How Well Does the U.S. Government Do Benefit-Cost Analysis?

Abstract

To make prudent recommendations for improving the use of benefit-cost analysis in policy settings, some measures of how well it is actually done are essential. This article develops new insights on the potential usefulness of government benefit-cost analysis by examining how it is actually performed in the United States. We assess the quality of a particularly rich sample of benefit-cost analyses of federal regulations. The data set we use for assessing the quality of regulatory analysis is the largest assembled to date for this purpose. The seventy-four analyses we examine span the Reagan administration, the George H. W. Bush administration, and the Clinton administrations. The article is the first to assess systematically how government benefit-cost analysis has changed over time. There are three key findings. First, a significant percentage of the analyses in all three administrations does not provide some very basic economic information, such as information on net benefits and policy alternatives. For example, over 70 percent of the analyses in the sample failed to provide any quantitative information on net benefits. Second, there is no clear trend in the quality of benefit-cost analysis across administrations. Third, there is a great deal of variation in the quality of individual benefit-cost analyses.