This post argues that EAs should consider performing and improving governmental cost-benefit analysis (“CBA”) as a career path or step. I identify at least four reasons why this is a good idea:
Working in CBA has direct positive impact on the allocation of government resources
Analysts might be able to improve the ethicality/alignment of CBA techniques
Working in CBA builds career capital for political and policy careers
High transferability between governmental CBA and direct EA work (e.g., charity evaluation, cause prioritization)
Key uncertainties include the replaceability of cost-benefit analysts, the nature and availability of careers in CBA outside of the US federal government, and the ability of analysts (and especially more junior analysts) to achieve “change from within.”
This post is a result of introductory academic study of regulatory CBA, not experience working therein. Thus, I suspect most of the utility from this post comes from alerting EAs, individually and collectively, to this opportunity and the prima facie reasons for thinking it could be effective, rather than from concrete advice on entering this area.
Brief and Idealized Introduction to CBA Generally
CBA is a formal analytical technique for evaluating proposed regulations. Ideally (though not always in practice), CBA considers first identifies all expected costs and benefits. For hard-to-quantify (e.g., non-market) values, CBA can use a variety of techniques of varying quality, including contingent evaluation and break-even analysis. The analyst then monetizes these inputs, discounts future values, and arrives at net present value (NPV) for the regulation(s). Regulators then, ideally, choose the regulation with the highest NPV or, if no positive-NPV regulation exists, refrain from regulating.
CBA in the US Government
The Long Version
This section contains a brief—but still technical—overview of how the US Government ("USG") uses CBA in the regulatory process. It might not be interesting for people who want to quickly ascertain whether this career path is worth further personal exploration. Still, it usefully contextualizes the CBA process and how it shapes US regulation.
[E.O. 12866] provides that significant regulatory actions be submitted for review to the Office of Information and Regulatory Affairs (OIRA) in the [White House] Office of Management and Budget (OMB). A "significant regulatory action," as defined by the E.O., generally is any regulatory action that is likely to result in a rule that may:
- Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities;
- Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;
- Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or
- Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in this Executive order.
After Federal Register publication of such an action, the E.O. provides that the federal agency promulgating the action and OMB make available to the public the documents exchanged between them during the review. The federal agency must identify any substantive changes between the draft submitted to OMB and the published rule and must identify those changes made at the suggestion or recommendation of OMB.
The next relevant document is Executive Order 13563. From the same page (emphasis added):
[E.O.13563] reaffirms and amplifies the principles embodied in E.O. 12866 by encouraging agencies to coordinate their regulatory activities, and to consider regulatory approaches that reduce the burden of regulation while maintaining flexibility and freedom of choice for the public. It directs agencies to, where feasible and appropriate, seek the views of those likely to be affected by a proposed rulemaking before a notice of proposed rulemaking is issued. E.O 13563 requires agencies to quantify anticipated benefits and costs of proposed rulemakings as accurately as possible using the best available techniques, and to ensure that any scientific and technological information or processes used to support their regulatory actions are objective.
To the extent feasible and permitted by law, E.O. 13563 also directs agencies to provide timely online access to the rulemaking docket for proposed and final rules, along with any relevant scientific and technical findings, on regulations.gov, and to afford the public the opportunity to comment on proposed regulations through the Internet. With regard to existing regulations, E.O. 13563 instructs agencies to periodically review their significant regulations with the goal of making their regulatory programs more effective or less burdensome.
President Obama issued an Executive Order (13579) to similar effect in 2011.
Quoting from Circular A-4, which "provides the Office of Management and Budget’s (OMB's) guidance to Federal agencies on the development of regulatory analysis as required under . . . Executive Order 12866":
Before recommending Federal regulatory action, an agency must demonstrate that the proposed action is necessary. If the regulatory intervention results from a statutory or judicial directive, you should describe the specific authority for your action, the extent of discretion available to you, and the regulatory instruments you might use. Executive Order 12866 states that "Federal agencies should promulgate only such regulations as are required by law, are necessary to interpret the law, or are made necessary by compelling need, such as material failures of private markets to protect or improve the health and safety of the public, the environment, or the well being of the American people . . . ."
Executive Order 12866 also states that "Each agency shall identify the problem that it intends to address (including, where applicable, the failures of private markets or public institutions that warrant new agency action) as well as assess the significance of that problem." Thus, you should try to explain whether the action is intended to address a significant market failure or to meet some other compelling public need such as improving governmental processes or promoting intangible values such as distributional fairness or privacy. If the regulation is designed to correct a significant market failure, you should describe the failure both qualitatively and (where feasible) quantitatively. You should show that a government intervention is likely to do more good than harm. For other interventions, you should also provide a demonstration of compelling social purpose and the likelihood of effective action. Although intangible rationales do not need to be quantified, the analysis should present and evaluate the strengths and limitations of the relevant arguments for these intangible values.1
The above apply to executive agencies. Some independent agencies, like the EPA and SEC, are also statutorily obligated to perform CBA before promulgating rules.2
By executive order and sometimes statute, US regulators have to perform CBA, supported by the best objective evidence, before promulgating major regulations. They should promulgate regulations only for good reason (e.g., a market failure).
Cass Sunstein worked as OIRA Administrator from 2009–2012 (and spoke at EAG 2016). While there, he "help[ed] oversee the issuance of over 2,000 regulatory actions."3 He reports that "the net benefits of economically significant regulations under President Obama['s first three years in office] exceeded $91 billion . . . Indeed, those benefits rose to $159 billion for the first four years."4
Using a more recent estimate, OIRA estimates that the net social benefits of the 16 major rules agencies promulgated in 2016 at between 11.4 and 31.5 billion USD.5
This suggests an enormous opportunity for impact.
Why EAs Should Consider Working in CBA
1. Opportunity for Direct Impact
As mentioned immediately above, CBA seems to create enormous social value. To ascertain whether this option is competitive with other EA career paths, I will perform a very preliminary estimate of the potential for direct impact from simply being a better-than-replacement analyst with OIRA (with a reminder that I lack actual experience inside OIRA):
Suppose that by working as a junior regulatory analyst at OIRA, you have a counterfactual impact that causes federal CBA to improve by 0.1% for one year (i.e., you cause federal CBA to create 0.1% more net social value). You should therefore expect your impact to be between 11.4 and 31.5 million USD.
Although these might seem like large amounts, CBA is probably not competitive with other options on these grounds alone. For example, the EPA values a statistical American life at $7.4 million. So, this estimate means that your impact is approximately beneficially equivalent to averting 1.54 and 4.26 American deaths. Presumably, EAs can achieve the same or better impact in other ways.
Of course, this calculation depends on a largely arbitrary impact estimate (0.1%) on my behalf. If one is skeptical of this figure, as you should be, I encourage you to practice a bit of CBA and perform breakeven analysis to see how impactful you would need to be to make this competitive with your other options. Simply solve for I, where N a value equal to the number of American-statistical-life-equivalents you believe you can achieve over a year in your next-best job option:
Upper Bound: I * [($31.5 x 109)/($7.4 x 106)] = N
Lower Bound: I * [($11.4 x 109)/($7.4 x 106)] = N
If I seems plausible, then CBA is competitive in direct impact.
It might be worth also considering working in CBA in other jurisdictions. Although the USG probably has the greatest regulatory impact of any regulator, its CBA apparatus is well-developed, so there might be lower-hanging fruit in other jurisdictions.
2. Opportunity for Structural Change
CBA, as currently practiced, suffers from a number of flaws. Practical problems include:
- Infrequent retrospective reviews of regulations
- Incomplete quantification of costs and benefits
- Under President Trump, more focus on gross costs than net benefits
Ethical flaws include:
- Focus solely on American citizens and residents (to the exclusion of animals and non-Americans)6
- High discounting rates7
- Qualitative-only accounting for distributional effects
Fixing these problems (and identifying others) can plausibly improve the ethical alignment of CBA, and thereby create much more social value. The calculus of this, of course, is similar to that above. However, as compared to direct work, structural changes to CBA are likely to last longer and impact more regulations. Thus, structural improvements to CBA are probably orders of magnitude more impactful than direct work.
Admittedly, drastic changes like fully quantifying impact on animals or non-Americans are unlikely in the near future; they're outside the Overton Window. They're also set at levels higher than junior analysts. But perhaps even junior analysts could incrementally improve ethical alignment on these issues from within OIRA or agencies.
This analysis accords well with the priority 80,000 Hours gives to improving institutional decision-making and policy-oriented civil-service. Indeed, perhaps CBA is best conceptualized as a special instance of those.
3. Builds Career Capital for Politics
Working in CBA seems likely to be useful in building career capital for a number of priority career paths, such as policymaking, congressional politics, party politics, and/or think-tank research. It seems likely to be robustly useful across these domains, as analysts presumably become familiar with broadly useful analytical techniques, work at a well-respected institution, and gain professional connections with policymakers. And, of course, additional career capital within CBA makes it easier to effect the structural improvements to CBA mentioned in the previous subsection (e.g., by being promoted, by having one's viewpoint respected, by being able to offer more credible critiques of the system).
4. High Bi-Directional Skill Transferability within EA
Analysts likely build skills that are useful to EA as a movement. Of course, CBA and closely related ideas are central to EA. Thus, gaining knowledge in CBA seems useful to EA work. For example, I imagine that working in CBA will help develop the following needed skills in EA:
- Good calibration, wide knowledge and ability to work out what's important
- Generalist researcher skills
- Government and policy expertise
- Other math, quant or stats expertise
Conversely, many EAs are already likely familiar with core ideas of CBA, since our movement relies on them. This suggests that EAs and rationalists may be a good fit for CBA roles.
The high degree of skill transferability between CBA and adjacent EA domains suggests that CBA has important skill-building and option value.
A (now-closed) job announcement for a CBA analyst in OIRA, posted earlier this year, lists the following as the qualifications:
A. One year of specialized experience . . . in the private sector that includes conducting analyses of financial, banking, consumer protection, or tax regulations or regulatory policy to identify significant economic and legal issues, with an emphasis on regulatory costs and benefits, and alternative regulatory approaches. Such experience must include: 1) initiating and performing objective qualitative and quantitative analyses of financial, banking, consumer protection, or tax policy and/or economic issues to inform decision making; 2) development of recommendations to higher-level decision makers; AND 3) drafting and presenting succinct written products to describe and summarize analyses and recommendations.
B. A Ph.D. or equivalent doctoral degree; or 3 full years of progressively higher level graduate education leading to such a degree; or possession of a LL.M. degree, if related. Graduate level education must demonstrate the competencies necessary to do the work of the position, examples of qualifying fields include economics, public policy or law is preferred, including but not limited to, a focus on financial or banking policy, tax policy and administration, and/pr public finance;
C. A combination of education and experience as listed above.
Further Reading (Including Criticisms)
I've created a Goodreads list of books that might be useful to learning more about CBA.
Relevant articles include:
- Matthew Adler, A Better Calculus for Regulators: From Cost-Benefit Analysis to the Social Welfare Function (Duke Envtl & Energy Econ. Working Paper EE 17-01, 2017), https://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=6421&context=faculty_scholarship.
- Lisa A. Robinson, [Ir]rationality, Happiness, and Benefit-Cost Analysis: Introduction to the Special Issue, 7 J. BENEFIT-COST ANAL. 1 (2016), https://goo.gl/fTY33N.
- Note, Existence-Value Standing, 129 HARV. L. REV. 775 (2016), https://harvardlawreview.org/2016/01/existence-value-standing/.
- Cass Sunstein, The Real World of Cost-Benefit Analysis: Thirty-Six Questions (and Almost as Many Answers), 114 COLUM. L. REV. 167, 170 (2014), https://columbialawreview.org/wp-content/uploads/2016/04/Sunstein-Final.pdf.
- John Bronsteen et al., Well-Being Analysis vs. Cost-Benefit Analysis, 62 DUKE L.J. 1603 (2013), https://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=3389&context=dlj.
- Michael J. Sandel, Market Reasoning as Moral Reasoning: Why Economists Should Re-engage with Political Philosophy, 27 J. ECON. PERSPECTIVES 121 (2013), https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.27.4.121.
- Cass Sunstein, The Value of a Statistical Life: Some Clarifications and Puzzles, 4 J. BENEFIT-COST ANAL. 237 (2013), https://www.cambridge.org/core/services/aop-cambridge-core/content/view/S2194588800000609.
- Robert R.M. Verchick, The Case Against Cost-Benefit Analysis, 32 ECOLOGY L.Q. 349 (2005), https://ssrn.com/abstract=692221 (reviewing FRANK ACKERMAN & LISA HEINZERLING, PRICELESS: ON KNOWING THE PRICE OF EVERYTHING AND THE VALUE OF NOTHING).
- Amartya Sen, The Discipline of Cost-Benefit Analysis, 29 J. LEGAL STUD. 931 (2000), https://dash.harvard.edu/bitstream/handle/1/3444801/Sen_DisciplineCost-Benefit.pdf?sequence=2.
- Peter A. Diamond & Jerry A. Hausman, Contingent Valuation: Is Some Number Better than No Number?, 8 J. ECON. PERSPECTIVES 45 (1994), https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.8.4.45.
- Charles E. Lindblom, The Science of "Muddling Through", 19 PUB. ADMIN REV. 79 (1959), https://faculty.washington.edu/mccurdy/SciencePolicy/Lindblom%20Muddling%20Through.pdf.
1 OMB, Exec. Office of the President, Circular A-4: Regulatory Analysis 3–4 (2003), https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/circulars/A4/a-4.pdf.
2 See Michigan v. E.P.A., 135 S.Ct. 2699 (2015); Bus. Roundtable v. S.E.C., 647 F.3d 1144 (D.C. Cir. 2011).
3 Cass Sunstein, The Real World of Cost-Benefit Analysis: Thirty-Six Questions (and Almost as Many Answers), 114 COLUM. L. REV. 167, 170 (2014), https://columbialawreview.org/wp-content/uploads/2016/04/Sunstein-Final.pdf.
4 Id. at 171.
5 OIRA, EXEC. OFFICE OF THE PRESIDENT, 2017 DRAFT REPORT TO CONGRESS ON THE BENEFITS AND COSTS OF FEDERAL REGULATIONS AND AGENCY COMPLIANCE WITH THE UNFUNDED MANDATES REFORM ACT 19–20 (2017), https://www.whitehouse.gov/wp-content/uploads/2017/12/draft_2017_cost_benefit_report.pdf.
6 OMB, supra note 1, at 15.
7 Id. at 33–36.