized benefits net of costs. Using data from a randomized control-trial experiment of a Danish return-to-work program combined with rich administrative records and survey data, we find that there is indeed a potential for increased efficiency. Results from the treatment literature indicate that, generally, it may be difficult to harvest the full potential. Our application corroborates this finding.

China’s Cap on Coal Consumption (CCC) Policy serves as a key strategy to address the serious air pollution in China, and it helps to address coal’s climate, environment and health damages. Current implementation of it focuses on substituting coal used in power plants and boilers with natural gas, whereas phasing out household coal use is less emphasized. This study estimates the benefits and costs of interventions for phasing out coal used in power plants and in households in Beijing. The results suggest that the phasing out of household coal use can result in net social benefits. However, coal-to-gas projects for power plants actually bring net social losses, a result largely attributable to the relative high price of natural gas in China. In addition to the actual policy evaluations of phasing out coal, this study outlines how to conduct economic analysis of air pollution policies in China taking into account uncertainty and correlations of key parameters. With the importance at a national and global level to reduce the negative effects of coal consumption, together with the trend of scaling up coal reduction interventions in China from local pioneers to the national level, this study provides implications on how to achieve more socially beneficial results for such interventions.

Although more than 100 billion dollars is spent each year on policing, we know very little about what works, and still less about whether the benefits of various policing policies and practices outweigh the costs. In particular, although there has been some important work done to assess the effects of various practices, and even to monetize some of the benefits of reducing crime, there has been virtually no attention paid to the other side of the benefit-cost equation: the social costs that particular policing practices potentially can impose. In February 2017, the Policing Project at NYU School of Law held a conference aimed at jumpstarting the use of benefit-cost analysis to assess policing practices, and to begin to tackle the many methodological challenges to doing so. Here, we provide an overview of the existing literature, identify the serious gaps that remain, and sketch out a research agenda for moving forward.

Regulatory impact analyses (RIAs) weigh the benefits of regulations against the burdens they impose and are invaluable tools for informing decision makers. We offer 10 tips for nonspecialist policymakers and interested stakeholders who will be reading RIAs as consumers.

1. 1. Core problem: Determine whether the RIA identifies the core problem (compelling public need) the regulation is intended to address.

2. 2. Alternatives: Look for an objective, policy-neutral evaluation of the relative merits of reasonable alternatives.

3. 3. Baseline: Check whether the RIA presents a reasonable “counterfactual” against which benefits and costs are measured.

4. 4. Increments: Evaluate whether totals and averages obscure relevant distinctions and trade-offs.

5. 5. Uncertainty: Recognize that all estimates involve uncertainty, and ask what effect key assumptions, data, and models have on those estimates.

6. 6. Transparency: Look for transparency and objectivity of analytical inputs.

7. 7. Benefits: Examine how projected benefits relate to stated objectives.

8. 8. Costs: Understand what costs are included.

9. 9. Distribution: Consider how benefits and costs are distributed.

10. 10. Symmetrical treatment: Ensure that benefits and costs are presented symmetrically.

While much is known about dyslexia in school-age children and adolescents, less is known about its effects on quality of life in adults. Using data from the Connecticut Longitudinal Study, we provide the first estimates of the monetary value of improving reading, speaking, and cognitive skills to dyslexic and nondyslexic adults. Using a stated-preference survey, we find that dyslexic and nondyslexic individuals value improvements in their skills in reading speed, reading aloud, pronunciation, memory, and information retrieval at about the same rate. Because dyslexics have lower self-reported levels on these skills, their total willingness to pay to achieve a high level of skill is substantially greater than for nondyslexics. However, dyslexic individuals’ willingness to pay (averaging $3000 for an improvement in all skills simultaneously) is small compared with the difference in earnings between dyslexic and nondyslexic adults. We estimate that dyslexic individuals earn 15% less per year (about $8000) than nondyslexic individuals. Although improvements in reading, speaking, and cognitive skills in adulthood are unlikely to eliminate the earnings difference that reflects differences in educational attainment and other factors, stated-preference estimates of the value of cognitive skills may substantially underestimate the value derived from effects on lifetime earnings and health.

The value of small changes in mortality risks, generally expressed as the value per statistical life, is an important parameter in benefit-cost analysis. However, little is known about the values held by populations in low- and middle-income countries. This article introduces a symposium that includes three additional articles which explore related theory and research.

This article first catalogs the curious lack of benefit-cost analysis (BCA) in policing, given the increasing use of BCA in other areas of criminal justice. Policing has historically been viewed through a benefit-only lens, focusing almost exclusively on the welfare gains associated with the incapacitation of dangerous offenders and the deterrence of future criminal activity. The benefit-only perspective fails to take into account the significant costs of enforcement. Most saliently, the benefit-only perspective limits the discussion of the costs to policing. We argue that BCA of policing should not be limited to the financial perspective of any municipality, but must include the full nonbudgetary social costs and benefits felt by all those who feel the impact of policing. Social costs should include all direct and indirect costs borne by members of society who are impacted by policing practices in addition to costs that appear in police department budgets.

The provision of safe drinking water provides a dramatic example of the inherent complexity involved in incorporating environmental justice (EJ) considerations into the implementation and enforcement of new environmental standards. To promote substantive EJ, implementation policy must be concerned with the net risk reduction of new and revised regulations. The regulatory concern is that higher water bills for low-income customers of small public water systems may result in less disposable income for other health-related goods and services. In the net, this trade-off may be welfare decreasing, not increasing. Advocates of Health–Health Analysis have argued that the reduction in health-related spending creates a problem for traditional benefit-cost analysis since the long-run health implications of this reduction are not considered. The results of this investigation tend to support this contention. An evaluation of the internal structure of consumption expenditures reveals that low-expenditure households can be expected to react to an increase in the relative price of housing-related goods and services due to a water-rate hike by reducing both housing and health-related expenditures. That is, the representative low-expenditure household re-establishes equilibrium by not only decreasing housing-related spending, but also by decreasing spending on health-related expenditures in a modest but significant way. These results reflect the fact that expenditures on housing are a major proportion of overall household spending, and that accommodating drinking water surcharges exacerbates both health and food security concerns for low-expenditures households.

Investment decision rules in risk situations have been extensively analyzed for firms. Most research focus on financial options and the wide range of methods based on dynamic programming currently used by firms to decide on whether and when to implement an irreversible investment under uncertainty. The situation is quite different for public investments, which are decided and largely funded by public authorities. These investments are assessed by public authorities, not through market criteria, but through public Cost-Benefit Analysis (CBA) procedures. Strangely enough, these procedures pay little attention to risk and uncertainty. The present text aims at filling this gap. We address the classic problem of whether and when an investment should be implemented. This stopping time problem is established in a framework where the discount rate is typically linked to GDP, which follows a Brownian motion, and where the benefits and cost of implementation follow linked Brownian motions. We find that the decision rule depends on a threshold value of the First Year Advantage/Cost ratio. This threshold can be expressed in a closed form including the means, standard deviations and correlations of the stochastic variables. Simulations with sensible current values of these parameters show that the systemic risk, coming from the correlation between the benefits of the investment and economic growth, is not that high, and that more attention should be paid to risks relating to the construction cost of the investment; furthermore, simple rules of thumb are designed for estimating the above-mentioned threshold. Some extensions are explored. Others are suggested for further research.

Extrapolation of estimates of the value per statistical life (VSL) from high- to low- or middle-income populations requires attention to the possible effects of differences in income, current mortality risk, health, life expectancy, and many other factors. The standard theoretical model of VSL implies that VSL increases with income and decreases with current mortality risk. The effect of mortality risk is likely to be negligible while the effect of income is large and poorly quantified. Effects of differences in life expectancy and health are theoretically ambiguous. Effects of other factors, including differences in health care, formal and informal support networks, and cultural or religious factors that affect preferences for spending on oneself or others may be important but are unknown. Practical issues include choice of the most appropriate measure of income and possible differences in the patterns of age dependence between populations.

The police are widely recognized as an important deterrent of crime, with investments in policing broadly associated with lower crime rates. Much less is known about how investments in policing contribute to crime reductions, or the relative merits and risks of specific activities in which officers engage, leaving policing as an area in which benefit-cost analysis methods stand to make a significant substantive contribution. However, the implementation of these methods involves challenges related to measuring both the quantity and quality of policing involved in a given dosage of policing, as well as the causal effects of police practices on crime. This essay lays out several of the challenges inherent in understanding the benefits and costs of policing practices, with a specific eye toward practices commonly known as “proactive policing” practices, and their effects on crime rates. I lay out potential strategies for resolving these challenges, which focus largely on identifying exogenous discontinuities in policing practices that can be used to assess outcome differences. Thorough assessment of policing practices should apply as many of these strategies as possible, in order to understand how robust or sensitive substantive conclusions may be to strategies used.

Countries throughout the world use estimates of the value of a statistical life (VSL) to monetize fatality risks in benefit-cost analyses. However, the vast majority of countries lack reliable revealed preference or stated preference estimates of the VSL. This article proposes that the best way to calculate a population-average VSL for countries with insufficient or unreliable data is to transfer a base VSL from the United States calculated using labor market estimates from Census of Fatal Occupational Injuries data, coupled with adjustments for differences in income between the United States and the country of interest. This approach requires estimation of two critical inputs: a base U.S. VSL and the income elasticity of the VSL. Drawing upon previous meta-analyses that include adjustments for publication selection biases, we adopt a base VSL of $9.6 million. We utilize a sample of 953 VSL estimates from 68 labor market studies of the VSL covering fourteen lower-middle income to high income nations. We estimate the income elasticity of the VSL within the United States to be from 0.5 to 0.7 and to be just above 1.0 for non-U.S. countries. Quantile regression reveals that much of the disparity in income elasticities is attributable to income differences between the United States and other countries, as the income elasticity increases for lower income populations. Using income classifications from the World Bank, we calculate average VSLs in lower income, lower-middle income, upper-middle income, and upper income countries to be $107,000, $420,000, $1.2 million, and $6.4 million, respectively. We also present VSL estimates for all 189 countries for which World Bank income data are available, yielding a VSL range from $45,000 to $18.3 million.

According to engineering analyses, energy-intensive commercial buildings have ample opportunities to reduce energy use while saving money, but many seemingly profitable strategies go unadopted. This study explores potential barriers to energy- and refrigerant-reducing investments in supermarket refrigeration. While supermarkets are large energy users, energy and refrigerant account for a relatively small proportion of expenditures. However, due to the intensely competitive nature of the industry, reducing refrigeration costs could have a sizable impact on supermarkets’ bottom lines. Given the scarcity of empirical data in this context, we conducted focus groups and interviews with U.S. supermarket representatives to elicit information about potential barriers to investment and used content analysis to qualitatively evaluate results. Participant statements suggest that the rate at which they adopt specific energy-reducing refrigeration technologies and practices correlates fairly well with estimates of expected payback. Uncertainty and imperfect information about the performance of new technologies, high opportunity costs of capital, and tradeoffs with other valued system attributes such as reliability and customer appeal were the most pervasive potential barriers discussed by participants, although split incentives between firms and contractors or employees also played a role for some firms. Our assessment is that these factors have moderately limited or slowed investments in energy-saving refrigeration technologies for many firms; only in the cases of uncertainty/imperfect information and split incentives between firms and contractors or employees are these barriers potentially indicative of market failures. In addition, in several instances we identify ways in which analysts could improve engineering-based net present value calculations to make them more consistent with actual firm decisions.

In recent decades, advocates for police reform on the political left and right have proposed numerous changes to how street-level policing operates. One such proposed reform, which has been adopted in jurisdictions nationwide, is “proactive policing,” that is, policing strategies based on the notion that by proactively regulating minor offenses, the police can reduce both serious crime and fear of crime in the community. Yet, as with many proposed police reforms, researchers have not undertaken a through benefit-cost analysis of proactive policing. This article lays out strategies for estimating the impacts of proactive policing, including direct, indirect, and distributional impacts. First, I describe quasi-experimental approaches, which entail partnerships between researchers and police departments and would be particularly useful when a municipality is considering a move to proactive policing in the first instance, expansion of small-scale proactive policing to a larger area, or the introduction of particular new tactics. Second, I describe nonexperimental retrospective approaches, including conventional regression analysis, which can also allow researchers to estimate the effects of proactive policing. I discuss potential threats to validity for both strategies. I close by describing the data that researchers wishing to engage in benefit-cost analysis of proactive policing would need in order to do so.

Law enforcement agencies are adopting a variety of new surveillance technologies at a fast pace. These technologies could have substantial benefits in terms of public safety, but, for many of them, their ability to reduce crime is unknown. Although a small experimental literature addresses some of these technologies, many of the implementations have been too small to provide an accurate measurement of their potential. In this paper, I explore the advantages and make general suggestions about the use of quasi-experimental methodologies in estimating the public safety benefits of police technology. I also consider the specific case of license plate readers and provide some examples of difference-in-differences approaches that could be used to study their efficacy.

This study is the eighth in a series of stated-preference studies designed to enhance the basis for international benefits transfer of value of statistical life (VSL) estimates. The series has fielded essentially similar stated-preference surveys in Canada, China, France, Italy, Japan, Mongolia, the United Kingdom, and the United States. This Chinese study estimates the willingness to pay for contemporaneous and future mortality risk reductions of residents of Shanghai, Jiujiang, and Nanning, China using a stated-preference payment-card survey. The pooled VSL for a contemporaneous reduction in annual mortality risk reduction of 5 in 10,000 is about 1.47 million 2009 yuan ($614,805 U.S. $2016), with income elasticities of 0.2 to 0.25. This VSL estimate is at the lower end of estimates from the eight countries, between those from Mongolia and Japan, and in the mid-range of estimates of willingness to pay (WTP) for mortality risk reductions as a percentage of household income. We find lower discount rates in the Mongolia, Japan, and China studies than in those fielded in North America or Europe. The study also explores the relative performance of dichotomous choice and stated-preference card elicitation methods in a middle income country setting and develops a computerized “payment card” that allows testing for anchoring. Implicit transfer elasticities across countries, calculated using the VSLs we estimate and each country’s income, relative to those of the United States, yields estimates of 0.88–0.95 for the lower income countries. These compare with the default assumption of 1.0 or assumed elasticities of 1.2 for developing countries.