Law & Economics Working Papers
Recent scholarship on regulatory oversight has focused on cost-benefit analysis of prescriptive regulations—regulations that restrict behavior such as pollution—and their use to cure market failures, and has overlooked the vast number of transfer regulations. Transfer regulations are regulations that channel funds to beneficiaries. These regulations are authorized by statutes that establish entitlement programs like Medicare and Social Security, pay one-time distributions to victims of misfortunes such as natural disasters and the 9/11 terrorist attack, and fund pork barrel spending. Cost-benefit analysis cannot be used to evaluate transfer regulations because all transfer regulations fail cost-benefit analysis; cost-effectiveness analysis, however, can be used to evaluate transfer regulations. Although executive orders appear to require agencies to use cost-effectiveness analysis to evaluate transfer regulations that have a large economic impact, the agencies' record is dismal. Most agencies fail to perform cost-effectiveness analysis, and other agencies perform cost-effectiveness analysis incorrectly. More vigorous Office of Management and Budget and, possibly, judicial review could improve the quality of distributive regulations.
Eric Posner, "Transfer Regulations and Cost Effectiveness Analysis" (John M. Olin Program in Law and Economics Working Paper No. 184, 2003).