U.S. Updates Influential Economic Evaluation Guidance

The U.S. Office of Management and Budget (OMB) recently substantially revised its guidance on evaluating major regulations and government investments, which will have profound effects on how agencies estimate and evaluate the benefits and costs of alternative policies. Work by CHDS faculty Lisa Robinson and James Hammitt contributed to these revisions. The guidance on regulations (OMB Circular A-4) includes numerous significant changes. For example, it alters the discounting approach and gives greater emphasis to future costs and benefits. It also encourages agencies to weight costs and benefits to reflect the greater value of money for a poor person than a wealthy person.

The guidance on government programs (OMB Circular A-94) was also significantly revised. Because it focuses on the investment of Federal funds, rather than on regulations that address the behavior of individuals and other organizations, its provisions differ in some respects. For example, the discounting procedures it recommends vary depending on the type of investment. However, it frequently references the Circular A-4 guidance for more detailed information, for example on distributional weighting as well as many other analytic components.

In addition to providing more detailed guidance on many of the topics addressed by Circular A-94, Circular A-4 provides more extensive guidance than its predecessor on most regulatory analysis components, with many changes – both major and minor. These components include justifying the need for Federal regulation, identifying regulatory and nonregulatory alternatives to be assessed, predicting “without policy” baseline conditions over time, estimating costs and benefits, and addressing uncertainty and non-quantified effects. Circular A-4 also summarizes the differences between cost-effectiveness analysis and benefit-cost analysis, encouraging agencies to rely on the latter as “the typically more informative approach.” In addition, it discusses the extent to which these analyses should include impacts outside of the U.S.

In announcing the changes, President Biden cited the work by CHDS faculty Robinson and Hammitt with Richard Zeckhauser on assessing the distribution of costs and benefits across advantaged and disadvantaged populations. Furthermore, Circular A-4 cites work by Robinson and Hammitt on behavioral economics and benefit-cost analysis as well as the use of research synthesis methods, including systematic review, meta-analysis, and expert elicitation. In explaining the rationale for the changes, OMB also referenced some of the above work, Robinson’s comments on the proposed revisions, and Hammitt’s work on valuing mortality risk reductions. The latter address issues related to background risks, to understanding small risk changes, and to values for children and adults. These studies all explore the relationship between these values and income, which in turn relate to the approach OMB suggests for weighting the value of money to the poor more highly than the value to the wealthy.

Learn more: Read the CHDS articles referenced in the Circulars and supporting material:

Learn more: Read the White House news release, Biden-⁠Harris Administration Releases Final Guidance to Improve Regulatory Analysis