In response to the increasing impact of laws and regulations, several governments have introduced economic analysis as a way of improving regulatory decision making. This paper provides the first comprehensive assessment of government-supported economic analysis of laws and regulations. It also reviews the changing role of economic analysis in regulatory decision making.
I find that there is growing interest in the use of economic tools, such as benefit–cost analysis; however, the quality of analysis in the U.S.A. and European Union frequently fails to meet widely accepted guidelines. Furthermore, the relationship between analysis and policy decisions is tenuous. To address this situation, I recommend alternative legal and institutional frameworks that could allow economics to play a more central role in regulatory decision making. In addition, I suggest that prediction markets could help improve regulatory policy.
