Evaluating Regulatory Performance: Learning from and Institutionalizing Retrospective Analysis of EPA Regulations

A well-functioning environmental regulatory program makes the American people better off by protecting the air we breathe, water we drink, and food we eat. If markets work well in allocating resources, then government regulation is unnecessary. Indeed, government intervention in well-functioning markets will likely make society worse off by imposing costs that exceed their benefits. If markets do not work well, as evidenced by negative externalities such as pollution, then government regulation has the potential to remedy the market failure and make people better off. But such regulatory success is not guaranteed. A poorly designed regulation, even if motivated by a market failure, could result in costs that exceed its benefits and may exacerbate the welfare losses. A well-designed regulation, however, can improve the welfare of affected people and attempt to deliver what the market would if it were not suffering from negative externalities.