Shannon Joyce and Christine Kymn Presumption Against Regulation and Alternatives to Command and Control Regulation Shannon Joyce and Christine Kymn White House Office of Information and Regulatory Affairs U.S./Colombia RIA and GRP Workshop Bogota, Colombia April 12, 2018 Any views expressed here are solely those of the presenters, and do not necessarily reflect the position of the Office of Management and Budget or the Executive Office of the President.

Presumption Against Regulation Federal agencies should promulgate only such regulations as are: required by law, necessary to interpret the law, or made necessary by compelling public need, such as material failures of private markets to protect or improve the health and safety of the public, the environment, or the well-being of the American people. Shannon

Presumption Against Regulation In deciding whether and how to regulate, agencies should assess all costs and benefits of available regulatory alternatives, including the alternative of not regulating. Costs and benefits shall be understood to include both quantifiable measures (to the fullest extent that these can be usefully estimated) and qualitative measures of costs and benefits that are difficult to quantify, but nevertheless essential to consider. Shannon

The Agency Must Clearly Identify the Problem Each agency shall identify the problem that it intends to address (including, where applicable, the failures of private markets or public institutions that warrant new agency action) as well as assess the significance of that problem. The problem identified by the agency is also published for public comment. Christine

When and Why Is It Appropriate to Regulate? What is the need for regulation? Market failure or some other compelling public interest Should describe the failure both qualitatively and quantitatively, where feasible What is the market failure? Externality, common property resource and public good Market power Inadequate or asymmetric information Other social purposes Presumption against economic regulation Christine

Examples of Market Failure Pollution from power plants that impacts the air quality of downwind property holders or the pig farmer that neighbors residential homes (negative externalities) Over-fishing in a body of water where ownership is unclear (common-pool resources) Financial sector bubbles and market collusion (asymmetric information) Christine

Assess Alternatives to ‘Command and Control’ Regulation Each agency shall identify and assess available alternatives to direct regulation, including providing economic incentives to encourage the desired behavior, such as user fees or marketable permits, or providing information upon which choices can be made by the public. Christine

Examples of Economic Incentives to Encourage Behavior These approaches include: warnings, appropriate default rules, disclosure requirements, as well as the provision of information to the public in a form that is clear and intelligible. Shannon Example of temperature control: A general and a policy advisor are sitting at the bar having a drink. The policy advisor is an expert at using incentives to encourage behavior. The general, not really understanding what his friend does, asks him for an example. The policy advisor asks the general a question: “How would you get that colonel over there to take off his jacket?” The general responds: “I would ask him to take it off.” The policy advisor notes that this could work, but also might not – depending on the in-the-moment desires of the colonel. The general thinks about this and says: “I would order him to take it off.” The policy advisor explains that, while the general has rank over the colonel and could order him to take off his jacket, the general risks his reputation and the colonel is likely to put it back on as soon as the general leaves anyway. The general tries again: “ I would take it off of him by force.” The policy advisor reminds the general that this would potentially be a crime, but also that the general risks significant damage to his reputation. The force is unnecessary. The general is starting to get frustrated at this point and asks the policy advisor: “fine, how would you do it?” The policy advisor walks over to the thermostat in the bar and turns the temperature up 5 degrees. Within 10 minutes the colonel and everyone else in the bar had willingly taken off their own jackets. The policy advisor did not force the situation, he did not have to. He used incentives to create an atmosphere where his desired outcome became the desired outcome for others as well.

Appropriate Default Rules Example: 401(k) retirement accounts Complicated to figure out which investment is best Default in many cases was that you didn’t invest Many people put off their decisions for so long or got swept up in inertia that they didn’t invest Investing early is key to get compound interest

Appropriate Default Rules Problem: How can we get more people to invest in their future without reducing choice?

Appropriate Default Rules By switching the default from ‘no investment’ to even just a 5% investment, the same rules of inertia held. People still had the same choice options available to them without penalty.

Disclosure of Information Requirements System of Records Notices (SORNs) and Privacy Act statements under the Privacy act of 1974 Drug side effect disclosure Campaign finance disclosure Recall notices (for vehicles) Federal employee salaries, investments, assets

Disclosure of Information Requirements

Disclosure of Information Requirements

Questions? Thank you! Contact information: Shannon Joyce: sjoyce@omb.eop.gov Christine Kymn: ckymn@omb.eop.gov Not sure about providing contact info. I’m fine to read off either email or phone numbers. If there is concern, we could do the main phone line.