Regulations have burdens, benefits

Posted Dec. 23, 2010, at 10:55 p.m.
Last modified Feb. 02, 2011, at 11:44 a.m.

It was recently reported that Gov.-elect Paul LePage had called on industry and business leaders to help his transition team identify regulations that hinder economic development in Maine. On the surface, it would appear that reducing the burden of regulation on industry is a worthwhile goal. But, it is important to recognize that regulations that might hinder economic development by imposing costs on business also almost certainly create benefits in the form of improved human health, safety and the protection of air and water quality.

So, before deciding to get rid of a regulation because of its costs, it is important to ask: What are the benefits this regulation was designed to produce? And do the benefits of the regulation outweigh its costs or burden? If the benefits can be shown to be greater than the costs, then there is a presumption that the regulation should be retained.

As a professional economist, I have been involved in a number of studies of the benefits and costs of regulations to protect human health and safety and the quality of the environment at the federal level. I know that there have been regulations that do not appear to provide benefits that are worth the costs that they impose on the economy. But there also are many instances of regulations that provide benefits well in excess of their costs.

Since early in President Ronald Reagan’s administration, federal agencies have been required to perform analyses of the benefits and costs of major proposed regulations before they are adopted. These so-called regulatory impact assessments are meant to be aids to decision makers.

The Office of Management and Budget in the White House now produces an annual report on the costs and benefits of regulations that reviews and summarizes these analyses. These reports show that by and large federal regulations are producing benefits well in excess of their costs.

In addition to focusing on the burdens and costs of regulation, the governor-elect should also examine the benefits that these regulations provide and be careful not to repeal regulations that have benefits greater than costs.

There also are many instances where the form of a regulation could be improved so as to reduce its costs without reducing its benefits. Any effort to reduce the burdens of regulations should also seek out these cases and propose new forms of regulation to improve what economists call the cost-effectiveness of regulation. This will often involve greater reliance on market-based incentives such as “cap and trade” programs and charges on harmful activities such as the discharge of pollutants.

The governor-elect also should direct his staff to look for opportunities to reduce the burden of regulatory costs without losing the benefits of these regulations.

A. Myrick Freeman III is an emeritus professor of economics at Bowdoin College in Brunswick.

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