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7.5. General Accounting Office Review

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The General Accounting Office (GAO) has also studied the RIA issue. The GAO study focused on EPA regulations although other agencies also produce RIAs. GAO reviewed three RIAs and the report largely reflects conclusions drawn from that effort although it is not a set of case studies:

Early in their critique, GAO categorizes their comments on the assessments as follows:

GAO devotes a section of the report to each of the categories. The first category as described in the summary statement above is entitled “Data Gaps Prevent Cost-Benefit Analysis From Providing Exact Answers.” However, the noted gaps are not only in data but also in technique in both science and economics.

GAO offers a few examples of data gaps that are more science than economics:

GAO also has reservations about the economics side of cost-benefit analyses. As to benefits, they question the reliability of both property value and wage studies based on both quality and quantity of data on the one hand and on the difficulty of distinguishing pollution’s effect from other factors such as smoking. GAO, op. cit., p. 9. Next, GAO expresses skepticism about contingent valuation, “surveys” in their parlance, based on methodological grounds. GAO, op. cit., p. 10. After disparaging the various methods for valuing benefits, they conjecture that cost-effectiveness might be better! GAO, op. cit., p. 10. However, those comments are followed by several paragraphs questioning cost-side estimates on grounds of weak abatement data and modeling of physical and economic relationships. GAO, op. cit., pp. 10-11.

GAO is wary of cost and benefit estimates. They indicate that EPA should address this uncertainty:

Although risk analysis is appropriate, GAO wisely seems to stop short of claiming that it can remedy data deficiencies. GAO notes that:

Finally, in concluding their discussion of risk and uncertainty, they suggest that Monte Carlo simulation might be an appropriate technique to use. GAO, op. cit., p. 12.

The GAO document turns next to the second of the three categories of concerns, laws that prohibit or limit the use of cost-benefit analysis. There is a cursory enumeration of statutes that do and don’t limit such analysis. Provisions of the Clean Air Act and the Occupational Health and Safety Act seem to preclude it whereas the Clean Water Act is permissive. However, regarding the latter, the Act seems to require industry-by-industry limits which tend to vitiate economically efficient forms of regulation. GAO, op. cit., pp. 15-17.

Although various statutes preclude or limit the use of cost-benefit analyses in regulation, their preparation is still required under the executive orders. Regarding such analyses, GAO concludes:

If GAO’s first area of concern could be called state-of-the-art problems, then its third deals with more mundane, correctable defects it has observed, particularly in the three assessments it reviewed in depth.

GAO asserts that EPA has ignored new source compliance costs. For some rulemakings, the effect may have been to avoid the requirement to prepare a cost-benefit analysis which applies to rules with annual costs exceeding $100 million. GAO offers examples:

GAO’s next set of criticisms pertain to the choice of alternatives evaluated. The first of these is that EPA has not considered enough alternatives.

Closely related the foregoing criticism is the comment that the alternative yielding maximal net benefits was not properly identified by bracketing it with inferior studied alternatives:

Among the last of GAO’s implementation comments is one concerning presentation. They would indicate uncertainties more clearly, particularly in executive summaries often read by decision makers.
Finally, GAO levels the complaint that the RIAs ignore various categories of costs and benefits and do so inconsistently across the three they studied. GAO, op. cit., pp. 28-29. One example of a neglected category previously cited is new source compliance cost. Another neglected category is administrative monitoring and enforcement costs.

In sum, the GAO report categorizes problems into three areas: the state-of-the-art, which EPA can improve over the longer run; statutory restrictions, about which EPA has little control; and implementation problems that are largely under EPA’s control. In its conclusion, GAO states, seemingly with reference to the third class of problems:

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