Better economic analysis can reduce regulators’ litigation risks
Legal scholars such as Cass Sunstein, Jonathan Masur, and Eric Posner argue that federal regulatory agencies will face increasing pressure from courts in the coming years to produce high-quality economic analysis to inform decisions about regulations. While some are concerned about courts’ capability to review economic analysis, the fact is that courts are already doing it. Several recent research projects shed light on the relationship between the quality of an agency’s economic analysis and the risk that a regulation will be overturned in court. The various projects employ different research methods that each have their own limitations. They include interviews with agency staff who work on regulations, analysis of cases in which courts have reviewed agency economic analysis, and econometric analysis of factors that influence the quality of economic analysis and court decisions to overturn or uphold regulations. Taken together, the research tells a largely consistent story: the quality of an agency’s economic analysis can affect litigation risk if the agency says it used that analysis to guide decisions. High-quality analysis raises the odds that a regulation will be upheld in court, and low-quality analysis reduce the odds that a regulation will be upheld in court.