Most federal regulations not cost-effective, study finds

The federal regulatory machine as a whole provides more benefits than costs to the nation, but most individual regulations are not cost-effective, a new study concludes.

From 1981 to 1996, federal regulations provided net benefits to the nation worth $1.6 trillion, according to research by Robert Hahn, director of the Joint Center for Regulatory Studies, operated by the American Enterprise Institute and the Brookings Institution.

Hahn concluded, however, that "less than half of final regulations pass a neutral economist's benefit-cost test. Net benefits could increase by approximately $280 billion if agencies rejected such regulations. Net benefits could also increase if agencies replace existing regulations with more efficient alternatives."

Though the Transportation Department is responsible for less than 10 percent of federal regulations, DOT accounts for more than 60 percent of the total benefits of federal regulations, the study found.

The Environmental Protection Agency accounted for a third of the net benefits, even though it issued two-thirds of federal regulations. Labor Department regulations-primarily through the Occupational Safety and Health Administration- accounted for seven percent of regulatory benefits. The departments of Agriculture, Health and Human Services, Housing and Urban Development, and the Consumer Product Safety Commission accounted for the remaining three percent of federal regulatory benefits.

Federal regulations aimed at reducing cancer risk are less cost-effective than other social regulations, according to the study. Agencies tend to regulate cancer-related issues more stringently than non-cancer risks, Hahn found, so the average cancer regulation is more than 70 times more costly per life saved as the average non-cancer regulation. Similarly, EPA regulations tend to be less cost-effective than other agencies' regulations, Hahn found.

In general, Hahn's research suggested that health regulations, such as those aimed at reducing cancer, heart disease and lead poisoning, are less cost effective than safety regulations, such as those aimed at reducing the risk of car, fire or work-related accidents.

To improve the benefits of federal regulations, Hahn suggested that Congress and the White House require agencies to develop better economic analyses. Such analyses must be reviewed by an independent entity, he said.

"If agencies examine the economic impacts of their regulations on real people more carefully, I believe they will develop more effective and less wasteful regulation," Hahn said.