Earlier this year, the Office of Management and Budget’s (OMB) released draft revisions to Circular A-4, a document that gives guidance to federal departments and agencies on regulatory analysis and policy.
Writing for The Regulatory Review, Shelley Welton, Presidential Distinguished Professor of Law and Energy Policy at the University of Pennsylvania Carey Law School, and Ganesh Sitaraman of Vanderbilt Law analyze the draft revisions and offer recommendations for strengthening the regulatory guidance, especially around economic regulation.
Welton also holds an affiliation with the Kleinman Center for Energy Policy in the Weitzman School.
From The Regulatory Review:
This spring, the Office of Management and Budget (OMB) released a draft version of revisions to Circular A-4, a document that gives guidance to federal departments and agencies on regulatory analysis and policy. The release of revisions to Circular A-4 is a welcome development, especially because the document has not been revised for two decades. Yet as scholars of regulated industries, we have concerns with certain aspects of the proposed reforms, which we initially highlighted in comments submitted to OMB in June 2023. This essay draws from those comments to offer our assessment of how OMB might strengthen its final guidance on regulatory analysis, particularly with respect to economic regulation.
The draft Circular A-4 makes a number of positive changes with respect to regulatory
design. It asks regulators, for the first time, to consider market power in their analysis of both the need for regulation and the benefits and costs of regulatory actions. This is an important shift. Not all markets are the same; not all markets are competitive; and regulatory actions can sometimes entrench—or break down—market power. The draft Circular A-4 also asks departments and agencies to consider the degree of compliance from industry. Rather than simply assume that a regulation will lead to full compliance, agencies are now asked to consider whether the regulatory action will lead to under-, over-, or full compliance. This is also a critically important shift. Different regulatory designs could have wildly different likelihoods of compliance. Regulatory effectiveness cannot simply be assumed.
At the same time, however, OMB should revise sections of the draft Circular A-4 that express overbroad advice on regulatory design, perhaps more for legacy ideological reasons than empirical ones.
The section on “performance standards, rather than design standards” advises agencies that “performance standards are often superior to engineering or design standards.” This statement is astonishing, given that scholars have observed that there is little to no evidence either that performance standards are effective, as a general matter, or that performance standards are systematically more effective than design standards. Indeed some have even observed that—contrary to this proposition—design standards can sometimes be essential in achieving regulatory goals… .
The Regulatory Review is a daily online publication that provides accessible coverage of regulatory policymaking and enforcement issues across a full range of regulatory topics and from a variety of perspectives.
Launched in 2009 and operating under the guidance of Cary Coglianese, Edward B. Shils Professor of Law and Professor of Political Science, The Review is edited by students at Penn Carey Law. It is part of the overarching teaching, research, and outreach mission of the Penn Program on Regulation (PPR), which draws together more than 60 faculty from across the University of Pennsylvania.