A recommendation from ACUS could help agencies better organize their economic staff.
It is a management truism that organizational structure can affect results by altering information flows and incentives.
The United States Administrative Conference (ACUS) recently hired me to produce a report which examines how the organization and management of economists in federal regulatory agencies can affect the quality and consideration of economic analysis intended to inform regulatory decisions. Based on the report, ACUS adopted a recommendation help regulators assess how the organization and management of their economists can best promote objective analysis and effective communication of results to decision makers.
Executive orders require executive agencies to conduct regulatory impact analyzes to inform decisions on important regulations. Certain agencies not covered by these decrees, such as the United States Securities Commission, produce similar economic analyzes because of legal requirements or because they believe that these analyzes provide useful information to make their decisions.
The organizational structure of economists responsible for producing an economic analysis of regulations is generally take one of the three forms: divisional organization, under which economists are located and overseen by the program office which develops regulations; functional organization, under which economists are located in an economic analysis office separate from the program office and overseen by other economists; Where hybrid organization, whereby economists who perform economic analysis of regulations are located in the program office, but additional economists are located in a central office that reviews regulations and accompanying analyzes.
The report I prepared for ACUS abstract Relevant organization theory, published interview research, case studies and econometric study concluding that the functional organization of economists is associated with better quality regulatory impact analyzes. The report also understand the results of interviews I conducted with economists and non-economists who work on regulation in six cabinet offices and two independent agencies.
Theory of organizations, previously published research and new interviews conducted for this study tell a cohesive story on the pros and cons of different organizational structures for economists performing regulatory analysis. Choosing an organizational structure often involves a trade-off between the quality and objectivity of economic analysis and the extent to which decision-makers take economic analysis into account in their decisions. Decision-making authorities, operational procedures and practices can be developed to mitigate the disadvantages of the chosen organizational structure.
The functional organization of economists, for example, can to improve the quality and consistency of the economic analysis. This structure allow senior economists to exercise quality control over the work of analysts, ensuring that economists are evaluated by other economists with the expertise to evaluate their work. This too ease hiring better economists, encourages the development of standardized analytical procedures, and better insulates economists from the pressure to produce analyzes that simply justify decisions that have already been made.
On the other hand, the functional organization can lead less relevant economic analysis because economists no longer work side-by-side with program office staff who write regulations. Regulators and policy makers may also find it easier to ignore economic analysis because the economists who produce it are in a different part of the organization.
The drawbacks of functional organization, however, can be mitigated by including economists in interdisciplinary regulatory development teams from the start. This ensures that economic analysis reaches the ultimate decision makers. It also gives the chief economist or other head of the agency’s economic analysis office the authority to approve regulations.
Divisional organization avoid some of the drawbacks of functional organization. For example, placing economists in the program office that drafts the regulations can promote more relevant analysis. Economists may be more familiar with the key decisions that need to be made when developing regulations. Economists are also more likely to be involved in the early stages of regulatory development, before many decisions are made, if they are part of the program office.
However, the divisional organization To its costs. When an agency’s regulatory economists are spread across multiple divisional organizations, they may have fewer opportunities to collaborate with each other and develop analytical procedures that are shared across the agency. Additionally, economists who ultimately report to non-economists in a program office may feel more pressure to produce analysis that justifies decisions made in the program office. Economists’ analysis and recommendations may not even reach high level decision makers.
These shortcomings of the divisional organization can be attenuated with decision-making authorities, appropriate procedures and practices. Some organizations ensure that economists in program offices are led by other economists. Many departments with a divisional organization also have a central economics office that reviews regulations and accompanying analysis to provide quality control, provides leadership in the development of analytical procedures, and organizes research and analytical development that serve as an analytical contribution for future regulations. The head of the central economy office also usually has some degree of approval authority over a regulation or its associated economic analysis.
Indeed, many agencies try to reduce the downsides of the divisional organization in becoming hybrid organizations, which means including economists both in the program office and in a central office that reviews regulations. A hybrid organization is not perfect, however, as economics staff in program offices may still be marginalized or face career hurdles in communicating with the central economics office when they see gaps in the analysis. from the program office.
ACUS Posted its multi-part recommendation based on these findings. His recommendation consists of five actions that agencies can take to assess and improve their organization of economic analysts.
First of all, and more fundamentally, ACUS noted that agencies that perform economic analysis to inform regulatory decisions should consider whether their existing organizational structure for economists facilitates the production of objective, consistent and high-quality analysis.
Second, the recommendation urges Agencies examine a list of the strengths and weaknesses of each organizational structure when assessing how the current organizational structure affects the quality of analysis and the flow of that information to decision makers.
Third, ACUS urges agencies that are launching new economic analysis units or restructuring their existing economic analysis functions to take into account the same factors.
Fourth, the recommendation lists the main strategies that agencies can employ to mitigate the drawbacks of each organizational structure.
Finally, the recommendation of ACUS strong points three practices that can be useful regardless of the organizational form:
- Develop and publish guidelines specifying that economists should be involved in regulatory development before major regulatory decisions are made;
- Involve economists in the development of regulatory plans and regulatory budgets for the agency; and
- Ensure that agency regulatory policy makers or similar officials work with agency economists to develop relevant analytical methods and provide training and other assistance in economic analysis to other members of the agency. agency.
If agencies take the ACUS recommendation to heart, they can improve the economic analysis produced by their staff. Ultimately, adoption of this recommendation should lead to better and more effective government regulation.
This essay is part of a five-part series on the United States Administrative Conference, titled Seek to improve administrative transparency and expertise.