In recent years, several attempts to streamline the regulatory process have failed. Congress has failed to fund a proposed Congressional Office of Regulatory Analysis, which would have provided valuable third-party analysis of legislation. Congress also failed to act on the Levin-Thompson Regulatory Improvement Act, which would have required that agencies perform cost-benefit analyses and look at alternatives to the regulations they proposed.

What can government do to improve the regulatory process? The Joint Center convened a panel of experts to look at what can be done, what obstacles to reform remain, and how regulatory reform should take shape. The panel included: Boyden Gray, an attorney with Wilmer, Cutler & Pickering and former counsel to President George Bush; Sally Katzen, a professor at Smith College and the University of Pennsylvania Law School; Paul Noe, the Counselor to the Administrator at the Office of Information and Regulatory Affairs (OIRA); and Cass Sunstein, a University of Chicago law professor.

Mr. Noe argued that to improve the regulatory system, the government needs centralized regulatory review and should focus on maximizing social welfare. According to Mr. Noe, agencies should not be blocked from considering alternative remedies to regulations. He suggested that the problems the system currently faces arise from agencies having tunnel vision and special interest groups having too much influence.

To be successful, Mr. Noe continued, regulation must be effective and efficient, based on sound science, and transparent decision-making. To this end, OIRA has begun sending out "prompt letters" to agencies that provide recommendations for potential reforms. OIRA has also shortened its review time to less than 90 days while increasing the public’s involvement in the review process. The goal, Mr. Noe said, continues to be on implementing well-balanced, effective policy.

According to Mr. Gray, government must stop playing favorites with regulation. Rules should not differ for different companies. For example, just because one company happens to fall under the jurisdiction of the FTC and another falls under the FCC does not mean that the rules should change for each. At the end of the day, all regulators should adhere strictly to the rules of cost-benefit analysis.

Mr. Gray discussed the effectiveness of performance standards and other market-based incentives as compared to the command-and-control approach to regulation. In the case of emissions standards, a market-based approach of trading "pollution credits" has worked well and brought needed efficiency to a key part of environmental protection. He warned that government must be wary of attempts at rent-seeking behavior by companies and attempts by incumbents to protect their favored positions. Finally, Mr. Gray said government should remember that anti-trust is a form of regulation and proceed with caution.

Sally Katzen, Smith College and the University of Pennsylvania

Ms. Katzen emphasized the important role that regulation has in society, focusing on how it might be improved. She said we need better data, better analysis, and the consideration of alternatives. The quality of analysis varies dramatically by agency so government should study ways to improve current cost-benefit analysis techniques. She felt that it was particularly important to reward agencies that are doing a good job by giving them the funding they need to continue doing better.

Ms. Katzen went on to note that there is no way to legislate good management, but incentives should be given to managers to do well. An example of an incentive is that if an agency has its regulation peer-reviewed, OIRA won’t review it as closely. Another incentive would be to have the President announce very good regulations.

Finally, Ms. Katzen advocated a change in philosophy that would move OIRA from its current transaction-focused approach to embracing a broader view of regulation. She said OIRA could begin the planning process earlier by working with agencies at the beginning stages of a new regulation.

Mr. Sunstein believes we are stuck in the paradigm of 1970s environmentalism. He sees three solutions to this impasse. First, government must pay more attention to the magnitude of the problems it is trying to fix. Second, it should pay more attention to tradeoffs. To clarify his point, Mr. Sunstein said that too often substitute risks are not considered when a regulation is passed. In some cases, the EPA is forbidden from taking into account the costs of a regulation. This has led to an overly tight restriction on ozone when increasing restrictions on particulate matter instead would have been more effective. Third, government should choose smart tools instead of mandates. Mr. Sunstein cited the success of emissions trading as an example. He argued that President Bush should order agencies to disclose more and increase the use of economic incentives in regulatory matters. One way to bring this about is for agencies to produce scorecards for their own regulations that include information on costs, benefits, and alternatives that were considered.

Mr. Sunstein drew on behavioral economics to explain how people assess risks and how these sometimes-incorrect assessments can affect policy. People use the availability heuristic to assess risk, meaning that if an incident readily comes to mind, people assign more risk to it and are more likely to insure against it. He explained that people pay little attention to the actual probability of an event when emotions are high. Mr. Sunstein argued that these behaviors sometimes drive bad policy.

All four speakers agreed on the need to improve regulation by making it more efficient and paying closer attention to cost-benefit analysis. Mr. Gray and Mr. Sunstein emphasized the efficiency of market-based approaches. Mr. Gray also mentioned the importance of a level playing field, while Mr. Sunstein discussed the need for better risk assessment. Ms. Katzen focused on giving agencies incentives to perform well and making sure agencies have the resources they need. Mr. Noe discussed some of OIRA’s new policies aimed at improving regulation, such as sending prompt letters and working with agencies early in the process of creating new regulations.