Policy consequences of indirect regulatory costs.

Abstract

In adopting, implementing, and enforcing regulation, various costs are incurred that typically are not included in benefit-cost analyses. These costs include private and public administrative costs, political activity costs, and growth costs. We estimate these indirect costs to be from 20 to 38 percent of the direct costs of complying with regulations. For pollution control regulations, the range is 22-29 percent. Analysis of 20 Inflation Impact Statements indicates that in all cases the regulating agency neglects these indirect costs. This neglect can lead ceterus paribus to overlie stringent regulations and to adoption of regulations with negative net benefits.