Posts

Further Thoughts on Economics at the FCC

by

Last week, the Federal Communications Commission (FCC) adopted its Order establishing an Office of Economics and Analytics (OEA).  Now comes the hard part – ensuring that the office is relevant and that economics plays a more important role in future Commission decisions.

Tim Brennan expressed concern that putting all or most of the economists together in a single office “would create a ‘Siberia risk’ if this or future Commissions choose not to follow economic guidance.”  As those of us who have worked in and around regulatory agencies well know, economists routinely face the risk of being ignored when the economic analysis contradicts the objectives of policymakers or is at odds with what others view as the agency’s mission.  The FCC’s objective with this Order is to make it more difficult to ignore economics.

The Order itself leaves out a lot of detail about how the new OEA will operate.  There is, however, one recommendation in the excellent study team report that preceded the Order that will be critical to its success.  It is useful to reproduce that section in full, because it explains the recommendation’s rationale and the incentives it hopes to create within the agency.

  • OEA should produce a separate, non-public memorandum on economic issues to accompany documents circulated to the Commission. By providing Commissioners with a memorandum that offers a perspective on economic issues related to a circulated document, such issues would be included in the Commission’s consideration.  This regular practice would encourage meaningful collaboration between OEA and the policy-making Bureaus.  Knowing that OEA would be producing the memorandum should provide an incentive to Bureaus to fully include OEA in policy development.  Bearing responsibility for producing the memorandum should provide an incentive to OEA staff to thoughtfully consider each item ahead of time.  This memorandum would be explicitly deliberative and non-public to facilitate dialogue among the Commissioners.  For documents not addressing significant economic issues, OEA could produce a memorandum that simply states as much.  The intention is that over time, as has occurred at the Federal Trade Commission, the memorandum would become an important tool for ensuring economics stays at the forefront of the discussion.  The memorandum would technically be the responsibility of the OEA Chief, though we expect it would be drafted primarily by OEA economists who have been working regularly on the circulated item with Bureau staff.

This model, as the study team report suggests, is designed to encourage the policy-making Bureaus to include economic considerations throughout the policy development process, while also providing for direct communication of economic views to commissioners.

An alternative model, at least for major rulemakings, would be to follow procedures mandated for Executive Branch agencies under various executive orders – namely, publishing a Preliminary Regulatory Impact Analysis (RIA) for every proposed new rule and a Final RIA for every issued rule.  This has the benefit of transparency and of allowing for public comment on the economic analysis, which may yield useful information.  The downside is that the RIA, of necessity, needs to support the agency’s rule.  It would be awkward to publish a rule alongside an RIA that concludes its costs exceed its benefits.

Because of the pressure for a published RIA to support the agency’s proposal – which would make positive conclusions suspect – the study team recommendation is the better way to go.  It would assure that the economists have a direct line to make their views known to the Commission.  The non-public aspect of the memo is important, because it would permit the economics office to give its best analysis without fear of embarrassing the Chairman and the Commission if they decide to go another way.

The motivation for this new office was the view, presumably informed by the experience with the Open Internet Order, that the current decentralized structure made it easier to ignore economics.  There is no guarantee that the new office will enhance the role of economics, but it’s unlikely it would be diminished.  The new organizational structure is, at a minimum, a worthwhile experiment, and hopefully much more.