A Review of Retrospective Cost Analyses

Art Fraas, Elizabeth Kopits and Ann Wolverton

Review of Environmental Economics and Policy, 2023, vol. 17, issue 1, 22 - 42

Abstract: This article reviews evidence from 28 peer-reviewed studies of the realized costs of 13 US Environmental Protection Agency regulations. We organize the review around the following four components of compliance cost: compliance strategies adopted by regulated entities, permit or other prices, unit compliance cost, and aggregate cost. For each cost component, we systematically assess data type, data coverage, unit of observation, method of obtaining the result, and controls for confounding factors. We then identify which factors drive differences between ex ante and ex post cost estimates. The most commonly identified factors are inaccurate ex ante accounting of baseline conditions and inadequate consideration of technological innovation. We find that failure to account for behavioral factors also contributes to differences between estimates. To improve future ex ante cost analyses, we recommend better characterization of baseline conditions, sensitivity analysis of highly uncertain parameters, greater reliance on economic models to incorporate behavioral response and reflect firm decision-making, and more explicit consideration of short-run implementation challenges. To enhance the ability to conduct ex post analyses, we recommend developing plans to collect data and to identify end points of interest and methods of analysis at the time the regulation is adopted.

Date: 2023
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