Specifying the Baseline in Benefit–Cost Analysis: Comments on U.S. Draft Circular A4

What the paper says

Abstract This article includes my 4 June 2023, comments on the specification of the baseline in Regulatory Impact Analyses that were submitted in response to the Office of Management and Budget’s (OMB’s) request for comments on its draft revisions to Circular A4, “Regulatory Analysis.” This article also includes supplemental remarks on the Office of Information and Regulatory Affairs’ (OIRA’s) Revisions to Circular A4 in Response to Public Comments. In my supplemental remarks, I clarify two regulatory situations that I believe OIRA is trying to address in its baseline guidance. I then make three points. First, I argue that the term “dynamic baseline” is preferred to “analytic baseline” because it better conveys the key point that the baseline is a forecast of future conditions. Second, I believe OIRA’s final baseline guidance still leaves agencies with too much discretion to make their own assumptions about such basic parameters in the construction of a dynamic baseline as population and economic growth, technological innovation, and climate change. Third, I argue that the use of multiple dynamic baselines should be standard practice because it makes the baseline assumptions more transparent and thus to some extent mitigates the risk of bias that can arise from an analyst’s strategic selection of a single baseline.