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Efficiency and Equity in Regulation

Posted by on Tuesday, March 28, 2023 in Articles, Volume 76, Volume 76, Number 2.

Caroline Cecot | 76 Vand. L. Rev. 361

The Biden Administration has signaled an interest in ensuring that regulations appropriately benefit vulnerable and disadvantaged communities. Prior presidential administrations since at least the Reagan Administration have focused on ensuring that regulations are efficient, maximizing the net benefits to society as a whole, without considering who benefits or who loses from these policies. Critics of this process of regulatory review have celebrated President Biden’s initiative, hoping that distributional analysis and the pursuit of equity will displace traditional tools and interests such as cost-benefit analysis and the pursuit of efficiency. Meanwhile, supporters of the current process are concerned that pursuing equity will come at significant cost to efficiency and ultimately leave everyone worse off.

This framework—efficiency versus equity—is misguided and counterproductive in many cases. As an initial matter, all regulations have distributional consequences, and the traditional arguments for ignoring these consequences are outdated or wrong. Understanding distributional effects and considering equity in regulation is long overdue.

But current agency practice is often far from efficient, and there are opportunities to advance equity by improving the efficiency of regulations. In fact, neutral procedures such as cost-benefit analysis are more likely to benefit disadvantaged groups than is raw politics, whatever the intention, at least based on experience in regulatory policy. Furthermore, cost-benefit analysis and efficiency considerations more generally could help avoid outcomes that are, in their implementation, inequitable.

This Article supports these arguments by drawing on examples from the environmental context, where considerations of equity and efficiency have often been thought to conflict. Importantly, it highlights how thinking about both equity and efficiency can help regulators identify ways to promote both using their existing authorities. And, in particular, it argues that funding and subsidy programs could be deployed in connection with regulatory actions to help realize equitable outcomes. This Article articulates some simple rules of thumb agencies could use to identify these contexts and thoughtfully deploy their resources, and it compares this approach to broader proposals to consider equity in regulation more generally.

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Caroline Cecot