Evaluating Regulation Outcomes

by Olivia Zhao on Thursday October 22, 2015

On October 21, Richard Schmalensee, Professor and Dean Emeritus at the MIT Sloan School of Management and former CEEPR Director, spoke at a seminar hosted by Resources for the Future in Washington, D.C. A group of experts on energy and environmental policy had been convened to discuss outcomes of federal environmental regulations and lessons learned from the analysis of rulemaking by agencies such as the Environmental Protection Agency (EPA), the Department of Energy, and the Department of the Interior.

In his remarks, Schmalensee highlighted the importance of revisiting policies after their enactment to assess whether initial goals were met, and why certain unintended or surprising effects have arisen. Unfortunately, ex post analysis and “looking back at what actually happens as opposed to what is expected to happen … is not reasonably standard practice in regulation.” He acknowledged the reasons why ex ante analysis fails; characterizing uncertainty and expectations for the future is inherently difficult. Such analyses must also balance creating a simple and transparent narrative that is accessible to policy makers without sacrificing considerations of uncertainty about the future.

Policies concerning energy and the environment receive extensive analysis before issuance to examine costs, benefits, and possible outcomes. However, less rigorous attention is granted to the actual realized outcomes. Did the policy achieve substantial gains? Did the actual gains align with the anticipated gains? Were initial cost and benefit estimates accurate? Were there surprising outcomes, and if so, why aspect of the policy may have caused them? In order to learn from the past and craft more effective regulations, panelists agreed that these types of questions will have to receive greater attention going forward.