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Executive Order 12291

Original Text

Effective Dates
2/17/1981 - 9/30/1993

Reform Goals
Require cost-benefit analysis for all rules with major economic impacts to “reduce the burdens of existing and future regulations, increase agency accountability for regulatory actions, provide for presidential oversight of the regulatory process, minimize duplication and conflict of regulations, and insure well-reasoned regulations.”

Requirements (What of whom?)
This order required a formal cost-benefit analysis, called a “Regulatory Impact Analysis (RIA)” for all regulations with expected economic impacts > $100mm (“major” regulations) or rules which would “significantly” impact the economy by increasing prices, decreasing employment and innovation, or hurting American competitiveness in export markets. It required that agencies consider alternate approaches to minimize net costs to society, and specified that only regulations where potential costs outweighed potential benefits be implemented. 

In addition to new rules, Section (i) also required agencies to conduct RIA’s for currently effective major rules.

The executive order language technically included independent regulatory agencies [1]. However, President Reagan later asked those agencies to voluntarily comply; all of them declined to do so [2]. 

Oversight for rule compliance
The OMB (specifically OIRA) would review all new executive branch and independent agency regulations and RIA’s. Agencies would report to the OIRA Director, who would report the Presidential Task Force on Regulatory Relief.

Reform “Teeth”
The OMB could categorize any rule as “major” in order to trigger the RIA requirement. It could require agency “reconsideration”, e.g. delay rules, if it felt agencies had not appropriately analyzed available data, if the rule was duplicative, or if a rule was inconsistent with Presidential executive orders or other policies.

Outcomes
A 1984 review of RIA’s found many lacking in analytical quality and containing technical errors, and noted that final agency decisions often ignored RIA results. [3] It also noted that many major rules were exempted from analysis if they were deregulatory in nature, pointing to a systematic Presidential/OMB bias in the application of cost-benefit analysis for decision making. EO 12291 appeared to have little or no effect on the cost-effectiveness of regulations, and was eventually revoked and replaced by EO 12866 in 1993. [4] 

Commentary
EO 12291 highlighted the technical challenges of using cost-benefit analysis in regulatory decision making, especially for scientifically complex topics like environmental pollution. With no concrete guidelines on how agencies were to conduct analysis, each agency used very different assumptions about discount rates, population projections, and other macroeconomic factors. This made it difficult for the OMB to compare rules “apples-to-apples” and encourage the adoption of efficient regulations. The authors of the 1984 study also pointed out that “the interpretation of evidence by scientists is often related to their political ideologies; the same is true of economists.” 

References

  1. The executive order states “(d) "Agency" means any authority of the United States that is an "agency" under 44 U.S.C. 3502(1), excluding those agencies specified in 44 U.S.C. 3502(10).” 44 U.S.C. 3502(1) is states “(1)the term “agency” means any executive department, military department, Government corporation, Government controlled corporation, or other establishment in the executive branch of the Government (including the Executive Office of the President), or any independent regulatory agency…” Legal Information Institute. 44 U.S. Code § 3502 - Definitions. Link
  2. Adam J. White. "Reining in the Agencies." Spring 2012. Link & See Page 13. Robert W. Hahn and Cass R. Sunstein. "A New Executive Order for Improving Federal Regulation? Deeper and Wider Cost-Benefit Analysis." University of Chicago Law School. Link
  3. Key technical errors cited  included “the calculation of costs and benefits, the distinction between transfer payments and efficiency losses, the consideration of distributional consequences, and the treatment of time.” Dale Whittington and W. Norton Grubb. “Economic Analysis in Regulatory Decisions: The Implications of Executive Order 12291.” Winter 1984, Science, Technology & Human Values, Volume 9 Issue I, Pages 63-71 Link.
  4. National Archives. Federal Register. Executive Orders Disposition Tables. "Ronald Reagan Executive Orders - 1981" Link

Additional Reading

  • Noted in Reference [2] Hahn and Sunstein: "See Posner, supra note 4. For an examination of the impact of the efficiency effects of the executive orders on regulation, see Scott Farrow, Evaluating the Regulatory Process and Government Performance: Does Executive Office Oversight Matter? (Discussion Paper, Oct. 18, 1999) http://www.epp.cmu.edu/csir/. Farrow finds that executive office oversight does not have a significant efficiency-improving impact on the difference between proposed and final regulations, or on the cost effectiveness of regulation. Id. at 2. A partial reason is that some statutes forbid cost-benefit balancing, but we believe that this is not the whole picture." Link