Lawyers such as Cass Sunstein, Jonathan Masur and Eric Posner argue that federal regulators will face increasing pressure from the courts in the coming years to produce high-quality economic analysis to inform regulatory decisions. While some are concerned about the ability of the courts to review economic analysis, the point is that the courts are already doing that. Several recent research projects have shed light on the relationship between the quality of an agency’s economic analysis and the risk of a regulation being overturned by the courts.
Different projects employ different research methods which each have their own limitations. They include interviews with staff of agencies working on regulations, analysis of cases in which courts have examined the economic analysis of agencies, and econometric analysis of factors that influence the quality of economic analysis and outcomes. court decisions to overturn or maintain regulations. Overall, the research tells a largely consistent story: The quality of an agency’s economic analysis can affect litigation risk if the agency claims to have used that analysis to guide its decisions. A high-quality analysis increases the chances that a settlement will be upheld in court, and a low-quality analysis reduces the chances that a settlement will be upheld in court.
In 2019, the United States Administrative Conference ordered a report explore the potential relationship between the organization and management of economists in regulatory bodies and the quality and consideration of economic analysis in regulatory design. The report included interviews with 15 senior economists and 10 senior non-economists from regulators. An interview question asked how the quality of the agency’s economic analysis affected the risk of litigation.
Many respondents believed that the quality of the economic analysis could affect the risk of litigation; a minority thought it made little difference.
The responses reveal several useful ideas about the role that economic analysis could play in litigation involving regulations in the future. Many respondents believed that the quality of the economic analysis could affect the risk of litigation; a minority thought it made little difference. They said the economic analysis is more likely to have an effect if the law authorizing the settlement requires the agency to take economic factors into account. Respondents suggested that a high quality analysis reduces the risk of litigation and that a low quality analysis increases the risk of litigation. In their opinion, the evaluation of alternatives and the calculation of costs are subjects to which the courts could be particularly sensitive.
The second research group consists of various revision of the law articles who review a substantial sample of federal appellate court decisions in which the court assessed the quality of the economic analysis accompanying a settlement. These articles find that the quality of an agency’s economic analysis can affect the likelihood of a settlement being upheld in court; an agency’s analysis is vulnerable if it ignores an important aspect of the problem, alternatives, benefits or costs; and the depth of judicial review varies widely, but courts are more likely to carefully consider an analysis whether the underlying law specifies the benefits and costs that the agency is supposed to consider or specifies how the results of analysis should affect decisions.
The last search item is a paper presented at the Southern Economic Association’s annual conference in November 2019. It econometrically examines whether there is a correlation between the quality of Regulatory Impact Analysis (RIA) accompanying a settlement and the likelihood of the settlement being rescinded by a tribunal. Empirical results suggest that the effect of economic analysis depends on the quality of the analysis, but only if the agency has explained how it used part of the analysis in its decisions.
The author did not receive financial support from any company or person for this article or from any company or person with a financial or political interest in this article. Part of this article is based on interviews conducted by Dr. Ellig for a separate report commissioned by the United States Administrative Conference (ACUS), and the opinions, views and recommendations expressed by the author are those of the author and do not necessarily reflect those of ACUS or its members. Dr Ellig is not currently an officer, director or board member of any organization with a financial or political interest in this article.