Cost-Benefit Analysis of Financial Regulation: A Reply

Abstract

Still, for reasons I try to illuminate in Cost-Benefit Analysis of Financial Regulation: Case Studies and Implications , efforts to quantify and monetize costs and benefits of significant financial regulations in precise and reliable ways face significant challenges. ... If my Article and this exchange help make it more likely that those proposals will be significantly modified--to embrace retrospective review, for example, rather than to insist that agencies use unreliable, up-front quantified guesstimates to defend regulatory changes--then this will be a good outcome, even if it takes a Chicken Little (to which Posner and Weyl liken me ) to generate a consensus. ... THE ROLE OF BREAKEVEN ANALYSIS IN CBA OF FINANCIAL REGULATION Sunstein's Response advances the technique of breakeven analysis to address the serious challenges financial regulators face in estimating the effects of major regulations. ... Meanwhile, non-financial regulations exist for which full quantified CBA is just as challenging as for any financial regulation. ... Institutionally, the guidelines are not (technically) regulations, but statements of enforcement policy, designed to give private parties insight into how the regulators analyze the effects of mergers and select enforcement strategies under the antitrust statutes. ... But such potential consequences are almost certain to be minor, and the first-order (in the sense of "larger") effects of the rule can be calculated by running experiments with representative individuals to see how often the cameras reduce accidents. ... At the same time, none of the examples that Kraus lists reflect the kind of quantification and monetization sought by some CBA advocates.