Cost-benefit analysis

Cost-benefit analysis (CBA) is a technique for evaluating a policy by estimating all its costs and all its benefits in monetary terms and comparing them. A project or rule is considered justified if benefits exceed costs, and alternatives can be ranked by net benefits.

Since President Reagan's Executive Order 12291 in 1981, U.S. presidents have required agencies to do a regulatory impact analysis for significant rules, reviewed by the Office of Information and Regulatory Affairs, and later orders from presidents of both parties have retained the requirement. In Michigan v. EPA (2015), the Supreme Court held that an agency acted unreasonably when it ignored costs in deciding whether regulation was "appropriate."

Supporters, including many conservatives, say that CBA disciplines rulemaking by forcing agencies to consider tradeoffs and avoid rules that cost more than they achieve. Critics argue that it requires uncertain monetary values for things such as human life, health, ecosystems and the future, that it can favor industries that can quantify their costs more easily than diffuse public benefits, and that it overlooks distribution and fairness. Choices such as the discount rate can drive the outcome. It is a central tool in debates over deregulation. See also administrative state.