Improvements in SEC Economic Analysis Since Business Roundtable: A Structured Assessment

Several D.C. Circuit decisions that remanded regulations to the Securities and Exchange Commission (SEC) between 2005 and 2011 provide a natural experiment that permits researchers to identify the correlation between judicial review and the quality of regulatory agencies’ economic analysis and its use in regulatory decisions. Subsequent to the D.C. Circuit decisions, the SEC staff in 2012 issued new guidance for economic analysis. This paper offers a structured assessment of the economic analysis accompanying a sample of post-2012 SEC regulations, using the evaluation method developed for the Mercatus Center at George Mason University’s Regulatory Report Card. SEC economic analysis improved substantially following the 2012 guidance. Improvement occurred on all major elements that the SEC staff identified as important in its guidance: explanation of the justification for the rule, clear definition of the baseline against which to measure the rule’s economic impacts, identification and discussion of reasonable alternatives, and analysis of the benefits and costs of the proposed rule and the principal alternatives. The improvement occurred both on criteria that address “conceptual” economic analysis and on criteria that require quantification of benefits or costs to receive full credit. Although substantial room for improvement still exists, the court decisions appear to have motivated the SEC, in just a few years, to close the gap between the quality of its economic analysis and the average quality of economic analysis produced by executive branch agencies.