Working Paper No. 57

Attempts to Measure the Administrative State: A Review and Critique

From the early 1960s through the mid-1980s, the typical regulatory study applied a microeconomic analysis to an industry characterized by price and entry restrictions, such as airlines, railroads, trucking, oil, natural gas, telecommunications, and banking. The results were estimates of economic resources redistributed from some firms and consumers to others (transfers) and of the economic value of the market transactions that did not occur because regulated prices were higher than marginal cost or that did occur because subsidized prices were lower than marginal cost (deadweight losses). Clifford Winston reviewed this research in an article for the Journal of Economic Literature in 1993. Such rule-by-rule studies of regulatory cost are difficult to aggregate, however. The only summary measure of the results of this traditional method of analysis is Winston’s: that in “1977, 17 percent of U.S. GNP was produced by fully regulated industries. By 1988, following ten years of partial and complete economic deregulation of large parts of the transportation, communications, energy, and financial industries that total had been cut significantly – to 6.6 percent of GNP.” (p.1263).

Deregulation largely eliminated traditional price and entry regulation between the mid-1970s and mid-1990s. But Congress passed a raft of new environmental, health, and safety legislation during this same time period. To discourage inefficient rulemaking by the enforcing agencies, presidents — beginning with Jimmy Carter – issued executive orders requiring the Office of Management and Budget (OMB) and its new subsidiary, the Office of Information and Regulatory Affairs (OIRA), to conduct cost-benefit analyses of these novel regulations.

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Derek Bonett is a policy analyst at the Cato Institute,