marizes the economic analysis. The final rule may later be overturned by congressional action, the results of litigation, or new regulatory efforts.

Requirements for Regulatory Analysis and Decision Making

Within the legal framework and administrative process discussed above, the results of economic analyses (including both BCA and CEA) are one of many types of information considered by policy makers. Executive Order 12866, “Regulatory Planning and Review,” establishes the Administration’s basic approach to regulatory development and decision making. This Executive Order was issued by President Clinton in 1993 and reaffirmed by the current Bush Administration. Box 1-3 provides a brief review of its evolution.

BOX 1-3
History of Administrative Guidance on Regulatory Analysis

According to the Office of Management and Budget, or OMB (1997), requirements for regulatory analysis and centralized review can be traced back to the early 1970s. Initially, assessment efforts were directed narrowly at particular types of impacts. The Nixon Administration concentrated on reducing the burden of environmental regulations on business. Under President Ford, the focus shifted to inflation; ultimately, the members of Ford’s Council on Wage and Price Stability concluded that a regulation would not be truly inflationary unless its social costs exceeded its benefits. As a result, benefit–cost analysis was required for major regulations; this requirement has persisted in modified form through today.

President Carter built on the Ford legacy, issuing Executive Order 12044, Improving Government Regulations (1978). This Executive Order established general principles for regulatory development and required analysis of regulations with major economic impacts. President Carter also initiated a process for centralized review of significant regulations.

President Reagan then made regulatory relief a cornerstone of his economic program and developed a more centralized system involving OMB review of agencies’ major regulatory actions (1981). He issued Executive Order 12291, Federal Regulation, which required agencies to prepare benefit–cost analyses for major rules and instructed them to issue only those regulations that maximize net benefits. The first Bush Administration continued to adhere to these requirements.

In 1993, President Clinton issued Executive Order 12866, Regulatory Planning and Review. This Executive Order continued the Reagan requirements for centralized OMB review with some modifications, for example, to provide more public information on the review process. This Executive Order retained the requirements for benefit–cost analysis as well as the general principle that regulations should be issued only if their benefits justify the costs. The current Bush Administration has affirmed its commitment to Executive Order 12866, amending it only to change the roles and responsibilities of some of the officials involved in regulatory review.

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