Public Interest Regulatory Analysis

Jerry ElligSenior Research Fellow

Tonight’s issues

1. What is the “public interest”?

2. Knowledge: How can policymakers identify the public interest?

3. Incentives: What incentives do policymakers face?

4. What does this imply about how we do public interest analysis and advocacy?

5. OK, give me some real examples

Key economic insights

Knowledge, abilities, talents dispersed

People gain from exchange

Incentives matter

“Rules of the game” create incentives and

knowledge flows

Economic analysis of government Collective, rather than individual, decisions

Collective decisions require exchange between interest groups

“Rules of the game” create incentives and knowledge flows

Rules affect outcomes

1. What is “the public interest”?

“Basically, it covers just about everything.”

-- Sen. Clarence Dill

Defining “public interest” requires value judgments Utilitarian

Social welfare maximization (economic efficiency) Wealth maximization (economic efficiency as best we can measure it in monetary

terms) Consumer welfare maximization (often requires economic efficiency)

Rawlsian: Maximize welfare of least well-off?

Marxian: From each according to his ability, to each according to his need?

Natural rights: Preserve certain rights/liberties necessary for humans to flourish?

Contractarian: What rules would people choose if they didn’t know what position they would be in?

Platonic: Make people virtuous? (Make them behave according to my values)

Consensus on values?

Economic and consumer protection regulation

Environment

Health/safety

2. Imperfect processes for identifying the public interest

Public interest = whatever the government did?

Benevolent despot

Revelation through voting

Expert agency with notice-and-comment process

Public interest = what the govt. did“… plaintiffs’ proposed final judgment is the collective

work product of senior antitrust law enforcement officials of the United States Department of Justice and the attorneys general of 19 states, in conjunction with multiple consultants. These officials are by reason of office obligated and expected to consider – and to act in – the public interest …”

--Judge Thomas Penfield Jackson, order directing the breakup of Microsoft

The despot’s dilemma

Knowledge (of desires, abilities, circumstances, etc.) is

Dispersed

Tacit

Subjective

Time-dependent

Often untested

Revelation through voting

Cyclical majorities

Agenda manipulation

Nonvoting and rational ignorance

Cyclical majority

1. Spending cuts without tax cuts2. Spending cuts with tax cuts3. Tax cuts without spending cuts

Fiscal conservative favors 1, 2, 3

Fiscal liberal favors 3, 1, 2

Tax cutter favors 2, 3, 1

1 vs. 2: 1 wins … 1 vs. 3: 3 wins … 2 vs. 3: 2 wins!

Experts aided by “notice and comment”

Organization costs exclude some affected parties

Rational ignorance

Diversity within stakeholder groups

3. Incentives and the public interest Wealth transfers and “rent-seeking”

Concentrated benefits and dispersed costs

The “Prisoners’ Dilemma:” Why skinflints pork-barrel

Lack of ownership and time horizons

4. Public interest comments mitigate these problems

Public interest (however defined) often under-represented

Public interest commenters

Peculiar values (e.g., Mercatus and other nonprofits) Political incentives (e.g., federal vs. state agencies) Statutory mission (e.g., SBA, FTC)

What can public interest regulatory analysis do?

Ensure that desired outcomes are defined and measurable

Assess proferred benefits and identify unseen/hidden benefits

Highlight unseen/dispersed costs

Make tradeoffs explicit

Identify less restrictive alternatives that can accomplish the policy goal

What can’t regulatory analysis do?

Determine what tradeoffs are “worth it”

Furnish an automatic algorithm for regulatory decisions

Determine what “should” be done

Why does it work?

Power of reasoned argument and evidence

Authoritative voice

Potential for embarrassment