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Rules for the rulemakers: asymmetric information and the political economy of benefit-cost analysis

Author

Listed:
  • David Besanko

    (Northwestern University)

  • Avner A. Kreps

    (Northwestern University)

  • Clair Yang

    (University of Washington)

Abstract

This paper presents a model of an executive administration that decides whether to mandate benefit-cost analysis (BCA) of newly proposed regulations. A regulator has private information about the social benefit of a new rule but may differ from the executive’s preferences for regulation. BCA, which provides a noisy signal of the rule’s social benefit, is most valuable when the executive is regulation neutral. Extremely regulation-averse administrations may be harmed by BCA unless they can bias it. Our results are consistent with use of BCA by U.S. presidential administrations since Reagan.

Suggested Citation

  • David Besanko & Avner A. Kreps & Clair Yang, 2024. "Rules for the rulemakers: asymmetric information and the political economy of benefit-cost analysis," Journal of Regulatory Economics, Springer, vol. 66(1), pages 1-51, August.
    • Handle: RePEc:kap:regeco:v:66:y:2024:i:1:d:10.1007_s11149-024-09483-4
    DOI: 10.1007/s11149-024-09483-4
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    More about this item

    Keywords

    Benefit-cost analysis; Rule-making process; Environmental regulation; Asymmetric information; Information supplementation in signaling games;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • K20 - Law and Economics - - Regulation and Business Law - - - General

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