Otherwise known as Circular A-4. dated April 6, 2023.

Subject: Regulatory Analysis

Circular A-4 provides the Office of Management and Budget’s (OMB’s) guidance to Federal agencies on the development of regulatory analysis as required under Section 6(a)(3)(C) of Executive Order 12866 of September 30, 1993 (Regulatory Planning and Review), as amended; the Regulatory Right-to-Know Act, Pub. L. 106–554, § 624, 114 Stat. 2763, 2763A–161 (2000) (codified as amended at 31 U.S.C. 1105 note); and a variety of related authorities. The Circular also provides guidance to agencies on the regulatory accounting statements that are required under the Regulatory Right-to-Know Act

The preamble is here. From the text:

The material in Circular A-4 on the appropriate scope of analysis merits potential revisions for several reasons. First, Circular A-4’s language in the section “Scope of Analysis” is potentially unclear. For example, it contrasts “benefits and costs that accrue to citizens and
residents” with “effects beyond the borders of the United States,” even though at any given point in time some citizens and residents of the United States are not within the borders of the United States, and effects occurring beyond the border of the United States can result in benefits or costs that accrue to U.S. citizens (whether or not they reside abroad) and residents. Second, there has long been a practice of accounting for certain benefits and costs accruing to noncitizens residing abroad in regulatory analyses without accounting for other benefits or costs accruing to noncitizens residing abroad.3 The result has been analyses that often have inconsistent scope with respect to different categories of benefits or costs, without adequate explanation of why the scope of analysis was varying across these categories. Third, both the reality of—and, in some cases, agencies’ knowledge of—the ways that the global economy, ecosystems, and other important vectors of regulatory impacts are intertwined and interconnected have greatly expanded over the last two decades. This has led to new ways of thinking about the appropriate way to focus the scope of regulatory analyses.4 Fourth, the importance of international regulatory cooperation has grown since Circular A-4 was originally issued, and E.O. 13609 had not yet been issued when the Circular was written.

Interesting discussion of market failure, externalities, VSL, distributional issues, benefit-cost, discount rates. The international macro factor (to be parochial in my interests) comes into play here.

Additionally, yields from longer-dated assets may provide an estimate that may be more appropriate for a regulation with a longer horizon. For example, 30-year Treasury bonds can be used to obtain a longer-horizon estimate of the social rate of time preference instead of the 10-
year Treasury notes. This switch from a 10-year asset to a 30-year asset may provide more insight for regulations with longer time horizons, but those insights may come at the expense of greater distortions from term premia (which will generally bias longer rates upwards relative to
shorter rates), and data is available for fewer years historically.62 Because of data scarcity, only a few works attempt to estimate discount rates using returns on long-lived assets. However, some
studies estimate a discount rate using leases that last hundreds of years.63

If we extend the data set of 10-year Treasury note yields and annual CPI inflation to include information from 1968 (when the Federal Reserve PTR data series begins) through 2022, the estimated social rate of time preference increases to 2.0% when using annual CPI, to 2.15%
when TIPS are incorporated from 2003, and to 2.75% when Federal Reserve PTR is used. This is because much higher real interest rates prevailed in the 1980s. More recently, as of the end of February 2023, 10-year TIPS yield was 1.49% and 30-year TIPS yield was 1.57%. Going back  further in the 20th century, “Dimson et al. (2017) have co lated historical interest rate data and find that over the period 1900-2016 the global average real interest rate for relatively risk-free assets was approximately 0.8%.”64

…

Generally, an estimate of the shadow price of capital appropriate for regulatory analysis may be empirically uncertain. Various estimates of a shadow price of capital (the value of one unit of capital in consumption units) in a closed economy are above one.83 “The key question is whether or not capital is sufficiently mobile worldwide to largely eliminate the crowding out associated with” regulatory impacts on capital. 84 In 1990, Lind concluded that it is “inappropriate to assume that there will be much crowding out of private investment through higher interest rates” and that “[t]he crowding out that has been the focus of most of the closed economy models does not appear to be very important to the analysis of the social discount rate.”85 In 1994, Lesser and Zerbe concluded that “the supply of capital is highly elastic” given capital market openness, and that “[p]rivate capital in an open economy comes primarily at the expense of consumption, not from crowding out of private capital”; accordingly, a shadow price of capital approach would use a value of one and discount at “the consumer’s rate of time preference in an open economy.”86 Since the 1990s, U.S. capital markets have generally become more open.87

Footnote 87 reads:

Menzie D. Chinn and Hiro Ito, “What Matters for Financial Development? Capital Controls, Institutions, and Interactions,” Journal of Development Economics 81, no. 1 (2006): 163-92 (data through 2020 available at http://web.pdx.edu/~ito/Chinn-Ito_website.htm); International Monetary Fund, Annual Report on Exchange Arrangements and Exchange Restrictions 2021 (2022).

Further documentation on capital mobility from bond market perspective can be found in this post, and more fully in our recent survey (Chinn and Ito, forthcoming).