Quantified Cost-Benefit Analysis at the SEC

Abstract

Following a number of high-profile judicial setbacks, the U.S. Securities and Exchange Commission (SEC) has devoted considerable resources towards enhancing its economic analyses in support of rulemaking activities. An ensuing discussion has emerged among academics, policymakers, and regulators concerning the SEC’s ongoing efforts to quantify the costs and benefits of its rules.

In their recent Article, Jeff Schwartz and Alexandra Nelson provide an important contribution to this conversation by critiquing the SEC’s quantification of the expected compliance costs for the Conflict Minerals Rule. They contend that the SEC produced a poorly constructed and inaccurate cost estimate that continues to misinform deliberations on supply chain transparency efforts, and advocate against forced quantification of costs and benefits in SEC rulemaking.

In my Response, I review criticisms levied in the Article about the SEC’s cost estimate for this rule, and the Commission’s overall efforts to integrate quantification into its economic analyses. I also discuss where the SEC’s economic analysis of the Conflict Minerals Rule followed and deviated from its own stated framework of best practices. Finally, I suggest pragmatic approaches to improve both the economic analysis of this rule and quantified cost-benefit analysis in general.

Keywords: Cost-Benefit Analysis, Securities and Exchange Commission, Regulation, Rulemaking, Securities Regulation, Dodd-Frank Act, Conflict Minerals

JEL Classification: D02, D61, D78, G18, G38, K22, K23, L51, Q34, R28