The Federalist Society’s Corporations, Securities & Antitrust Practice Group and the Regulatory Transparency Project co-hosted a panel discussion on the cost-benefit analysis of the Federal Trade Commission’s proposed rules. The FTC, primarily an enforcement agency, has issued a historic number of proposed rules over the past two years, addressing issues like non-compete provisions in employment contracts and online privacy, impacting various sectors of the U.S. economy. The experts explored how federal agencies use cost-benefit analysis for such rules, comparing independent agencies with those that are subject to Office of Information and Regulatory Affairs (OIRA) review. The panel also shared practical advice for legal and economic participants in the rulemaking commenting process.

The panel consisted of Dr. Andrew Stivers, formerly of the FTC’s Bureau of Economics; Mr. Paul Ray, ex-administrator of OIRA; Mr. Jonathan Wolfson, formerly of the Office of Policy at the U.S. Department of Labor; and Mr. Paul Metrey, Senior Vice President of Regulatory Affairs at the National Automotive Dealers Association. Moderated by Svetlana Gans, Partner at Gibson, Dunn & Crutcher, LLP, the discussion focused on three specific questions regarding agency cost-benefit analysis: (1) What standards apply to independent agencies like the FTC? (2) How does the FTC go about its cost-benefit analysis internally? And (3) how does it work in practice, with respect to current rules that the Agency has proposed?

To begin the discussion, Paul Ray defined and clarified the concept of cost-benefit analysis. Cost-benefit analysis is the evaluation of the effects of proposed policy for the purpose of decision. There are two myths dispelled by this definition. CBA is not a tool for determining policy outcomes, but rather serves as a means to inform decision-makers about the potential effects of proposed policies. Further, it does not solely consider costs and benefits; it also includes transfers and the distribution of effects in the analysis. Cost-benefit analysis serves both the public and agencies, informing decision-making and rationality.

The legal foundations of cost-benefit analysis can be found in the Administrative Procedure Act. The APA provides a legal framework to governmental agencies that mandates consideration of relevant factors, including cost, when taking action. Sections 5(n) and 22 of the FTC Act underscore why thorough CBA is necessary for both proposed and final rules. Although there is not much enforceability, the FTC is bound to conduct extensive CBA, and its submission of robust analyses during the proposal process allows it to be held accountable by the public.

Jonathan Wolfson discussed the different strategies an agency may use to circumvent cost-benefit analysis, such as claiming it lacks data or projecting difficulty in conducting a thorough analysis. He encouraged the public to use the comment process to counter these strategies by providing well-substantiated data and analysis, which will force agencies to consider the input. Although the FTC isn’t subject to Executive Order #12866, independent agencies are still legally required to perform similar CBA-like analyses through other statutory requirements. Well-informed comments can drive the FTC and other agencies to conduct their own comprehensive analyses that may be subject to legal scrutiny.

Dr. Andrew Stivers provided a look into the FTC’s transition from a case-by-case enforcement approach to increased rulemaking aimed at establishing clearer violations. As the agency enhances its regulatory infrastructure, data submitted during the rulemaking process is given serious consideration and can significantly influence the final rule. The Bureau of Economics is expected to play a larger role in the required analyses for rulemaking, further underscoring the importance of robust data submissions.

Paul Metrey offered insights into the unique challenges of the motor vehicle dealers rule, revealing procedural shortcomings and issues with the proposed rule’s cost-benefit analysis. The absence of proper preparation and stakeholder engagement, along with inadequate comment periods, hindered meaningful responses to the rule. He also highlighted flaws in the Regulatory Flexibility Act and Paperwork Reduction Act, along with untested assumptions and lack of thoroughness in the cost-benefit analysis. Metrey emphasized that the proposed rule’s benefits might not outweigh its costs, contrary to the FTC’s claims.

The panel discussion provided a comprehensive exploration of cost-benefit analysis in FTC rulemaking. It underscored the importance of understanding the nuances of CBA, its legal context, and the strategies employed by agencies. The evolving regulatory approach of the FTC and the critical examination of a specific rule highlighted the complexities and challenges associated with effective cost-benefit analysis. As participants in the rulemaking process, lawyers and economists play a pivotal role in driving agencies to conduct thorough analyses and ensuring the rationality of decision-making.

Watch the full webinar: FTC: Cost/Benefit Analysis of Proposed Rules – A Deeper Dive.

Note from the Editor: The Federalist Society takes no positions on particular legal and public policy matters. Any expressions of opinion are those of the author. We welcome responses to the views presented here. To join the debate, please email us at [email protected].