This course takes a problem—risks to human life and health—and explores the potential justifications for, and contours of, legal responses to that problem.

TOPIC 1: INTRODUCTION TO REGULATORY POLICY

This section, the introduction to regulatory policy, attempts to justify regulation when parties contract.

When a risk is imposed on one person by another person in absence of any agreement between the parties, some form of legal response is at least presumptively justifiable. (Philosophers going all the way back to Hobbes have argued that the predominant reason for giving authority to the government to manage human affairs was to attain some degree of security against private violence.) (Even economists, who are generally more resistant to the notion of government intervention, have long held that in the case of “negative externalities”—such as harms imposed by one person upon another without his or her consent—government action is warranted.) The appropriateness of government intervention is less obvious when the parties’ relationship is governed by private contract, such as in relationships between employers and employees, manufacturers and consumers, and doctors and patients. Such cases raise the following questions:

1.) Should the risks associated with the relationship be regulated exclusively by the terms of the parties’ agreements?

2.) When, if at all, should legislatures or courts adopt rules that change the allocation of risks found in the parties’ agreement? [Part I uses two classic cases to introduce legal responses to these questions, Part II will consider the economic perspective on this issue, and Part III will explore alternative perspectives that are critical of the economic point of view.]I. LEGAL RESPONSES TO THE PROBLEM OF ALLOCATING RISK

A. Justifications for and Responses to RegulationPeople in the United States are exposed to risk every day. (Barstow article – Patrick

Walters worked without a trench box and died because of it. Walters’ relationship with his employer, Moeves Plumbing, was governed by their employment contract. Patrick knew how unsafe the workplace was, but continued to work for Moeves anyway because of how they paid him and his limited alternatives. Tushnet says that this article was meant to highlight the acceptance of risk in a world of constrained choices.)

Justifications for RegulationsThree common justifications for legal responses to regulation deal with efficiency,

distribution, and paternalism.1.) Efficiency --- Efficiency justifications for regulation focus on the inadequacy of

information that parties to a contract have about the contract terms. If parties have incomplete information about the risks that they face, they may not be able to appropriately allocate risk in their agreements. (Walters may not have complete information about the risks of working without a trench box, and even if he does, he may be unable to make accurate calculations concerning that risk because of cognitive biases like the discounting associated with long-latency problems.)

2.) Distribution --- Distributive justifications for regulation focus on the restricted choices that are available to parties to a contract. Because parties to contracts have a limited number of opportunities available to them, the parties may be forced to choose a certain allocation of risks. (The other jobs that Walters could choose may be undesirable.)

3.) Paternalism --- Paternalistic justifications for regulation focus on the way that society views the risks involved in an agreement between the contracting parties. If society deems certain risks unacceptable, the society may decide that contracting parties should not be able to

contract such that anyone accepts those risks. (Society may not want to allow Walters to work without a trench-box, regardless of who accepts the risks associated with that, because society thinks that it is unacceptable for anyone to work in conditions in which they might be buried alive.)

Regulatory Responses Generated by the Justification1.) Information Provision --- The regulatory response to efficiency problems is

information provision. (In Walters’ case, a regulation could require that Moeves provide Walter with information about the risks of working without a trench-box. It is possible, though, that the risks Walters faces are from long-latency diseases, in that case, no amount of information provision would remedy the efficiency problem and the problem would need to be solved by a regulatory ban. NB: The latter solution is tinged with paternalism because it assumes that society is better at assessing this risk than Walters himself. That being said, it is not purely paternalistic because it seeks to make the choice that Walters would make for himself if it weren’t for the difficulties presented by information processing.)

2.) Improving/Providing Alternatives --- The regulatory response to distributive problems would change the availability and/or desirability of alternatives. (In Walters’ case, setting a minimum wage that reflects the “living wage” would ensure that Walters was not “forced” to work in unsafe conditions. If Walters works in unsafe conditions because can either risk dying in a trench or risk dying of starvation, that is a distributional problem. But if Walters works in unsafe conditions because he values money more than safety, the distributional problem has been remedied and that may be acceptable.)

3.) Bans --- The regulatory response to paternalistic problems restrain contracting parties from taking socially unacceptable risks or requiring parties to purchase insurance to cover those risks. (In Walters’ case, society could ban trench digging without a trench-box. This type of regulatory-ban imposes a compulsory term on contracts between parties.)

B. Regulatory Mechanisms and InstitutionsThis section presents two classic cases on workplace safety to consider the regulation of risk

at common law, legislative regulation, and the constitutional restrictions on the power of legislatures to alter the allocation of risks in contracts between private parties.

Regulation of Risk at Common LawAt common law, the regulation of risks can take one of two forms. If the risks at issue are

risks that must be assumed by one of the contracting parties, then contract law governs the issue. On the other hand, if the risks at issue are externalities of that contract relationship, then tort law doctrines like nuisance can regulate risk by internalizing those externalities.

The Contract ResponseThe contract response to the problem of allocating risk builds risk into the contract’s

terms. That is, when the relationship between two private parties is governed by a contract, the risks associated with the relationship are accounted for by the explicit and implied terms of the contract. (Shaw’s opinion in Farwell v The Boston and Worcester RR Corp [Mass, 1842] – Farwell was injured because of the negligence of a fellow employee, but the Court held that Farwell’s employer was not responsible for the injury. Though this was a tort case, Shaw’s opinion focuses on contract-related rationales. Shaw observes that engineers are paid more than other employees and draws the conclusion that part of Farwell’s wage is attributable to the risk that he will be injured by another employee. Thus an implied term of the contract allocates risk to Farwell in exchange for a higher wage. Shaw argues that Farwell should not recover because the employment contract provides a better mechanism for compensating for the risk of injury. Shaw’s choice to interpret the implied terms of the contract as an allocation of risk to Farwell is a regulatory choice.)

Taking the example of risk allocation between parties to an employment contract: The implied in fact term could be either that the risk is allocated to

the employee or the employer. If the risk is allocated to the employee, then the employer will increase the employee’s wages, adding a risk premium reflecting the probability that he will be injured to the employee’s base wage. (If the risk is greater than the compensation, then the employee could either re-negotiate or quit.) If the risk is allocated to the employer, however, then the employer would buy insurance to cover the cost of a possible injury to the employee using the money that would otherwise have been given to the employee as the risk premium.

Allocating risk to the employer does not involve a transfer of wealth to the employer because the employer just gives the money that would have gone to the employee to the insurance company. But, allocating the risk to the employee is a transfer of wealth to the employee because it allows the employee to purchase less or no insurance. Thus, if the employee values something else more than he values his safety, then the employee could purchase something other than insurance with the risk premium. Problems with the Contract Response

However, this argument is predicated on several assumptions about the availability of alternative contracts/options, the availability of information, a lack of negative externalities to the agreement, and the view that the parties should be able to make choices independent of society’s judgments. If you can generate the argument that any of these assumptions are untrue, then you have an argument for regulation even in the context of contract. Thus, the conditions under which government regulation might be justified to displace contractual terms include:

1.) Restricted Choices In order to argue that risk is accounted for by the contract terms, you have to assume that the contracting parties had other choices available to them. If the contracting parties are faced with restricted choices, government regulation might be justified to displace contractual terms. (A distributional argument)

(For example, in an employment relationship, if the worker is forced to choose between a reasonable wage and a reasonable amount of safety, then the government might be justified in displacing the contractual terms in order to create more choices for the employee.)

2.) Lack of Information In order to argue that risk is accounted for by the contract terms, you have to assume that the contracting parties had accurate information when they were negotiating the contract. If one of the contracting parties has incomplete information, the government may also be justified in using regulation to change the contract terms. In these situations, it is also possible that information provision might not be enough to correct for the problem. That is, if one of the parties cannot process the information in such a way that produces rational choices, the government may be justified in regulating the contract terms such that the government limits options or forces actions rather than simply providing information.

(For example, in an employment contract, there might be a risk of contracting a long-latency disease that makes it such that the worker can’t appropriately account for the risk. In that situation, information provision isn’t enough and the government might be justified in imposing a regulatory ban.) (An efficiency argument)

3.) Negative Externalities In order to argue that risk is accounted for by the contract terms, you have to assume that there are no negative externalities that cannot be resolved by the affected parties. If the behavior of the contracting parties causes negative externalities and generates a collective action problem that can’t be overcome by tools or procedural mechanisms like class actions, then the government may be justified in using regulation to limit or remedy the negative externalities. (An efficiency argument)

4.) Paternalism In order to argue that risk is accounted for by the contract terms, you have to assume that society is not paternalistic. If society takes the paternalistic view that people should not be allowed to accept certain types of risks, then the government may be justified in using regulation to eliminate the choice of accepting those risks. (A paternalistic argument)

Regulation of Risk through LegislationLegislative regulation can supplement common-law regulation. (Section 113 of the NY

statute at issue in Lochner) The regulation of risk through legislation involves policy choices. In order to regulate risks, legislators must make judgments about risk allocation and the justifications for regulating it. (The question of whether or not legislators are good at making these types of judgments and coming up with the best solutions to these problems will be addressed later.)

Regulation of Risk in Constitutional LawEven when legislative regulation supplements common-law regulation, courts

continue to have some degree of control over the content of legislatively enacted rules because all such rules have to be consistent with the restrictions imposed by the state and federal constitutions.

The Constitutional ResponseOne Constitutional restriction on the regulation of risk is the Due Process Clause of

the 14th Amendment, which provides that no state shall “deprive any person of life, liberty, or property without due process of law.” During the Lochner Era, the Supreme Court invalidated a number of regulations because the court believed that those regulations interfered with the rights guaranteed to people by the Due Process Clause. (Lochner v New York [US, 1905] – held that the Due Process Clause limited legislative authority to restrict the liberty of contract by setting limits on the terms to which workers and employers could agree. Peckham, for the majority, says that the legislature has no power to regulate the hour terms of a contract for the purpose of altering the distribution of market-based power between workers and employers.) Tushnet says that Lochner transfers the kind of analysis that Shaw does in Farwell for private law to a public/constitutional law framework. The Court balances the bakers’ constitutionally protected interest in making contracts against the state’s police power as applied to providing for the public health of the state’s citizens.

The Problem with the Constitutional ResponseThe problem with the argument that the Constitution restrains the legislature’s ability

to regulate interactions between contracting parties is that such an argument assumes that the legislature’s actions must be consistent with a certain view of the market/economy. (Lochner v New York [US, 1905] – held that the Due Process Clause limited legislative authority to restrict the liberty of contract by setting limits on the terms to which workers and employers could agree. Holmes, in dissent, responds that there is no pre-political market. Holmes says that when the majority claims that the Constitution requires respect for the pre-legislative power balance, it adopts a particular economic theory.) The Lochner line of cases is no longer good law because we now think that (1) wealth redistribution is a permissible goal of regulation; (2) regulations don’t need to benefit the public as a whole; and (3) paternalistic regulation is justifiable.II. AN ECONOMIC PERSPECTIVE ON ALLOCATING RISK

The economic approach to allocating risks to human health and life considers the appropriateness of some ways in which the government—including both courts and legislatures—can displace or alter private agreements. One question about regulation is whether the government’s role in addressing health risks should be limited to the enforcement of private contracts allocating the burden of these risks.

There is theoretical and empirical support for the proposition that people allocate the burdens of risks to human health through contract; some scholars state that there are “wage premiums” or “compensating wage differentials” for risky work (the provision of an increased wage to an employee in exchange for the employee’s agreement to accept health or safety risks in the workplace). (Viscusi, 42, measures the existence of risk premiums with respect to worker perception of job risks and finds that workers who believe that they are working in particularly risky jobs make $900 more per year. Thus, Viscusi’s analysis indicates that compensatory wage premiums do exist and that they are much more significant in economy-wide impact than OSHA

fines.) If private individuals do indeed strike bargains regarding risk, then perhaps the government’s role in addressing risks should be limited.

However, some critics argue that observable wage-premiums mis-price risk. (Kelman, 46, argues that Viscusi’s risk premiums don’t show marginal increases in wages for shifts in danger within a dangerous occupation and so Viscusi’s research doesn’t imply that, in the absence of regulation, workers are already compensated for their desired safety levels) (Graham and Shakow, 47, argue that compensating wage differentials may exist for high-paying primary segment jobs, but do not exist in low-paying, unstable secondary segment jobs.) (Mendeloff, 51, argues that status-governed career paths reverse the logic of wage premiums, making the pay-scale increase for promotions that typically involves less, not more, risks/hazards.) III. OTHER PERSPECTIVES ON ALLOCATING RISK

Two important challenges to the economic perspective are the idea of market inalienability and the reality of unequal bargaining power. Paternalism is also a possible justification for government interference with private agreements.

A. Market-Inalienability The theory of market-inalienability holds that some aspects of personhood should not be

commodified. Thus, advocates for market inalienability argue that there are instances in which risk and health should not be priced. (Radin, 54, argues that, in an ideal world, market-inalienability would protect all things important to personhood and that universal commodification undermines personal identity by conceiving of personal attributes, relationships, and philosophical and moral commitments as monetizable and alienable from the self.) The corollary of that argument is the economic approach to allocating risk is unsatisfying. If there are certain contract terms that cannot be commodified, then government interference with private agreements might be justified.

[[Comparing Radin with Kelman/Graham & Shakow/Mendeloff]] Kelman/Graham & Shakow/Mendeloff would argue that Viscusi is mis-pricing risk, but they do not argue that Viscusi is wrong to try to put a price on risk. It is possible that information-provision could resolve the problems that they highlight. Radin, on the other hand, argues that Viscusi shouldn’t put a price on risk at all. In Radin’s view, only a ban (and not information provision) could resolve the commodification issue.

However, critics note that the consequence of arguing that certain aspects of personhood should not be commodified is that advocates for market-inalienability value particular aspects of life more than over-all well-being. (S. Rose-Ackerman, 53, argues that market-inalienability is supported by those who take an interest in worker’s health but not in their overall level of well-being.) Tushnet says that Radin acknowledges the Rose-Ackerman criticism in her discussion of the “double bind.” Radin says: It’s true that if you make something in-alienable then you make a life worse over-all, BUT what you really want to do is to keep a person intact while letting them make sufficient income. The “double-bind” is that fixing the latter problem (that is the focus of Radin’s piece) will create the former (that is the Rose-Ackerman criticism). Radin says that the only way out of the double-bind is to change the system. In Radin’s ideal world, people have enough money such that they don’t need to choose between the inalienable body part and a life that is worse over-all.

B. Unequal Bargaining Power Another challenge to the economic perspective questions whether employees in fact make

free and deliberate choices about accepting a level of risk or are essentially compelled to do so based on their lack of bargaining power. These challengers argue that in contract relationships such as that between an employer and an employee, the lack of alternatives available to the employee can cause the employee to accept contract terms that do not accurately reflect the value that the employee places on his life. (Ashford, 64, states that “Fear of job loss and unavailability of alternative employment opportunities by reason of occupational or geographic immobility or lack of

training often make hazard pay an unconscionable bargain to those individuals who are forced by circumstances beyond their control to place an inordinately low implicit valuation upon their lives.”)

There is evidence that the bargaining power of employers and employees is indeed unequal. (Schroder and Shapiro, 64, observe that unions generally do not bargain over health and safety issue, even though collective bargaining could be a powerful vehicle for decreasing workplace risks.) If bargaining power is unequal, it may be true that employees do not voluntarily contract with employers, bargaining over the terms of the contract, instead, employees are coerced into accepting what employers offer them. (Steinfield, 66, argues that workers who are subject to the ordinary economic pressures of a market society are not actually free. Drawing on Hale, Steinfield notes that the degree of coercion in economic pressure can be just as harsh as physical pressure; there is no real difference between an robber with a gun to your head and an employer that says “take this job or starve.” Steinfield argues that, since the ability of the employer to engage in economic coercion depends on the distribution of legal rights, a change in the legal regime could change the ability of employers to coerce workers economically. Thus, the way to deal with economic coercion is to change the background legal rules so as to ensure an adequate standard of living.)

Regulation is a possible solution to the problem presented by unequal bargaining power. However, some argue that regulation cannot achieve distributional goals. That is, regulatory requirements are costly, compliers will seek to recover costs by passing them on to consumers, and that doesn’t necessarily improve the life circumstances of the people for whom you purported to be passing the regulation. (S. Rose-Ackerman, 70, notes that, in the absence of regulation, workers are caught in a prison’s dilemma; workers agree to higher pay in return for greater risks even though it would be in their interest to collectively agree not to make those deals. That being said, regulation is unlikely to cause much redistribution because regulation is likely to reduce employment levels and the value of take home pay.) Others argue that there are situations in which compulsory terms and/or regulation can achieve distributional goals and that the “landlord will raise the rent” problem is not universal. (Kennedy, 87, describes four situations in which compulsory terms can rectify inequality: (1) impoverished beneficiaries who deal sellers who have a significant surplus, (2) regulations that have no implementation costs, (3) a weakening of sellers’ position that they can correct by changes that end up not increasing costs, and (4) a market condition in which compulsory terms leave most buyers off at the expense of sellers as a class.)

C. Paternalism Paternalists argue that the government should be able to regulate agreements between

contracting parties in order to ensure that people make the right choices with respect to risks and heath. If society deems certain risks unacceptable, the society may decide that contracting parties should not be able to contract such that anyone accepts those risks.

Kennedy argues that if you look at any argument that someone makes in favor of a particular regulation, you will discover paternalism. That is, when you penetrate the psychology of regulation, it turns out that, even when people offer efficiency or distributive justifications for regulation, they’re really motivated by paternalistic judgments. (Kennedy, 71, does this in three steps: (1) There are formally adequate efficiency, distributive, and paternalistic justifications for pretty much any regulation. He says that whether the formally adequate arguments are actually adequate in any specific case will turn on empirical judgments about how the world is and those judgments are almost always thin, so your decision about whether the formally adequate argument is actually adequate turns on what you already think about the world: your ideologies/prior beliefs about the world. (2) In public discourse about regulation, there is a strong preference ranking of arguments with people strongly preferring to defend regulations on efficiency grounds, then less strongly willing to defend them on distributive ones, and then even less strongly willing to defend them on paternalistic ones. That ranking is also ideological. (3) In fact, if you think about your motivations for supporting some regulations, or think about others’ motivations, it’s going to turn

out that deep down you’re motivated by a paternalistic concern that the people affected by the regulation don’t really know what’s best for them. And that is okay.)

The argument that all regulations are paternalistic doesn’t necessarily mean that all regulations necessarily override people’s choices. (Sunstein and Thaler, 99, argue that it is possible to reconcile both libertarian and paternalistic impulses. They argue that regulation can provide the structure within which decisions are made without precluding someone from making a decision. )

But even if paternalism did override choices, paternalism might still be morally permissible because there are situations in which the state is better at processing information and making decisions than the individual is. (New, 101, argues that because the state is more impartial, has a wider perspective, and can dedicate able people to consider certain questions, the state may be better than an individual at judging the individual’s best interests (1) when there is a temptation to satisfy immediate wants above those with long-term benefits; (2) when the individual is unlikely to have had first-hand experience with the consequence of a decision; (3) when technical expertise is required.) Note, though, that on an international scale, there is a debate about whether it is permissible to exploit the different risk tolerances of other countries. (Viscusi, 104, wealth creates different risk preferences, so it is unethical to apply one state’s preferences to another.)

TOPIC 2: FROM COMMON LAW TO THE ADMINISTRATIVE STATE

The common law might not be a good regulatory system under certain circumstances because of the doctrinal and institutional limits of the common law. This is background against which the common law was replaced the regulatory and administrative state. IV. DOCTRINAL LIMITS

A. Criminal Law: The Role of Mens Rea With respect to the idea of using the common law as a regulatory mechanism, the doctrinal

and institutional limits of criminal law are illustrated by the example of a large, publicly held corporation that engages in environmental or workplace crimes. Doctrinally, it would be difficult to charge a company with a crime because of it is difficult the attribute the requisite mens rea to a corporation. Institutionally, it would be difficult to charge a company with a crime because crimes are only charged when a prosecutor decides to pursue them and it is difficult to find a prosecutor who prioritizes environmental or workplace crimes.

B. Tort: Recovery for (Pure?) Risk and Fear Tort law is usually limited to recovery for injuries resulting for intentional or negligent

misconduct. Workplace or environmental risk, however, does not always result in injury. The doctrinal problem of using tort law as a common law regulatory mechanism is this: Almost by definition, mere exposure to risk inflicts no current injury. The institutional problem of using tort law as a common law regulatory mechanism is that it’s unclear whether courts are well suited to compensating people for these unrealized harms. (Tushnet says that the Fuller piece connects to these two problems.)

Thus, even when a plaintiff can show that a company acted unreasonably in creating risk, courts struggle with tort suits against the risk creator because

(1) doctrinally, mere exposure to risk is not an injury that has historically been recognized as part of the tort system and it is hard to calculate the damages that the plaintiff should recover; and

(2) institutionally, resolving these issues requires policy judgments, arbitrary decisions, and expert assessments that courts are uncomfortable making.

(Ayers v Township of Jackson [NJ, 1987] – When toxic pollutants from a landfill contaminated well water, the town residents sued for diminished quality of life, enhanced risk of disease, and the cost of medical surveillance. The Court stated that doctrinal development could remedy (1) the statute of limitations problem through a discovery rule and (2) the preclusion problem through a relaxation of the single controversy rule [DOCTRINAL ISSUES]. As for the causation issue, however, the Court stated that the legislature could remedy the standard of liability. Tushnet says that some of the distinctions that would have to be drawn in connection with changing the causation standard might be arbitrary. Tushnet says the reason the Court deals with the statute of limitations and preclusion while refusing to examine the causation issue is that the court thinks that courts cannot draw arbitrary lines the way that legislatures can [INSTITUTIONAL ISSUE]. Tushnet says that the same concern for arbitrariness is behind the Ayers Court’s refusal to allow recovery for enhanced risk even though they recognized it as an injury and the plaintiffs showed unreasonable conduct. Recovery would require arbitrary calculations and the creation of something like a fund, and the court believes that a legislature would be better suited to that [INSTITUTIONAL ISSUE].) (Metro-North Commuter Railroad Company v. Buckley [US, 1997] – The Court held that a plaintiff was exposed to asbestos at work, increasing his risk of cancer by 1 to 5%, was not entitled to recover. On 163, Breyer’s opinion states: “The reality is that competing interests are at stake—and those interests sometimes can be reconciled in ways other than simply through the creation of a full-blown, traditional, tort law cause of action.” Tushnet says that the alternatives would be legislation or some kind of administrative agency.) (Fuller, 192, contrasts bipolar disputes with polycentric disputes. Fuller conceives of polycentricity as a spider-web: (1) the effects of actions are widespread and have many nodes, and (2) the effects are unpredictable because of the complexity of the interaction. Fuller argues that polycentric disputes are best resolved by legislatures and that courts are best suited for dealing with bipolar disputes. In Fuller’s view, if courts act in a polycentric situation, there is a chance that (1) their actions will fail; (2) they may adjust the initial solution and, in doing so, ignore judicial proprieties; (3) they may reformulate the problem such that a polycentric dispute is treated as though it were bipolar. Thus, all the possible outcomes of a court deciding a polycentric institution are undesirable. Tushnet says that class action lawsuits are an example of an attempt to make a polycentric dispute seem bipolar. Farwell might be thought of as a bipolar dispute and Ayers as a polycentric dispute. Tushnet also says that the Fuller piece is meant to be a bridge between the doctrinal and institutional commentary. Doctrinally, Fuller says that courts must use the doctrinal tools that are available to them and some of those tools are not well suited to dealing with particular types of problems. Courts deal only with claims that can be formulated in terms of rights and not every social problem is a right. Institutionally, Fuller can also be seen as a counter argument to the Gillette and Krier piece. Courts are not structured to deal with public risk problems that affect people outside of the courtroom; they are structured to deal with private problems between the limited number of parties before them.)

TOPIC 3: THE INSTITUTIONS OF THE ADMINISTRATIVE STATE V. INSTITUTIONAL STRENGTHS AND LIMITS

Administrative agencies are also an institution that can be called on to deal with risks. The three regulatory institutions (courts, legislatures, and agencies) have different strengths and weaknesses when it comes to regulating risks. Tushnet says that this is one of the themes of the course; in thinking about how to solve a regulatory problem, you have to do a comparative analysis, not single institution analysis. All of the institutions are limited in their ability to regulate risks, but in each situation, there is an institution that is the “less bad” than the others.

A. Institutional Differences

There are institutional differences between courts, legislatures, and agencies that are significant in explaining how and when these institutions address risks. Scholars disagree on which institutions are better suited to regulating risks. (Fuller, 192, argues that polycentric disputes are best resolved by legislatures and that courts are best suited for dealing with bipolar disputes. In Fuller’s view, all the possible outcomes of a court deciding a polycentric institution are undesirable. Thus, since public risks are a polycentric issue, Fuller would likely favor administrative agencies over courts as an institution to regulate risks.) (Gillette and Krier, 205, argue that, while the literature says that agencies are better at regulating risks, courts may be just as or almost as good. That is, looking at the bias on balance, courts may be the better option. They conclude that courts are an indispensable part of the institutional structure for addressing public risks.)

With respect to the access bias (mobilization) of an institution in response to a problem: Courts are mobilized by plaintiffs (injured parties), and consequently, a wide

distribution or risks can combine with a high litigation costs and under-compensation to result in insufficient regulatory intervention and the perpetuation of risks.

Agencies are mobilized from within, but may be influenced by complaints or interest groups. Because many potential victims of risk won’t mobilize to try to influence agencies, but risk-creators will, this may mean that agencies under-regulate risks.

Legislatures are mobilized by voters (a blend of the groups that mobilize courts and agencies) and entrepreneurial politicians, this may mean that some risks are over-regulated while others are ignored.

With respect to the process bias (incentives) that an institution has to respond to a problem:

Courts are staffed by judges who are motivated by reason and (perhaps) a desire to maximize judicial authority. Thus, court may try to use legal doctrine to solve all problems (Tushnet says that this is what Fuller talks about when he says that courts are an inappropriate mechanism for solving polycentric problems.), which may lead to under-deterrence and a lack of clarity in the signals that precedents send to risk creators.

Agencies are staffed by experts who may experience vision-narrowing (when your only tool is a hammer, every problem is a nail) and are motivated by mission-commitment. The combination of these two things may cause agencies to over-regulate in response to risks.

Legislatures are motivated by electoral incentives and a desire to serve the public good, this may mean that some risks are under-regulated.(Tushnet says that the process and access bias often run together; the only point where it is important to see the separation is with respect to mission-commitment that comes out in process bias, but not in access bias.) B. The Sociology of Claiming Legal Rights

Even if the legal regime is appropriately structured in the abstract, it may not create effective structures. The social processes of claiming legal rights are complex. People have to know that the problems they are experiencing have legal solutions, for example, and they have to be willing to use the law to resolve those problems. (Felstiner, Abel, and Sarat, 231, explain that victims have to “name” an injury by saying to themselves that a particular experience has been injurious, then victims must “blame” someone else by attributing their injury to the fault of another individual or social entity, and finally, victims must “claim” by voicing their grievance and asking for a remedy.)

C. How Real-World Problems Become Social and Legal Problems

The problem of access bias is particular severe in the context of environmental harms. Courts reviewing agency actions relating to environmental issues have arguably exacerbated the problem by placing limits on the kinds of injuries that support “standing” to sue in the federal courts. (Lujan v Defenders of Wildlife [US, 1992] – held that standing requires an “injury in fact” that is (a) concrete and particularized, and (b) actual or imminent, (c) that is caused by the conduct

complained of, and (d) that is likely to be redressed by a favorable decision. Though the Court held that Kelly and Skillbred did not have standing to sue, Tushnet says that the doctrine in this case authorizes a large number of people to have access to the courts in order to make the claim that an agency misinterpreted a statute.) (Tushnet says that the courts, as regulators, only act when they have a proper plaintiff before them. Lujan is about identifying who counts as a proper plaintiff and thus establishing the criteria for access to the courts. Gillette and Krier assume that all people exposed to risk are potential plaintiffs, but Lujan shows that their assumption is incorrect. Though the limits are weak, it is important to note that they exist.)

TOPIC 4: STATUTORY INTERPRETATION

When statutory and administrative regulation becomes prominent, issues of interpretation arise. Statutes are enacted at one time and applied at another. Statutes must be interpreted, and not merely read, by courts and administrative agencies. Courts and agencies rarely have trouble applying a “clear” statute. Difficulties arise when litigants—and judges—disagree over whether the statute is clear, or agree that it is unclear. In such cases, the statute’s language must be “interpreted.”VII. STATUTORY INTERPRETATION

We deal with two contexts in which the court engages in statutory interpretation: (1) Problems in which the legislature has acted and the question of interpretation is

then posed directly to the court, and (2) Problems in which the legislature enacts a statute, delegates the enforcement of

that statute to an agency, and in the course of enforcement, the agency interprets the statute. In this setting, where the agency intervenes between the legislature and enforcement, the court has to ask what effect on the court’s interpretation the agency’s interpretation should have. The court could address this problem in one of three ways:

(a) The court could say that the agency’s interpretation is conclusive because the agency is the front-line enforcer and ought to have the authority to choose interpretations; or

(b) The court could say that the agency’s interpretation has some weight; or(c) The court could say that the agency’s interpretation is irrelevant and the

court is the ultimate arbiter of what a statute means. A. The Theory of Statutory InterpretationThe first rule of statutory interpretation is to read the statute, sometimes, just doing that will

solve the problem with which you are presented. However, the steps that come after that depend on what approach to statutory interpretation you take. The Three Approaches

As an introductory matter, there are three approaches to statutory interpretation:1.) The first method of statutory interpretation is called “INTENTIONALISM.” The

question that intentionalists ask is what the enactors actually wanted to happen. That is, if the enactors were presented with this problem, what would they have done with it?

The idea of the importance of legislative history is connected with this approach. Tushnet says that intentions are sometime difficult to ascertain because questions of interpretation only arise when you are presented with something that the enactors didn’t anticipate.

Critics of intentionalism charge that legislative histories are a sham, because a group (i.e. the legislature) can’t have an intent (rather, different intents add up to the majority). (Easterbrook, 328, argues that (1) legislatures have only outcomes, not intents and (2) legislatures expire and should not have “life after death.”)

2.) The second method is called “PURPOSIVISM.” The question here is what the enactors were trying to do. Assuming that legislators were reasonable people pursuing reasonable

goals in a reasonable manner, how should we interpret the statute? (Llewellyn, 319, argues that what you want to come up with when you’re given a choice between interpretations is a result that, in his terms, “makes sense for all of us.” He believes that the idea of making sense for all of us is characteristic of what he calls the “grand style” of legal reasoning, or what Hart and Sacks talk about as reasonable people pursuing reasonable goals in a reasonable manner. This is a form of purposivism.)

Legislative history will also help you answer this question, but policy considerations are also important. Tushnet says that it is also worth noting that this method is connected to a particular view of legislator’s incentives. That is to say, this method assumes that legislators were trying to advance the public interest, rather than just striking a deal. If you think that legislators are just deal makers – you will be skeptical about purposivism. (Breyer, 339, defends purposivism and the use of legislative history in statutory interpretation. Breyer argues that, contrary to textualist objections, there are several instances in which it is helpful to use congressional floor debates, committee reports, hearing testimony, and Presidential messages, including: absurd results, drafting errors, specialized meanings, identifying a reasonable purpose from unclear language, and choosing among reasonable interpretations of a politically controversial issue.)

Critics of purposivism claim that Congress is comprised of ‘political people seeking reelection,’ and also that this approach allows a judge to be “activist.” Note also that judges do not necessarily agree on purpose among themselves, so this is not objective, but rather allows the judge to insert her own opinion of the law. (Easterbrook, 328, argues that both intentionalism and purposivism reflect a fallacy that there is, in fact, one proper result of a statute. Since this is wrong, the judge must not usurp the authority to decide. Rather, when the statute is unclear, the judge must simply put the statute down. Easterbrook believes that any approach other than textualism allocates authority inappropriately from legislatures to courts. In particular, purposivism lets the courts decide what is best for all of us even though that is the job of legislatures. Easterbrook argues that there are statutes in which legislatures delegate law making authority to the courts, but believes those statutes are rare.)

3.) The third approach to statutory interpretation is called “TEXTUALISM.” The question that textualists ask is what the words in the statute are and what those words mean in some quasi-objective sense. (Easterbrook, 328, argues that there are three types of statutes: (1) clear and unambiguous statutes where there is either no ambiguity or a clear delegation of authority to the courts (2) moderately ambiguous statutes where the meaning can be worked out using textualist analysis, and (3) really ambiguous statutes that must be put down. Since Easterbrook has no principled basis to distinguish between cases 2 and 3, he doesn’t believe judges should act unless the text is clear.)

Textualists’ tools are (1) the text of the statute itself, (2) the ordinary meaning of the words in the statute, (3) the context in which the words of the statute are used throughout the statute (including the title), and (4) cannons of interpretation.

Critics of textualism say that it creates socially undesirable or politically slanted results, and that it leads to results at odds with what sensible people would do. Critics also suggest that Congress relies on courts using extrinsic evidence in statutory interpretation; textualists respond with a “punitive theory”: if courts were strict textualists, Congress would write clearer statutes.

One of the main issues between textualists and purposivists is the proposition offered by Judge Easterbrook that in the vast number of cases statutes are just deals. The question is: “what do you do as to the stuff that was not embedded in the deal?”

Easterbrook says that you should put the statute down, that is, rely on whatever background rules of law there are. That is a textualist argument; if the statute doesn’t address this problem, you have to look to something else. In trying to do what people want, Easterbrook would say that people prefer the background rules

because the background rules are liberal and libertarian and that is the type of ideology that people believe in.

Breyer’s alternative is to treat the statute as delegating authority to the courts to achieve the result that makes sense for all of us with respect to this problem that the legislature did not address. That is the purposivist approach and it delegates authority to the judiciary. ((The obvious criticism of this approach is that we should not treat statutes as delegating authority because we have a system that does that – the constitution.)) In trying to do what people want, Breyer would say that people want the paternalist resolution because voters have been socialized as part of the “nanny state” and now expect that.

Cannons of InterpretationThere are two large categories of canons of statutory interpretation (although the lines

between them are not that clear) 1.) Meaning-based canons (aka Semantic canons)

Examples of meaning-based canons include: ejudem generis (a word on a list is likely to be of the “same type” as the other words, so look at the entire list); In pari material (a word tends to be used the same way in different contexts/statutes, so look at other statute); Expression unius exclusion alteris (mentioning one specific thing excludes others of the “same type”); and avoiding surplusage and give meaning to every term or phrase.

Tushnet says that there are two things to note about these meaning based canons. First, these are about how people generally use words. Some are more specific to legislators’ usage, but they are generally applicable to the way that all people use words. Another thing to note is that they are canons and not rigid rules. You can use them at your will.

2.) Policy-based canons (aka Substnative canons)Examples of policy-based canons include: the rule of lenity (construe criminal

statutes to limit liability, because of general presumption in favor of liberty); “Indian” presumption; Federalism (construe statutes so that they do not “unduly” limit state authority to act); the presumption against preemption; and Constitutional avoidance (the classical form of which was to reject constructions that would make the statute unconstitutional, whereas the modern form construes the statute in a way that lets you avoid deciding a tough constitutional question).

Tushnet says that these policy based canons express substantive policy sentiments. They are different from the semantic ones because they don’t arise outside of the context of legislation. At the same time, it is possible to describe the substantive canons in meaning based ways if you focus on the legislature as the generator of the meaning. (E.g. Given Congressional practices, it is usual that legislatures would use a word that raises the question of pre-emption.)Comment on Interpretation

A legal realist would say that the law is nothing more than the various argumentative and interpretive steps that lawyers and judges make in reaching decisions. A logical extension of this viewpoint is that the interpretation of a statute is never determinate; it could always come out different ways because, in making a decision about how to interpret a statute, a judge goes through a series of interpretive moves that are meant to build an argument for one interpretation over another. (Llewellyn, 319, argues that (1) in every case where one party deploys one canon of interpretation, the other side can deploy another canon of interpretation that offsets it; (2) common law reasoning is not different from statutory interpretation and the judicial role in statutory interpretation is the same as its role in developing the common law; and (3) to think like a lawyer is to know how to make a series of moves. [“Thrust and Parry” Chart on page 325])

B. Examples of Statutory Interpretation by Courts

1.) In Church of the Holy Trinity v. United States [US,1892] The Court looks at the title, the legislative history, and the history of the time and concludes that Congress did not intend ministers to be included in a statute prohibiting the importation of foreigners “to perform labor or service of any kind.”

a) The argument about the title is a textualist technique. The Court looked to title of the act, which indicated the purpose of the act- to restrict the immigration of laborers, not service providers. Common understanding of what a preacher does is not labor.

b) The argument about absurdity is also a quasi-textualist technique. The Court argues that it is inconceivable that Congress intended to restrict immigration of preachers. This is corroborated by congressional testimony.

c) The final argument about Christianity is a purposivist technique. The Court notes that this is a Christian nation, and we would never intend to restrict the inflow of preachers.

2.) United States v. Marshall [7th Cir, 1990] is a case that interprets the meaning of “mixture or substance” as it relates to sentencing guidelines for distributing LSD.

a) Easterbrook, in his majority opinion, argues for a textualist reading of the statute. Easterbrook says that the language of the statute is clear, and since LSD on paper is clearly a mixture by any reasonable definition, the language of the statute cannot be disregarded regardless of other factors.

b) Posner, in his dissent, argues for a purposivist reading. Posner says that interpreting the statute the way that Easterbrook recommends leads to an absurd result; it’s clear that the high level dealer is more dangerous than the lower level dealer, but because the high level dealer would have things in a more pure form, the high level dealer would receive a lower sentence. The arbitrary result leads to due process and equal protection concerns. Thus, following the preference for avoiding unconstitutional outcomes cannon, it is better to interpret the statute so that LSD on paper is not considered a mixture.

c) Easterbrook responds that excluding carrier medium would read the term “mixture” out of the statute. Easterbrook says that the absurdity cannon only applies when there is a plausible alternative interpretation, since the statute is unambiguous, Posner’s argument does not apply.

3.) Chickasaw Nation v. United States [US 1992] deals with a parenthetical whose interpretation would determine whether or not an Indian casino needs to pay taxes.

a) Breyer looks at the language in context and observes that the parenthetical reference to Ch. 35 was intended as an example of the reporting and withholding chapters. The meaning of the rest of the statute is clear, and the whole section of the statute cannot be given meaning if the parenthetical reference to Ch. 35 is understood to be operative. Breyer also notes that the legislative history demonstrates that the inclusion of the reference was a mistaken artifact of an earlier version of the bill.

b) O’Connor’s dissent says that the statute is internally contradictory, and since it’s equally likely that the congress meant one or the other interpretation, says that the best thing to do in this situation is to interpret the Indian canon of interpretation. This move would treat Indian casinos the same way as state run casinos. Tushnet says that O’Connor is a purposivist.

c) Breyer’s majority opinion response to O’Connor is that, as a textual matter, parentheticals are subordinate to the main text, so if there is a contradiction between the parenthetical and the text, you should go with the text. Breyer also says that there is a canon of enforcing taxes and that cancels out the Indian canon, so we’re left with the text-based approach. (Tushnet says that this isn’t a thrust and parry, it’s a cannon vs cannon. So, Tushnet says that Breyer is a textualist.)

C. Statutory Interpretation by Administrative Agencies

The creators of the modern regulatory state provided for enforcement in the first instance by administrative agencies, subject to judicial oversight. That fact raises important questions about

the relationship between courts and agencies. Here we focus on one important aspect of that relationship: the degree to which courts should defer to agencies in their interpretation of the statute that created it, sometimes referred to as the agency’s “organic” statute. This question of deference applies to the agency’s interpretation of both the scope of its jurisdiction under the organic statute and the substantive provisions of the organic statute.Steps of Interpretation

Step Zero: “Did Congress give the agency the authority to make this decision ‘with force of law’?” (386). [NB: this step is not part of the Chevron framework and was added later by Sunstein.]

The problem is that the agencies do a lot things, and in the course of doing them, they will offer judgments about what the statutes they are applying mean. But sometimes those judgments will not have the force of law, that is, they might just be saying: “this is what we think it means, but maybe the courts will disagree with us.” So, in applying this step, remember that there is a choice of delegation either to the courts or agencies. The question at step zero is whether the interpretive authority was delegated by Congress to the courts or the agency. Thus, this first step is a preliminary determination of what degree of deference Congress intended the courts to give to agency interpretations.

Factors that are relevant for Step Zero analysis include: (Breyer, Barnhart v. Walton): “the interstitial nature of the legal question, the related expertise of the Agency, the importance of the question to administration of the statute, the complexity of that administration, and the careful consideration the Agency has given the question over a long period of time”

If the answer is “No, Congress did NOT give the agency the authority to make this decision with the force of law,” then the court refers to “Skidmore Deference” (referring to Skidmore v. Swift &Co. [US, 1994], 387, which is respect for the agency interpretation “according to its persuasiveness.”

i.) EXAMPLE OF “NO” (REAL CASE): In United States v. Mead [US, 2001], 387, the issue was whether a particular imported item fell into one or another category of taxes. The importer wrote a letter to the customs service asking if it was in class one or class two. A low level functionary of the customs service wrote back saying that it was in class one. The importer disagreed with that classification and sued in court challenging that designation. The question at step zero was “does this low-level functionary’s interpretation of the statute deserve chevron deference?” The court said that “No, it doesn’t, because the decision of a low-level functionary does not carry with it the force of law.” Tushnet says that the court determining whether that functionary’s statement had the force of law is somewhat circular. However, a good indicator for whether or not an agency pronouncement has force of law is whether or not there was a notice and hearing process. If there was that sort of formality, it is more likely that the interpretation carries with it the force of law. In this way, the degree of formal consideration serves as a proxy for the agency’s “force of law.”If the answer is “Yes, Congress DID give the agency the authority to make this

decision with the force of law,” then the court moves on to Chevron Step One. ii.) EXAMPLE OF “YES” (HYPO): Tushnet says that if the low-level

functionary in Mead had asked the head of the customs service for a policy ruling, and the head of the customs service had given notice to the importing community that he was making this decision and held hearings to get public opinion, and then the head of the customs service had issued a formal ruling on the interpretation, the court would probably have said that that opinion carried the force of law.

Step One: “Did Congress directly address the precise question at issue?” (Chevron v NRDC [US,1984], 379)

Having decided that Congress meant to give agency action the force of law at step zero, at step one you say, “Well, Congress may have meant to give this agency the force of law, but maybe Congress spoke to this issue itself.” To decide whether Congress directly addressed the precise question at issue, the court will use ordinary means of statutory interpretation. Tushnet says that “spoken directly” and “precise question” are very important phrases at this step.

If the answer is “Yes, Congress DID directly address the precise question at issue, then that’s the end of it. The court will say that the only permissible interpretation is the one that Congress has specified. There is no discretion delegated to the courts or the agencies.

i.) EXAMPLE OF “YES” CONGRESS ADDRESSED THE ISSUE AND SAID THAT CONGRESS WOULD DEAL WITH THE PROBLEM ITSELF: FDA v Brown & Williamson Tobacco Corp [US, 2000], 388, held that Congress had precluded the FDA from asserting jurisdiction to regulate tobacco products. Since Congress had passed laws addressing cigarettes, it had spoken directly to the question “are cigarettes devices for delivering drugs.” Ginsburg’s majority opinion says that, in response to the FDA’s prior disclaimer of jurisdiction, Congress passed a bunch of laws that address cigarettes and that action foreclosed the FDA from later claiming jurisdiction. Note that Ginsburg also argues that if Congress had wanted the FDA to regulate cigarettes, it would have said so specifically. The last paragraph on 398, has come to represent the “Big Deal Principle,” which is just that: if something is a big deal, Congress will only delegate that power if it says so explicitly and does so directly; it doesn’t do those things in backdoor/cryptic/silent ways. Ginsburg says that you can’t tease out authority for things that are a big deal.

ii.) EXAMPLE OF “YES” CONGRESS ADDRESSED THE ISSUE AND SAID THAT THE AGENCY SHOULD DEAL WITH THE PROBLEM: Massachusetts v. EPA [US, 2007], held that Congress required the EPA to regulate CO2 absent scientific uncertainty. The EPA argues that it doesn’t have authority to regulate CO2 emissions, but Court says that the statutory text forecloses the EPA’s reading of the statute. Since the statute says “any air pollution agent,” and there is no question that carbon dioxide is within the meaning of the word “any,” Congress has addressed the issue and wants the agency to deal with the problem.If the answer is “No, Congress did NOT directly address the precise question at

issue, then the court moves on to Chevron Step Two. Step Two: “If not, is the agency’s interpretation reasonable?”

(Chevron v NRDC [US,1984], 379)This deals with the issue of interpretive discretion. Here, the court defers to agency

interpretations whenever those interpretations are reasonable. This deference must be given even if the court would not have chosen that interpretation.

i.) EXAMPLE OF A REASONABLE INTERPRETATION: Chevron v NRDC [US,1984], 379, held that the EPA’s interpretation of “stationary source” to mean the bubble concept was reasonable and that the EPA’s interpretation should be given deference even though the agency had changed its interpretation of the term. By making this ruling, Tushnet says that what the Court is saying is that both the building-by-building approach and the bubble concept are permissible interpretations of the term “stationary source.” The point to take away is that if the Court were the ultimate interpretive authority, then the Court would have had to choose either the bubble interpretation or the building interpretation. By finding that both are permissible, the Court is saying that the agency has the ultimate interpretive authority.

ii.) ANOTHER EXAMPLE OF A REASONABLE INTERPRETATION: Scalia’s Dissent to Massachusetts v. EPA [US, 2007], said that the term “air” is ambiguous and carbon dioxide operates in the upper atmosphere and the statutory

language applies only to stuff that operates closer to the earth’s surface. Scalia says we should give Chevron deference to the EPA’s definition of the word air, and because of that definition, CO2 is not an air pollutant because it’s only a pollutant in the upper part that’s not in the air. Thus, Scalia argues that the EPA saying that CO2 is not their problem should be okay by the Court.

iii.) EXAMPLE OF AN UNREASONABLE INTERPRETATION: ????[[Note that THERE ARE THREE DIFFERENCE STRUCTURES FOR THIS ANALYSIS: The way that it is presented here is to start with step zero, and then, depending on the answer to step zero, you either go on to the Chevron analysis of step one and step two or you just use the Skidmore Deference analysis. BUT YOU COULD SAY THAT STEP ZERO FITS BETTER AS STEP 1.5. That is, the analysis could proceed as follows:

Step One: Has Congress directly spoken to this issue?Step One and a Half: If not, did Congress delegate the authority to make this decision to the

courts or to the agency? Step Two: If Congress delegated authority to the agency, is the agency’s interpretation

reasonable? Tushnet says that the decision between these two frameworks is just a matter of rhetorical presentation.YOU COULD ALSO SAY THAT THERE IS REALLY ONLY ONE STEP. In Entergy Corporation v. Riverkeeper, [U.S., 2009], the EPA took a position and Scalia says that this position governs if it’s reasonable. Stevens says what you should do first is see if Congress has addressed the precise question of whether the EPA can use cost-benefit analysis. Scalia responds in a footnote that: if we look at what the EPA has done, and Congress has precisely addressed the issue, then the EPA has does something unreasonable, so asking if it was unreasonable is another way of asking if Congress has addressed the issue and said something different. Tushnet says that this dialogue is an example of the argument that Chevron really only has one step. Tushnet’s sense is that that is analytically right. His concern is that if you collapse it into one step, you might miss the possibility that the interpretation is unreasonable on some other ground than Congress having directly addressed the question at issue. For virtually all purposes, you will want to do the Chevron step 1, step 0, then Chevron step 2.]]NOTE: YOU ONLY USE “CHEVRON” IF YOU WOULD DEFER AT SOME POINT, IF THERE’S NO POSSIBILITY OF DEFERENCE, IT’S NOT CHEVRON, THOUGH ANALYTICALLY, IT’S THE SAME.Rationale for Deference to Agencies

The Chevron decision’s final paragraph contains two themes: agency expertise and democratic accountability. These two ideas are the Court’s rationale for giving deference to the agencies.

1.) The Court says that “Judges are not experts in the field.” Thus, one reason for courts to defer to agencies is agency expertise. The Court recognizes that the agency has more experience with the kinds of investment projects that Chevron is proposing than the courts do; consequently, the agency is in a better position to evaluate whether the bubble concept will produce longer-term improvements in air quality than the courts are. The EPA sees these issues all the time and can make a judgment about whether the bubble concept is a better response to the problem presented.

2.) The Court also says that “It’s entirely appropriate for this political branch of the Government to make such policy choices.” Thus, the other reason for courts to defer to agencies is that the EPA is more responsive to the people. Federal judges don’t have a constituency, but the President does and he’s the one who appoints the head of the EPA. Policy questions belong in the executive branch because they are more democratically accountable.

Chevron’s two steps reflect the importance of democratic accountability as one of the cornerstones of the modern regulatory state. Step One embodies democratic accountability by means of congressional responsibility. The people elect members of Congress who can, if they choose, definitively resolve the substantive question. Step Two embodies the democratic accountability by means of executive responsibility. The people elect a president who, in turn selects agency administrators who will resolve the substantive question in line with the president’s policies, themselves implicitly endorsed by the presidential election. That being said, there is a possibility of “slippage.” As Tushnet describes it, in connection with the political accountability point – we’ve seen a bunch of cases after Reagan’s election, where regulatory agencies de-regulated. But it is plausible to assert that Reagan was elected for reasons other than his de-regulatory promises. There could be slippage between the new policy preferences of the people and the executives that come into power. It could be that most people still favored Carter-type regulation, but did not favor Carter.

TOPIC 5: INTRODUCTION TO ADMINISTRATIVE LAW

VIII. FROM STATUTES TO RULESIn this chapter, we consider another purpose for which agencies interpret statutes—rule

making—and examine the procedures by which agencies translate the substantive directives in their organic statutes into rules to govern conduct within the agency’s orbit of responsibility.

A. The Development of Administrative LawAgencies as a solution to the limits of courts and legislatures

In the mid-19th Century, a lot of economic and social change occurred, which presented the question: “how will society address these problems?” There were two mechanisms available: the legislatures and the courts. Everyone agreed that they had the capacity to address these problems. However, these institutions were not well adapted to dealing with these problems.

Legislatures were not well suited to it because of four reasons: (1) as a general matter, they are slow-moving and responsive to voters, not the public good; (2) they are dominated by party bosses, who just produced legislation for the purpose of their own private gain and entrenchment in political power and thus don’t care about public good; (3) there was domination by what was pejoratively called “the interests” (e.g. railroads would determine what legislation regarding railroads should be); and (4) they were generalists.

Courts were also ill-suited to this task for two reasons: (1) they were also generalists; and (2) they were unsystematic (i.e. They only addressed problems that were brought to them, meaning that they only saw fragments of the problems—the parts that were presented by litigation.)

LawProcedures Substance

Facts/Conclusions/

RulesNo agency

No force of law

Force of Law

De Novo

Skidmore (rational weight)

Chevron (reasonable/ not

arbitrary and capricious)

Adjudication Formal Rule

Making

Notice and Comment

Rule-Making

Wide Notice, Oral Testimony, Cross-

examination

Vermont-Yankee

State-Farm (arbitrary and

capricious)

The solution to the institutional problem of social change was the administrative agency. It would be better because it would be: (1) specialized; (2) independent; (3) systematic; and (4) scientific. These characteristics were thought to be responsive to the problems of legislatures and courts. This crystalized in 1887, with the creation of the Interstate Commerce Commission. At roughly the same time, you get some Workers’ Compensation funds established. Agencies in the Constitutional Order

The next step was to figure out how these were supposed to fit into the constitutional order. It’s hard to figure out how they fit into the established scheme. They were sort of a fourth branch of government.

The courts had to respond to the creation of agencies and were initially quite hostile to them. The courts were very suspicious of agencies because they were thought to intrude on a private domain of contract and property (i.e. ICC was telling railroads what their rates could be). In addition, the agencies had some quasi-adjudicatory settings (like workers compensation). Thus, the courts thought that the agencies might have been a violation of the separation of powers because they made rules (like legislatures) and adjudicated issues (like courts). In order to deal with that, the courts insisted that:

(1) legislatures confine the agency’s discretion pretty tightly; and (2) the courts reviewed agency decisions quite aggressively with almost no deference.The courts came to accept the agencies gradually, under certain situations. They struck a

deal; if the agencies proceeded in a pretty formal way and had adjudicatory processes that were similar to courts (judicial-like proceedings), the courts would not review them so aggressively. The Proliferation of Agencies and the APA

By the early 1930s, the agencies had settled into our constitutional scheme and courts were giving them a fair amount of deference. The real change came with the New Deal and the proliferation of administrative agencies. These agencies generated a fair amount of opposition. The opposition was predicated, not on the fact that they were agencies, but on what they were doing, though the opposition took the form of attack on the agencies themselves. The political opposition resulted in a series of proposals in Congress that would have re-instituted non-deferential agency rules. Instead of going to that extreme, grievances with agencies were addressed in the Administrative Procedure Act. The two provisions that we focus on are the rule making and scope of review sections.

The basic idea of the Administrative Procedure Act was to generate fairness through the rule-making process and not through aggressive judicial review. They wanted to generate procedural regularity and thus worry less about the substantive outcome. This relied on the notion of agencies as experts with relatively little political oversight. But, by the time the APA was adopted, people were beginning to see that the political bargaining that had previously been done within the legislatures was now being done within the agencies. The agencies were undergoing a process political re-shaping – they combine political responsibility with expertise. Dealing with Agency Capture

By the late 1940s and 50s, agencies were seen as mini-legislatures with similar processes and that agency decision-making was not only expertise-based, but also political. The primary concern in the late 50s, 60s, and 70s was capture; regulated bodies had too much control over the regulating agencies. This meant that the “transmission belt” and “expertise” theories of agency action were breaking down. (Stewart, 416). They thought the remedy was to improve the political processes within these agencies by

(1) expanding the notion of standing so that there is a better bargaining process with the public, and

(2) creating of general jurisdiction agencies (compare the FCC, which is industry specific, to the OSHA, which covers all employers) because it’s more difficult to organize across industries and capture a general agency.Reagan and De-Regulation

As administrative agencies came to be understood as fundamentally political, the process of administrative rulemaking was designed around the theory of interest group pluralism: processes of rulemaking would essentially manage conflicting interests of various interest groups. Stewart argues that focus of courts as a result shifted to ensuring fair representation, rather than preserving individual autonomy (from ‘policing’ to ‘brokering’).

The Reagan era started and the New Deal period ended. What the Reagan administration wanted to do, as we saw in Chevron and Brown and Williamson, was to introduce a de-regulatory program. There are a couple of things that happened in response to this.

The first was that agencies were thought to resist de-regulation. Bureaucrats resisted de-regulation both because of mission commitment and the way that the “iron triangle” of regulated industry, regulatory agency, and the legislative committees that oversee the agency cut the president out of the decision-making process.

The second was that there was “Agency Ossification.” That is, due to heavy procedural burdens, and institutional incentives, agencies were not able to effectively create new rules and response to new problems. So, if there’s a new problem, they can’t do anything about it (like regulate) and if there is new information about an old problem, they can’t do anything about it (like de-regulate). (The Seelye Article is about one aspect of agency ossification. This lack of agency flexibility means that it’s no longer clear that Agencies are any better at solving problems than Courts and Legislatures are. They were created to be better at solving these problems, but now they’re not and they have the same problems that Courts and Legislatures presented. The same policy concerns that generated the creation of agencies are now back on the table.) (The cynical defense of the administrative state is that it’s still the least-bad of the options available. It may take agencies 5 years to do something, but legislatures never accomplish anything at all.)Summing Up Tushnet says that this means that the story of agencies has gone in a circle, but the expertise side of the story has been neglected. You should think about how the expertise/politics dynamic has played out and how defenders of each might respond to the issues that we are addressing.

B. Analyzing AgenciesOne way to distinguish between agencies is based on their degree of independence from the

presidency. 1.) Executive Branch Agencies are located within the executive branch with an

agency head chosen by the President and subject to removal by President (ordinarily) at will. That being said, the agency heads have supporters in legislatures and in interest groups which limits the president’s power to remove them. (The EPA is an example of an executive branch agency.) They are covered by the APA.

2.) Independent Agencies are typically mulit-member agencies (that is, they make decisions as a collective body) with members who serve fixed-terms that usually extend beyond a single president’s term and there are statutory limits on the president’s power to remove them (i.e. must be for cause rather than at will). (The SEC is an example of an independent agency.)

Agencies engage in rulemaking and adjudication.1.) Adjudication is required when the agency is dealing with one or a small number

of issues covered in its organic statute. In these situations, the agency will be required to decide whether the issue in question is governed by its organic statute and how. (Adjudication is unusual, but there are agencies that take this approach. The National Labor Relations Board is one of them. When there is adjudication, the parties have robust procedural guarantees.)

2.) Rule-making occurs when, as a result of problems that arise in adjudication, the agency makes a rule that covers large numbers of cases. Rulemaking requires extensive notice and hearings. There are two types of rule-making:

1.) Formal Rule-making involves procedural formalities like oral testimony and cross-examination. Also, formal rule making requires notice to everyone who would be affected, which makes it more likely that people will make comments. Formal rule-making is only required where the organic statute states the code words: “rule-making on the record and after opportunity for an agency hearing.” In the absence of a clear mandate in the statute, agencies will avoid formal rulemaking.

2.) Notice and Comment Rule-making (notice and comment rule-making) is meant to be a hybrid of expertise and democratic accountability. The agency relies on its expertise to identify a problem to target and to develop a proposal. The public’s comments largely reflect a concern for public accountability but also reflect a concern for expertise—both the possibility that the agency’s experts will have some sort of bias (Gillette and Krier, 205) and the availability of different expertise outside the agency. And it can be argued that the reasoned elaboration with which the agency defends its rule following public comments itself serves as an accountability device (Fuller, 192). (Under notice-and-comment rulemaking, it’s possible (and usual) for the agency already to have the rule figured out; it is not the case that the public comments must lead to the rule.) (The Seelye article, 436, notes that the sheer volume of public comment is not a determining factor in rule making. Some officials say that the point of the comment period is to yield substantive, informed letters that alert officials to something they might have missed in reaching their conclusion. Some critics say that typical agency behavior is to develop the plan they want, announce a public comment period, and then do what you want to do.)

The process of notice-and-comment goes like this: (1) the agency issues a “Notice of Proposed Rule Making” and says what the rule that the agency is thinking about making is --that is published in the federal register; (2) there is an open period for comments; (3) the agency looks at the comments and decides whether to modify the proposed rule based on the comments; (4) it then promulgates the rule; (5) the rule is then subject to the judicial review, which could decide whether the rule was arbitrary and capricious.

C. Rule Making Under the APAAgencies must satisfy the minimum requirements of notice-and-comment rulemaking, but

they agencies have discretion to add to that. (Vermont Yankee Nuclear Power Corp v Natural Resources [US, 1978], 427, held that the Courts can’t force agencies to use more formal procedures than is required by 553(c) of the APA. Generally speaking, procedure is the domain of the agency.) That being said, it is important to note that Vermont Yankee was decided by interpreting the APA and does not foreclose Congress from requiring additional procedures beyond those the agencies choose. (Indeed, the APA itself contains provisions dealing with formal, on-the-record rule making that are more stringent than those used in notice-and-comment rule making.) Vermont Yankee’s effect, thus, is to shift from the courts to Congress the power to innovate procedurally, with respect to particular problems.

Tushnet says that the two bottom line things to understand from this case are:(1) Comparative Institutional Analysis: The issue that the court directly

addresses is that there are three institutions that can design procedures for making rules: Congress, the Agencies, and the Courts; so what are the institutional advantages and disadvantages of letting each one of those design the procedures? The Supreme Court says: “Congress has set the minimum (there are good reasons for that), and here are the reasons why agencies should be allowed to design procedures above that minimum (there are good reasons for that), and courts should not make procedures (there are good reasons for that).”

(2) The Politics/Expertise Interaction: The argument against Vermont-Agencies is that the Nuclear Regulatory Commission has expertise about nuclear waste, but doesn’t have

expertise with respect to designing procedures; courts have procedural expertise. So that view says that the right allocation of duties would allow agencies to deal with substance and the courts to deal with procedures. However, the Court rejects that analysis, and says that the agencies are a combination deal of politics and expertise and, because of that political aspect, it should be part of the agency’s domain.Tushnet also says that one of the ways to look at the Vermont Yankee case is to make a chart of the institutions that could design procedures and think about their advantages and disadvantages with respect to designing procedures.

PROCEDURES

ADVANTAGES DISADVANTAGES

COURTS Courts are experts in procedures. The nature of the problem presented may be unfamiliar to the courts, so they may think that a procedure is useful in a particular novel situation because it has been useful in other situations that are more familiar to them. That is, they may misjudge the utility of certain procedures.

CONGRESS Congress has the ability to specify what procedures must be followed – the advantage of that is that they can assess the importance of public concern.

Congress is influenced by special interests and lobbying . (NB: here, “special interests” could also be someone like the NRDC, but influence from public interest groups could still lead to unnecessary expense or a misunderstanding of public concern.)

AGENCY Agencies are experts on the problem.

Agencies don’t really know about procedures.

Note that courts and agencies have the exact converse of each other’s’ advantages and disadvantages. Also note that there is a tension between Congress’ advantage and disadvantage – the legislator might be responsive to the people or to the special interests depending on the specific problem that he is presented with.

D. Judicial Review of Agency Rules on the MeritsVermont Yankee can be said to confine the judicial role to reviewing the merits of the

agency’s rules. In reviewing the merits of agency rules, the standard of review is same for when an agency rescinds a rule as when it makes one: it must supply a reasoned analysis for such change: arbitrary and capricious. A rule is “arbitrary and capricious” (the hard look doctrine) when it is “rational, based on consideration of the relevant factors, and within the scope of the authority delegated to the agency by the statute.” (Motor Vehicle Manufacturers Assoc. v State Farm Mutual Automobile Insurance Co. [US, 1983], 438, held that, since the agency did not even consider requiring airbags, the agency failed to present an adequate basis and explanation for rescinding the passive restraint requirement.) In making this determination, Courts cannot supply a reasoned basis for the agency, and the agency can defend its rules by referring only to the materials assembled in the record produced during rule making.

[[Comparing Chevron and State Farm]] Both Chevron and State Farm deal with a combination of politics and expertise. Chevron weighs politics as more important than expertise and State Farm weighs expertise as more important than politics. Chevron is about statutory interpretation and the standard is reasonableness. State Farm is about substance and the standard is arbitrary and capricious (which is sort of “hard look.”) Then, within State Farm, there is a question between Rehnquist vs. White about judicial review of that expertise with respect to

“rational connection” vs “arbitrary and capricious,” and the difference there is about how they are going to weigh the expertise. Tushnet says: We know from Chevron that because agencies combine expertise with political responsiveness, it’s alright for them to change their statutory interpretations because of changes in administration. That raises the question: “Should we have the same stance with respect to the conclusions that the agency draws from the record that it’s developed?” This case presents that question. The Reagan administration is de-regulatory – they view regulation as more costly than other administrations. If previous administrations viewed each life as worth 6 million dollars, then the cost of the regulation was worth the benefit in saved lives. But if the Reagan administration values lives less, as 3 million dollars, then the cost of the regulation is not worth the benefit in saved lives. So what does that mean when a court reviews this change? Well, under a Chevron-like evaluation, you would ask: “is the move from 6 million to 3 million a reasonable approach? Whereas, under a State-Farm-like evaluation, you would ask: “is the move arbitrary and capricious?” That is, the hard-look review requires significant justification for the change from 6 million to 3 million, whereas the reasonable approach view would only ask is 3 million dollars a reasonable number to place on the value of a life.

Breyer has suggested that the combination of Chevron and the “hard look” doctrine is exactly backward. Chevron gives the agencies deference in statutory interpretation where they have no special advantages over the courts, and the “hard look” doctrine leads the courts to examine with some care agency decisions that rest on the expertise that distinguishes them from courts.

Sunstein responds that this doesn’t contradict Chevron deference, because Chevron applies to the agency’s interpretation of statutes, whereas the arbitrariness review examines agency rule-making (and rescission) actions. Thus, agencies are entitled to wide latitude in interpreting their organic statute, but must justify their actions clearly.

E. Separation of PowersIf Congress and the President choose to do so, they can create a reasonably independent

4th branch of government where neither the President nor Congress have significant direct control as a matter of law over what these agencies do. Note though, that an independent agency is independent only by virtue of the fact that Congress said it would be independent when it was created. Thus, one condition is that they have to want to create them in the first place, but after that, they run pretty much on their own with only indirect political responsibility at the stage of appointment.

That doesn’t mean that these agencies are uncontrollable/unconstrained or that they are technocrats who do what the science tells them to do; they are constrained by politics rather than law. Two of the ways in which this happens is through oversight hearings (in which agencies are called before Congressional committees to explain their actions and which are costly, time-consuming, embarrassing and annoying) and the budget (which have to be approved by Congress and signed by the President).Congress, the President, and Control over Agencies:

OUTPUT (BACK-END) INPUT (FRONT-END)CONGRESS Chadha - No

[also: budget, oversight…]Bowsher - NoSpecific Statutes – nondelegation (Yes, in theory, but No, in practice)

PRESIDENT Humphrey’s – No [?] Morrison - NoThere are two kinds of categorization that we want to think about. One dimension is

“controls by whom” and the candidates are Congress and the President. The second dimension is the “timing of the control” and the timing issues are front-end/input and back-end/output. What we’ll be examining is how Congress and the President can use input or output controls.

Congressional Control over Agencies:

At the front-end, one of the things that Congress can do is to try to affect who makes these decisions -- i.e. through confirmation hearings for the appointment of the heads of agencies. A counter-argument to that is that the hearing doesn’t really give you enough information about what that person will do in any given specific situation. Another thing that Congress can do is to say that the head of an agency must have certain characteristics (i.e. that the head of the FDA must be someone with a background in science, or something like that). But the limit on that is that Congress cannot make the statute so restrictive that there are only a very limited number of people who fit that characteristic.

Bowsher deals with a front-end technique – the comptroller general used to be completely a creature of Congress, since that ruling, the comptroller general is more independent than they used to be. (Bowsher v Synar [US, 1986], held that Congressional power to dismiss the Comptroller General for “inefficiency, neglect of duty, or malfeasance,” as provided in the statute, is unconstitutional because the Comptroller General exercises executive authority. , Because the “Constitution does not contemplate an active role for Congress in the supervision of officers charged with the execution of the laws it enacts,” and because the Comptroller General would be beholden to Congress, this would effect a violation of separation of powers.)

Chada involved one of the most popular back-end techniques – Congress waits to see what the agency does and then decides whether it likes it or not, and if Congress doesn’t like it, Congress does something about it. THIS IS NOT ALLOWED. (INS v. Chadha [US, 1983], held that the Legislature CANNOT DO THIS. The Court’s criterion for whether something is legislative and therefore must be presented to the President is: “does it alter legal rights?” To know the answer to that question, you need to know when you have the legal right in the first place. Congress’s position is that Chadha’s right to stay doesn’t vest until Congress decides whether to exercise its veto power. The Court’s position is that Chadha’s right to stay vests when the Attorney General makes a ruling that Chadha can stay. The Court’s position means that the resolution alters an existing legal right and therefore that the action is legislative and must be passed by both houses and presented to the President for his veto.) Tushnet says that since Chadha, Congress has continued to pass bills that say certain agency actions can be subjected to one or two house veto. Congress knows that these provisions are not constitutional, and the President’s signature includes a signing statement that says that the provisions about the legislative veto are unconstitutional and therefore the President is ignoring them. Everybody knows that those provisions are legally ineffective. So why does Congress continue to put them in? Tushnet says that this serves a signaling mechanism to the agency – we’re watching you and if you do things that we don’t like, we’ll use other back-end mechanisms to punish you. In this way, the legislative veto has become a front-end mechanism that threatens other back-end controls that remain in effect.

Presidential control over agencies:With respect to executive-branch agencies, the president does have control over the

output. That is, if the EPA proposes a regulation that the President doesn’t agree with, the President can direct the EPA administrator not to do that, and there is no rule against that. The President may take some political heat for it, but there is no legal problem with it.

Meyers v. US [US, 1926] held that the President has exclusive authority over the removal of Presidential appointees in purely executive agencies such that the President could fire a postmaster at will.

With respect to legislative branch agencies, the President could have said to the INS in Chadha that he didn’t think 6 of the people on the list were suffering undue hardship and there would be no legal problem with that either.

With respect to independent agencies, generally, the President cannot control the output of these agencies. But it’s not absolutely certain that that President can’t do that. (That’s why there’s a question mark in the table.) The Supreme Court says that Congress can permissibly limit the President’s power to fire members of independent agencies to discharge for cause. That is, the way to make these independent agencies independent is to make it such that the President

cannot fire at will. Tushnet says that “cause” could mean misconduct AND policy disagreement, but that question has never been resolved in the law – the most widely held view is that policy disagreement is not cause for firing, but as a legal matter it is still unresolved. The current version of this issue is whether independent agencies can be required to go through the OIRA process for getting their regulations approved. Tushnet says that most Presidents probably want this, but are afraid of taking the political heat for it. In the OIRA process, the administrator (or the President acting for him) writes a letter in two versions: one goes to the executive and legislative agencies and says “do all the OIRA stuff” vs. one goes to the independent agencies and says “it would be nice if you went through the OIRA process.”

Humphreys’ Executor involved a presidential back-end control over an independent agency – Removal from office. THIS IS NOT ALLOWED. (Humphrey’s Executor v. US [US, 1935], held that the President could not fire a member of the Federal Trade Commission at will. In its ruling, the Court distinguished Meyers v. US (1926), a case in which the Court held that the President was allowed to remove a postmaster. The majority view of Myers and Humphreys is that if Congress gives significant executive and legislative and adjudicatory authority to an agency, it is within Congress’ power to limit the President’s power to remove. The difference that the Court highlights between them is that the post-master is just an ordinary bureaucrat where as the head of the FTCA is a quasi-legislative and quasi-judicial position and, because of that, Congress can limit the President’s power in the latter case.)

Morrison allows Congress to make some executive officers independent provided it doesn’t control them. By doing so, this assuages concerns about separation of powers, but creates concerns about legitimacy: to whom are these officers politically accountable? (Morrison v. Olson [US, 1988] held that it was Constitutional for Congress to take away the President’s authority to appoint or dismiss an independent counsel. The Court says that Congress cannot take away from the President something that is inherent to the executive, and prosecutorial functions are executive, but the Court says that an independent counsel does not count. Court’s test here waters down the “purely executive” bulwark of Humphrey’s Executor; even if the function is “purely executive,” Court now says that the test is (1) whether the removal restrictions “impede the President’s ability to perform his Constitutional duty…the functions of the officials in question must be analyzed in that light,” and (2) whether the removal restrictions illegitimately expand the power of other branches. The Court determined that the independent counsel does not do either, and therefore her appointment was not unconstitutional.) Inconsistencies in the Case-law

Morrison and Bowsher: Can Bowsher and Morrison be reconciled? The Court appears to distinguish between statutory schemes designed to assert congressional control over administrative officials (prohibited in Myers, Chadha, and Bowsher) and statutory schemes designed to protect administrative officials from executive control (permitted in Humphrey's Executor and Morrison).According to this view, Congress may make some executive officers independent, but it may not itself control them. Notice that this distinction privileges arrangements that shield administrative officers from accountability to either of the popularly elected branches of government. Doesn't this turn the traditional concern about delegated power on its head?

Chadha and Bowsher: Although both Chadha and Bowsher invalidated innovative schemes designed to preserve congressional control of delegated authority, the two decisions utilize different approaches. In Chadha, the Court treats Congress's decision regarding Chadha's immigration status as an exercise of legislative authority and finds it invalid because it failed to comport with the presentment and bicameral requirements for the enactment of statutes. A difficulty with this approach is that in the absence of the legislative veto, Chadha's immigration status would be determined by the Immigration and Naturalization Service. Yet the Service's decision also fails to comport with the bicameralism requirement.

Bowsher avoids this difficulty by reversing the analysis. The constitutional defect in the Gramm-Rudman-Hollings Act was not that Congress was legislating, but that it was not legislating.

The Court treats the Comptroller General's budget-cutting authority as an exercise of executive power and holds that Congress had unconstitutionally trenched on executive authority by vesting this authority in an officer under legislative control. Is this approach more satisfactory? If the Comptroller General's budget-cutting authority is executive, why is the "fallback" provision, under which Congress itself would enact the budget cuts, constitutional?XII. THE NON-DELEGATION DOCTRINE

According to the nondelegation doctrine, Article I of the Constitution forbids Congress from delegating the legislative power there conferred. At the same time, the Court has acknowledged that government (and not merely the modern regulatory state) could not function if all decisions that might be described as “legislative” had to be made by Congress through statutes adopted by both houses and signed by the president. From early in the nation’s constitutional history, Congress has delegated authority to make rules to other bodies, which we can call for convenience “agencies.” And the Supreme Court has upheld such delegations where the statutes doing so give the agencies an “intelligible principle” by which to guide their action. So, the question about the statute described above would be “Does ‘reduce risks to an acceptable level’ provide an intelligible principle?”

Prior to 1935, the Court’s decisions suggested that there might be some limits on Congress’s ability to delegate “legislative” authority and had come to formulate those limits as a requirement of an intelligible principle. But the Court had never found that Congress had in fact gone beyond the bounds of a permissible delegation. Then in 1935—as part of what contemporaries saw as the Court’s reaction (or opposition) to President Franklin Roosevelt’s New Deal—came two decisions striking down statutes as impermissible delegations: Panama Refining Co v. Ryan (US 1935) and A.L.A. Schechter Poultry Corp v. United States (US 1935). Panama Refining and Schechter remain the only Supreme Court cases finding a federal statute unconstitutional because Congress delegated its legislative power to an administrative agency. (Whitman v. American Trucking Associations [US, 2001], 674, held that the Congress delegating authority to the EPA to set regulations that “allowing an adequate margin of safety, are requisite to protect the public health” was an intelligible principle. The Court of Appeals says that this could be anything – Congress basically just told the EPA to do something good and didn’t give them any guidance at all. But according to SCOTUS, it provides an intelligible principle because the agency can scientifically establish the level at which air pollution is a threat to public health, and set regulations right at that level. Tushnet says: Clearly there is no real limit here. EPA could conceivably eliminate air pollution entirely. This demonstrates that the nondelegation doctrine is dead. Tushnet also notes that Scalia doesn’t offer a definition of “intelligible principle;” he just kind of says that other stuff was worse so this must be okay.)

[Tushnet says that] everyone says: (1) For all intents and purposes, the “intelligible principle” doctrine doesn’t do anything.

That is, anything that gets through Congress will satisfy the precedents that Scalia points to. (2) This is a good thing. If Congress always had to be super specific, it wouldn’t be able to

delegate effectively. Under the system we have now, Congress can act with specificity, but it doesn’t have to.

TOPIC 6: APPLIED ADMINISTRATIVE LAW

This section is about how regulation works in action. The preferred thing that regulation produces today is information. The central question that should emerge from the chapter is: Why is regulation the preferred regulatory technique when it is clear that, in many instances, there are reasons to think that information provision will not accomplish what the social planner’s goal is in having a regulatory system?

The goal of the system is to ensure that people are exposed to risks at prices/costs that they are willing to bear/incur. The logic of providing information is straightforward: it allows people to price risk. But if the mechanisms of providing information don’t work very well, then the outcome may not be that people will price the risks at costs that they can bear.X. INFORMATION PROVISION

We’ve already seen how disclosure (or nondisclosure) of information about risks to human health and life affects the regulation of risk. The economic theory of compensating wage differentials for risky jobs, which we explored in chapter 2, depends on workers knowing what the risks of their jobs are. If workers—or others exposed to risk—are unaware of the risks they face, it is much harder to argue that contractual arrangements should dictate whether the risk should be reduced. In such situations, the government might be justified in requiring disclosure of risk so that contracting parties can decide what actions, if any, to take, based on the information. Information also played a central role in our discussion of institutional limits in chapter 5. There, we saw that gaps in information might lead to a failure to name, blame, or claim—in other words, to identify and act on one’s legal rights.

So far, however, we have not discussed in detail the incentives (and disincentives) that might encourage (or discourage) private parties to disclose risk-related information. Nor have we explored the collective mechanisms short of government action, such as bargaining by labor unions, that might promote information disclosure. We take up these matters in the first two sections of this chapter, after which we consider information provision pursuant to government regulation. Then, we consider the efficacy of information provision as a risk management strategy in light of research relating to how humans process risk-related information.

More generally, in this chapter and the next, we will be considering the advantages and disadvantages of several different regulatory instruments for addressing risk. Regulatory instruments, including information provision and—as discussed in chapter 11—health based standards, technology-based standards, and trading regimes, comprise the modern regulator’s toolkit, potentially applicable to a wide range of social problems.

A. General Considerations1.) Good information is a precondition of competitive markets, but

information itself is a marketable commodity that society must spend resources to produce. (Breyer, 548, observes that markets for information may on occasion not function well for several reasons. First, the incentives to produce and to disseminate information may be skewed. Second, one of the parties to a transaction may seek deliberately to mislead the other, by conveying false information or by omitting key facts. Third, even after locating potentially competing sellers, the buyer may not be able to evaluate the characteristics of the products of services they offer.)

2.) Employers might not voluntarily provide full job-risk information and employees might not acquire it though on the job experience. (Rose-Ackerman, 549, notes that, knowing that they must compensate works to take risks, employers would like to keep job hazards secret and it is difficult for potential employees to observe the riskiness of jobs. Thus, regulations that require employers to inform employees of hazards are easy to justify. The information must, however, be provided in a form that employees can understand and use to compare job market options.) (Nicholas and Zeckhauser, 551, note that no individual or firm has sufficient incentive to produce the optimum amount. They believe that this is a clear potential role for government—to collect and disseminate information on the causes of occupational injuries and illnesses and on mechanisms for reducing them. This type of information provision could positively impact firm behavior if the government made sure good behavior received recognition and updated information was provided to individuals.) (Viscusi, 551, notes that some injured workers do not perceive their jobs as risky and the imprecision in workers’ job risk beliefs

will lead to too high a level of risk, a bias toward technologies that are not fully understood, and too little insurance coverage for workers in hazardous jobs.)

B. Generating Information Collectively1.) One way to overcome the “public goods” problem of information

provision is to force information disclosure through collective action. (Dorman, 557, argues that if unions are committed to addressing the safety concerns of their members, there are three general ways they can go about this. First, they can address working conditions directly by including contract language which mandates specific policies and standards to be followed by management. Second, they can follow the indirect path of setting up special committees or other structures through which workers can influence company policy on the shop floor. Finally, they can accept dangerous conditions in return for hazard pay—that is explicitly bargain over compensating differentials.)

2.) Another way to generate information collective is through government disclosure requirements. (Sunsetin, 561, discusses some of the most prominent regulatory regimes governing information disclosure.)

C. Understanding Information1.) Information can be ineffective or counterproductive. (Sunstein,

561, notes that there are limits to information provision. While information provision can help, it’s not a panacea. It can be ineffectual because of: a) Information overload; b) Expense; c) Heuristics leading to misunderstandings; d) Stringent requirements on information that is provided can stifle information provision; e) Strict disclosure requirements may actually deter disclosure; and f) Collective action problems (i.e. people will free ride).) (Nicolle-Wagner v. Deukmeijian [Cal. App., 1991], 567, provides an example of an ineffective disclosure.) (Viscusi, 570, notes that a single warning (e.g. “Danger”) may result in overstated (or, for some things, understated) risk. For example, if all risky products carry the same warning, then people will treat them the same regardless of actual differences in their riskiness. Viscusi proposes differentiated list of warnings that is sensitive to actual risk level, like “For your information”; “Caution”; “Warning”; “Danger.”)

2.) People don’t process information logically. (Hanson and Kysar, 572, note that cognitive illusions that affect decision making and question the belief in the possibility of the objective provision of information.)

D. ConclusionsOne of things that that Sunstein indicates (in both his article and his talk) is that within a

market-oriented paradigm – information provision is the preferred regulatory mechanism. The point of the materials in this chapter is that

1.) designing regulations about providing information is quite difficult, and 2.) the fit between the information that regulations seek to provide and the

information that they actually provide is imprecise. If the material presented in the chapter is accurate, it raises questions about the

effectiveness of the preferred regulatory technique. Tushnet found it striking that all of Sunstein’s examples of improving regulation took the form of improving information provision. He could have just said that we should ban things, but he didn’t.

The readings show that the way information is framed affects the choices consumers make. That begs the question: how do we decide which framing we should use? One option is an outcome-determinative test: we pick the framing that best achieves a predetermined outcome. (This is Sunstein’s libertarian paternalism.)

The next logical question is: how do we determine what a “good” outcome is? Kennedy would say that this must ultimately be an ideological choice. And if the decision for

how to provide information is ultimately ideological, can we simply ban things for ideological reasons? There may not be a clear answer to that question.

Tushnet says that information provision is the preferred technique of regulation because it seems less paternalistic than other methods like bans. Also, ideologically, information provision fits in with a market-oriented system.

As a final point – the more the government tries to capitalize on these new scientific findings about heuristics and the like to improve the regulatory system of mandatory disclosure, the more plausible it becomes to say that you are violating the manufacturer’s rights of free expression by forcing them to say things that they don’t want to say. So now, there is a vigorous amount of litigation about freedom of expression and mandatory disclosures. The general point is that the more vigorous the regulatory system is with respect to disclosures, the more plausible it is that it will bump up against the 1st amendment which might push regulators towards bans instead of information provision.IX. ASSESSING REGULATION

You now should understand why we sometimes think that regulation is desirable and how agencies go about translating regulatory statutes into regulations. The next question, taken up in this chapter and those that follow, is: How effective are agencies (and legislatures) at the job of translation? We begin by examining some forms of regulatory failure. As you will see, often the definition of “failure” turns on the author’s view that the regulation being examined fails to provide benefits sufficient to justify the costs of administering and complying with the regulation.

Tushnet says: The currently preferred form of regulation is providing information to consumers so that they can make better decisions. In the absence of externalities, when people are engaging in contractual behavior, social welfare is maximized when people choose what they want to do, because, as a general matter, they know better what is good for them than anyone else does. Putting aside situations in which the range of choice is restricted, the general view is that if you are fully informed, you are better positioned to make the choice that is best for you. So, regulations should provide information and then let people do what they think is best for themselves.

The difficulties with the information provision strategy were primarily about information overload – that is, difficulties that people might have in processing the information that they are given. As seen in the Sunstein lecture, some of the regulatory innovations involve trying to improve the provision of information. There are a couple of things to be said about that. One, you have to consider the possibility that improving information is so difficult that the alternative of a regulatory ban should be on the table. It might be that, overall social welfare would be improved by prohibiting people from making some choices, because if we gave them information and let them choose, it would be more expensive to society than just using a ban. Second, all of that is predicated on the no-externalities view. Third, instead of providing better or more information, you might think of regulatory interventions that would improve the ability of people to process information. Maybe if people are taught about the various heuristics, they might be able to treat the information that they receive in a non-heuristically-influenced kind of way.

A. Regulatory ParadoxesAs a preliminary note: a great deal of regulation is justified on externality grounds and this

course hasn’t focused on such regulations because in Tushnet’s view, the analytically more interesting problems are posed in the contract system. In the regulatory paradox materials, the primary question you have to ask is “Why does the paradox arise? That is, what is the mechanism by which regulations make things worse off?” (Note that, in this analysis, the “taking away liberty” argument is not available.) And, related to that, “What remedies might there be for the paradox? That is, given the paradox, how could you achieve the regulatory goal without generating the counter affects?” Tushnet wants to focus on three:

1.) Stringent regulation of New Risks can increase aggregate risk levels. (Sunstein’s RP#2, on pg 475) This is specifically an argument about new regulations. Sunstein argues that imposing costs exclusively on new sources or entrants can be self-defeating because it will encourage the perpetuation of old owns. Not only will the old risks continue, but precisely because of the regulatory programs, those risks will become more common and last longer than they otherwise would.

The example offered in the book is the “Delaney Clause,” which prohibits the use of carcinogens. That move made manufactures use substitute additives that were actually riskier overall. The mechanism by which regulation becomes paradoxical is that it forces the manufacturers to make risker selections.

Another example is the old/new car paradox. If you have required pollution controls on new cars, that will increase the cost of new cars, because of the increased cost, people will hold onto old cars longer and it could be that that excess pollution caused by the old cars on the road longer exceeds the pollution savings caused by or attributable to the new cars that are on the road. (Note though, that this example may be unconvincing because cars only exist for a finite period of time, all cars die after about 10 years, so after the 10 years is up, everyone must be driving new cars and everyone is polluting less.)

2.) Over-regulation produces under-regulation (Mendeloff, 461) Mendeloff’s paradox is restated in Sunstein as “overregulation produces under-regulation.” The industry may fight overregulation harder (tying up scarce agency resources), making the regulatory process take much longer, and perhaps failing entirely if challenged in court. This ends up being less effective than going with a less strict rule to begin with. Thus, Mendeloff argues that regulation should be more extensive and less intensive. That is, regulation should cover more areas, but regulate each area less strictly. The paradox is that the strict regulation, where it applies, produces high benefits, but in the aggregate, it produces low benefits.

There are several considerations that strict regulation brings up: (1) richer is safer; (2) ideological generalization (i.e. if the strict regulation is bad, all regulation is bad); (3) less innovation; (4) agency ossification (as a result of severe legal challenges mounted by regulated industries).

3.) The richer is safer argument (Wildavsky, 479) Safety is being increased at the cost of economic growth; that may ultimately decrease health and safety because the most determinate factor in health and safety is wealth. Tushnet says: Use caution in making this argument; you have to think about the fact that there is a threshold argument. If you observe a very rich country versus a very poor country, then this is true, but if you observe two states that are more comparable, it’s not clear that this argument holds true at the margin.

B. What is Cost-Benefit Analysis?Critics of regulation often point to cost-benefit analysis as the solution to regulatory failure.

Indeed, as we have already seen, regulatory “failure” is often identified by looking at whether the costs of a regulation exceed its benefits. Thus, understanding cost-benefit analysis—how it works and the arguments in favor of and against it—is crucial to understanding current debates over regulatory performance.

There is a difference between cost-benefit analysis and cost-effectiveness analysis. At the first levels, cost-effectiveness analysis should be, and typically is, less controversial than cost-benefit analysis. Cost-Benefit Analysis

Ackerman and Heinzerling, 494 describe it in this way: “Cost-benefit analysis seeks to perform, for public policy, a calculation that happens routinely in the private sector.

Estimating Costs: The costs of protecting human health and the environment through the use of pollution control devices and other approaches are, by their very nature, measure in dollars. Thus, at least in theory, the cost side of the cost-benefit analysis is relatively straightforward.

Monetizing Benefits: Since there are no natural prices for a healthy environment, cost-benefit analysis requires the creation of artificial ones. This is the hardest part of the process. Economists create artificial prices for health and environmental benefits by studying what people would be willing to pay for them.

Discounting the Future: Costs and benefits of a policy frequently occur at different times. Often, costs are incurred today, or in the near future, to prevent harm in the more remote future. When the analysis spans a number of years, future costs and benefits are discounted, or treated as equivalent to smaller amounts of money in today’s dollar. Cost-benefit analysis routinely uses the present value of future benefits.”

The two distinctive features of cost-benefit analysis as described by Ackerman and Heinzerling are monetization and discounting. Not surprisingly, one of the most controversial issues relating to cost-benefit analysis is the translation of human lives in dollar terms.

Lave, 496, lays out 13 different ways in which cost-benefit analysis might be used or 13 different things that it might mean. He starts out with the minimal definition that it encourages a systematic statement of the goals to be accomplished and encourages an examination of the options and is a systematic approach to exploring each option. They are:

“Benefit-cost analysis encourages a systematic statement of the goals to be accomplished (1) and encourages analysis to identify and evaluate a wide range of options for accomplishing the stated goals (2). In addition, it is a systemic, analytical approach that attempts to explore the implications of each option (3). Benefit-cost analysis requires the analyst to confront the trade-offs among options, both at the detailed level of each individual dimension and at the aggregate level in terms of total expenditures (4). Moreover, the approach encourages a search for externalities and an evaluation of those that have been identified (5). Benefit-cost analysis focus on the allocation of benefits and costs over time and translates them to a single time period (6). The approach seeks to accomplish the stated goals at the least cost (7). The tool can be used to identify the data and analyses of importance (8) and to specify a research and development agenda to provide important data not currently available (9). Benefit-cost analysis seeks to isolate and quantify social interest, not self-interest (10). The approach recognizes that there are desirable and undesirable aspects of each situation characterizes them as “benefits” and “costs” (11). Benefit-cost analysis encourages objective, value-free analysis (12). Finally, benefit-cost analysis identifies the option with the greatest net benefit, which is described as the one that is best for society (13).”

Tushnet says that as you move through his list, people’s resistance to his idea of cost-benefit analysis increases. The number of people who feel nervous about the process increases as you increase the number of “attributes” (as he puts it). Note that there might be a point at which doing things on Lave’s list as an individual decision maker differs from what would make sense as a collective decision. Tushnet says “might be” because the resistance to doing even the low-level stuff takes the form of saying “I don’t want to construct myself as the kind of person who does this kind of thing.” It could be that you would want to say the same thing about collective decision-making (e.g. Congress may not want to construct America as the kind of populace that values older peoples’ lives as less than that of young peoples’ lives). Note that the Lave enumeration, Tushnet finds useful, but somewhere between 5 and 10, lots of people get off the bus. But knowing that there are these different things that cost-benefit analysis might be, lots of people might think it’s useful.

Viscusi, 499, lays out the general approaches and then that article is used as a vehicle for raising questions about cost-benefit analysis. This is a return to Viscusi’s work on compensating wage differentials for risk work, a topic we first encountered in chapter 2. Here, we see that

compensating wage differentials are used as inputs to cost-benefit analysis; they form the basis for most estimates of the value of saving lives though regulation.

On the value of life issue, as Viscusi notes, there are two techniques that are used:

(1) One technique uses what are called contingent valuation studies, which are basically surveys that ask people “what would you pay to get X?” “or what would I have to pay you to be subjected to Y?” Some say that these valuations are intuitively unrealistically high, or that they don’t actually predict what people would do if there were faced with this choice in real life.

(2) The other option is the statistical technique, which observes people making actual decisions which are consequential for them. An example of this technique is the “wage-risk” example that we looked at early in the semester.

With respect to the statistical technique, what Heinzerling, 506, is concerned about includes:

(1) The statistical approach can seem weirdly unrealistic in some circumstances. (Note the study on page 505 about moms’ fastening kids into their seatbelts. Moms take less time than they should to do it properly and there is a reduction in safety attributable to that. Are moms really placing a monetary value on the risks to their children in car accidents as they do that?)

(2) The statistical approach is distributionally problematic. (3) There is no such thing as a statistical life.

Cost-Effectiveness AnalysisCost effectiveness analysis comes in two versions which are analytically the same.

One version is that we are going to specify a goal: reduce highway deaths by 25,000 a year. Then, here are the various policies that could achieve the goal: Policy A costs 1 million. Policy B costs 5 million, and Policy C costs 10 million. Cost-effectiveness analysis says that you should choose the cheapest way of achieving the goal.

The second version is that we take a budget as fixed: say, 10 million. And say that we have 3 possible policies, X, Y, and Z. Spending 10 million on policy X will save 5,000 lives; 10 million spent on policy Y saves 10,000 lives; and 10 million spent on policy Z saves 15, 000 lives. Cost-effectiveness analysis says that you should choose the policy option that gives you the most bang for your buck.

The setting is important when you’re talking about cost-effectiveness analysis. In both examples the goal or the budget is already set and then you proceed to the analysis. Cost effectiveness analysis with a set goal or a set budget is uncontroversial and is pretty much something you must do in order to be rational.

Accordingly, the more serious difficulty with cost-effectiveness analysis is that it requires that there be an externally set goal or budget. That goal or budget is going to be set by politics. Once you see that, the goal itself might be unstable (i.e. in the life-saving example, it may be that if you had set the number of lives saved at 15,000, then there might be a policy D that only requires you to spend $100).

C. The Case for/against Cost-Benefit AnalysisArguments in Favor of CBA

Those who argue in favor of the use of Cost Benefit Analysis say that it:(1) is a good way of organizing information (i.e. it provides a sensible framework for

comparing the alternatives involved in any regulatory choice) (Amicus Brief, American Trucking v. Whitman, 509)

(2) improves the chances that regulations will be designed to successfully achieve their goal (Amicus Brief, American Trucking v. Whitman, 509)

(3) makes the regulatory process more transparent by providing an analytical basis for decision (Amicus Brief, American Trucking v. Whitman, 509)

(4) can be used to learn important lessons. (Morall, 511, provides the example that CBA shows that safety regulation is more effective than health regulation) Tushnet’s says that this article is flawed in some obvious ways, but there is a general sense in the relevant communities that there is sort of something to Morall’s analysis. It’s not as dramatic as he claims, but there probably is some degree of over regulation. Also, health-related regulations tend to be more expensive and less cost justified than safety-related regulations; that’s almost certainly right. But that may be true because all safety regulations do is save lives whereas health regulations save lives and improve quality of life (by avoiding sickness).Arguments Against CBA

Those who argue against the use of cost-benefit analysis point out that it just generally seems “creepy.” More specifically, Ackerman and Heinzerling, 518, argue four points in criticism of CBA:

(1) Standard economic approaches to valuation are inaccurate and implausible. Some benefits cannot be accurately monetized: The value of life, valuation of risks, and other factors are difficult to calculate and context-dependent.

(2) Discounting trivializes future harms and irreversible problems (e.g. environmental issues).

(3) The reliance on aggregate, monetized benefits excludes questions of fairness and morality (i.e. does not consider who bears the cost and who enjoys the benefit- perhaps the poor get screwed)

(4) CBA is a value-laden process that is neither objective nor transparent. (This argument reminds us of Kennedy’s point that ultimately, ideology will play a decisive role in how CBA is structured, and thus, the conclusions that it reaches.)

(5) Laypeople may approach questions of value differently than experts. (Pildes and Sunstein, 533, observe that people attach expressive meanings to risks and rewards. For example, cancer deaths are more feared and considered worse than deaths in car accidents. This value difference may lead to differences between the results of CBA and what people actually want. Hence, the process by which regulatory decisions are made must be responsive to what people actually want.)The Problem Presented by the Future (Discounting)

Doing cost benefit analysis when you’re dealing with risks that will come into being in the future is difficult because you have to decide whether or not to use discount rates. The general defense of the discounting process is that it produces a dollar figure that you can imagine being invested to generate returns over the long run that would, in the future, be available to do something. But it’s not clear that future risks can be dealt with in the right way when you’re using discount rates.

The greatest problem is that presented by the problem of discounting for the distant future. If we weigh the people of the future the same way that we weight out lives, and it’s clear that there will be more people in the future, then their concerns and what would benefit them would always outweigh our concerns and what benefits us. That is, if we don’t discount future lives at all, we’d always be making choices for the benefit of future people. Under this idea, maybe you should discount the lives of the future so that you avoid having to impoverish yourself today so that the future people will be better off.

The other side of the argument is illustrated by this example: imagine two, poor, irresponsible teenagers who have a baby. That person has a bad childhood, but overall, their life was worth living. Considering the fact that their life was worth living, what complaint does that person have against the teenage parents; if the parents had decided not to have a baby, then the child would not have lived at all. So, by analogy, if we choose a policy that negatively impacts

people in the future, you can imagine that if we changed the policy, as a result of the butterfly effect, different people would have lived and thus these future people can’t fault us for choosing the policy that hurt them because if we had not chosen that bad policy, then they would not have lived at all.Alternatives(?) to CBA

Ackerman and Heinzerling, 518, then offer a series of different options for things that regulators can do instead of using cost-benefit analysis:

1.) Technology based regulation with respect to some problems, there are a variety of technologies available to address the problem, and Congress can say to the regulated agency: “Use the best of those available techniques.”

2.) Cap and Trade techniques you can say to the regulated industry: “Here’s an industry-wide goal. We will set the initial entitlements. You work amongst yourselves who has to do what in order to achieve that goal.”

3.) Information ProvisionAckerman and Heinzerling say that these are alternatives to cost-benefit analysis, and they

are in the sense that the regulator doesn’t have to determine whether a certain technique is cheaper because the regulator is not choosing the regulation on the basis of cost-benefit analysis. BUT, Tushnet says that these aren’t really techniques that avoid doing cost-benefit analysis. With respect to their first proposal, cost-benefit considerations come in as a limit on best-available technologies because you can’t require the use of a technology that would bankrupt the industry. You would have to use cost-benefit analysis to see what technology you could require while still allowing the business to be competitive, productive, and capable of attracting investors. Similarly, the cap and trade methods , determining what the cap is going to be requires some kind of cost-consideration. That is, Cap and Trade regulations use a type of cost-effectiveness analysis because the regulator needs to make a decision about how many permits to issue. Tushnet says that what Ackerman and Heinzerling might actually be objecting to is numbers 12 and 13 on Lave’s list.XI. STANDARD SETTING

This chapter turns to another regulatory technique—mandatory performance standards that require risk producers to stay below specified levels. It examines several different performance measures that are found in contemporary law and their respective advantages and disadvantages.

Standard setting is often criticized as a “command and control” technique that experience has show frequently fails even to reduce risk, much less to achieve the levels of risk sought by regulators. In thinking about the adequacy of standard setting, remember that the question is always comparative and about margins. … Note the tensions concerning the role of cost-benefit analysis in standard setting.

A. Zero or De Minimis RiskA statute may instruct the agency to set rules that eliminate risk. If that is the case, the

agency many not re-interpret “no risk” as “de minimis risk.” (Les v. Reilly [9th Cir, 1992], a Chevron step one case, held that the Congress had directly addressed the precise question “May the secretary exempt these four pesticides, which are carcinogens from the operation of the ban on adulterated foods?” Congress’s answer, as supported by the legislative history was “no.” Thus, despite the EPA’s argument that the “de minimus” exception was necessary to bring about a sensible application of the scheme, the Court hold that the statute does not allow the sale of food that contains additives that may cause cancer. Tushnet says that, for our purposes, what is most interesting is the institutional application here. There are three agencies at work: Congress, the Agency, and the court. The court says: “It’s our job to do Chevron analysis, and even if it’s a dumb statute, our job is not to make better policy. Also, it is not the agency’s job to make better policy where Congress has done a stupid thing nor is it our job to help the agency make better policy of

what Congress has done.” The follow up on this institutional allocation point is in note 2 on page 618: Congress did repeal the Delaney clause; this shows that the allocation the court endorsed is right – when the court showed that the statute was stupid, Congress did something about it. HOWEVER, the story as a whole might show the opposite thing, that the court should have fixed this problem because that was want Congress wanted.)

B. Significant Risk and FeasibilityIn Industrial Union Department, AFL-CIO v. American Petroleum Institute (the Benzene

Case) [U.S., 1980], 618, the plurality requires that the agency make a “threshold” determination that the risk posed by benzene is “significant.”

The plurality asserts that “significant” risk is not requiring that the agency develop some quantitative measure of significance, but the term itself seems to suggest some degree of quantitative assessment. The Benzene case resulted in a large increase in the use of quantitative risk assessment throughout the government. Prior to the decision, regulatory agencies had been divided over the value of engaging in such assessments, with the EPA relatively enthusiastic and OSHA relatively unenthusiastic. The Benzene decision reduced resistance to the use of quantitative risk assessment.

Tushnet asks: What kind of guidance does the term “significant” provide? Tushnet suggests that one thing that does operate as a constraint, maybe, is the term “feasible.” But the feasible constraint is the “bankrupt the industry” constraint. Both the “significant” standard and the “feasible” standard provide a very wide range of discretion. Tushnet asks: Is this the kind of discretion that Congress should give to the agencies? Note that Rehnquist’s concurrence said that the term “significant” is unintelligible and thus constitutes an unconstitutional delegation of power.

C. Public Health StandardsIn the public health cases, Tushnet says the two issues here to flag are:1.) Risk is relative to populations The subsets of population issue flagged by

American Lung Association v. Environmental Protection Agency [D.C. Cir, 1998], 644, raises the question: When Congress says that the agency should consider “public health” does that mean that the agency should make regulations that are conscious of vulnerable subsets of the population?

2.) The standards that we’ve looked at are all ones in which the claim is that “cost related analysis is not authorized by the statute.” (Whitman v. American Trucking Associations, Inc [U.S., 2001], 638, the Court, relying on the statute’s plain language and its references to specific circumstances under which costs of implementation can be taken into account in setting air quality standards, held that, in general, the agency cannot engage in cost-benefit analysis in setting standards.) The unifying question is: “Is that a sensible way to go about regulating?”

As a matter of policy, should costs be irrelevant in setting standards?(a) Against taking costs into account: Industries have differential access to cost information

and are likely to overstate the costs of implementation (and remedies for differential access, such as agency discovery or mandatory reporting requirements, are themselves costly). Industries (and others?) may be unduly pessimistic about implementation costs and fail to recognize that there are unexploited technological opportunities for implementation at a lower cost than they sincerely believe. (Sometimes this is referred to as one aspect of the “technology-forcing” argument for setting high standards.) Finally, clear air should not be commodified to the degree that cost-benefit analysis commodifies it. Even if agencies are likely to take costs into account implicitly, it may be better in the US culture that the partial commodification of clean air (and of risk more generally) be concealed.

(b) For taking costs into account: How can we know how much we want to protect health unless we know what we are sacrificing in setting standards at some specific level? Cost-benefit analysis gives us that information. In addition, the pressures to take costs into account are so great

that they are very likely to figure into the agency’s decision-making process (for example, in the analysis of comparative health risks or in setting the margin of safety), and it is better that the process be transparent about what matters to the agency. Finally, the regulatory paradox: Perhaps one reason for industry resistance to standard stetting is the absence of consideration of implementation costs. (As of 2005, standards had been set for 6 pollutants in the 30 years since the adoption of the Clean Air Act.)

D. Implementing Standards: Technology and Market-Based Systems

Once a standard is set, industries must develop methods of ensuring that their operations are in compliance with that standard. A common approach is to require that industries use the “best available technology” to achieve the required level of risk reduction. Such an approach has two variants.

1.) The first collapses the standard–setting decision into the implementation decision by directing industries to employ the best available technology to achieve the level of risk reduction that technology can achieve.

2.) The second, and more common, variant uses the term “best available technology” to capture the idea that the agency probably has set a standard at a level that can readily (or can best) be achieved by employing the best available technology—but allows the regulated entities to employ other means as well to meet the standard.

B. Ackerman and Stewart, 650, propose a different technique, “tradable permits.” 3.) A company would receive a permit to discharge some amount of pollution (or,

more generally, to impose some degree of risk) but could sell some portion of what it is allowed to discharge (and therefore discharge even less pollution) to someone who finds it more expensive to reduce pollution for its facility. Recall the “bubble” concept described in the Chevron case, which allowed trades within a single facility owned by a single polluter; a tradable permit system can be seen as expanding the bubble to cover a wider geographic range, perhaps even the entire country. Ackerman and Stewart note some objections to a tradable permit system: distributional concerns (the “hot spots” problem) and a rights-based objection to the (partial) commodification of exposure to pollution.

D. Cost ConsiderationsEntergy Corporation v. Riverkeeper [US, 2009], a Chevron Step Two case, held

that the EPA was within the bounds of reasonable interpretation for the EPA to conclude that cost-benefit analysis is not categorically forbidden, and that the EPA permissibly relied on cost-benefit analysis in setting the national performance standards and in providing for cost-benefit variances from those standards as part of its regulations[[Entergy compared with Cotton Dust]]

On the bottom of the second column of page 3, Scalia says that every test authorizes some consideration of cost – even the bankrupt the industry one. Unless Congress has said: “you can take costs into account only to the following extent,” we should interpret the statute to authorize the agency to choose to do cost-benefit analysis. Scalia says if they say you can take cost into account, then the agency is authorized to do full scale cost-benefit, unless Congress limited it in some way.

Tushnet says that’s in tension with what you’ve seen in Cotton Dust in particular. On page 635, Brennan says “feasibility” allows cost-benefit analysis into account, but feasibility doesn’t require them to do so, and the agency in this case doesn’t want to. The tension is the difference between “authorized” and “required.” The remainder of Cotton Dust suggests that Brennan reads “feasible” to mean that you’re precluded from doing cost-benefit analysis. However, in Cotton Dust, all that was at issue was whether OSHA was required to use Cost-benefit analysis, and Brennan says no, but Tushnet wants you to note that there is a change in tone between Cotton Dust and Entergy in what you should infer from Congress’s words.

Entergy says that we infer the ability to use cost-benefit analysis whenever the agency is allowed to take cost into account, in Cotton Dust, Brennan suggests that agencies should be skeptical about using cost-benefit analysis when the term “feasibility” is used, even though feasibility does authorize agencies to take costs into account to some degree. This is a change in tone, not a change in holding.

TOPIC 7: THE POLITICS OF REGULATORY CHOICE XIII. POLITICAL APPROACHES TO CHOICES AMONG REGULATORY INSTITUTIONS

In Chapter 5, we considered the question of how to choose among regulatory institutions. There, we framed our discussion from the perspective of a disinterested social scientist, attempting to determine what choices among institutions would best serve the public interest. We saw that the problems of access bias and process bias, described by Gillette and Krier, and the distributional alignments, discussed by Komesar, may have implications for one’s choice of institutional arrangements. In the discussion of Mendeloff’s “positive” argument in Chapter 9, we saw that large firms, threatened with concentrated regulatory costs, are likely to challenge strict regulation, thus contributing to the “over-regulation produces under-regulation” paradox Mendeloff identifies.

In this chapter, we view the choice of regulatory institutions from the perspective of politicians, as understood by (disinterested?) social scientists. Politicians—the people who may actually make those choices—are not disinterested social scientists. They may try to serve the public interest and may seek the best available advice, but they also have interests in securing reelection, in satisfying campaign contributors, in doing what is best for their individual constituency even if that might not be best for the society as a whole, and the like. In predicting how political struggles will turn out in light of politicians’ manifold aims, the insights from chapter 5 will again prove useful.

The idea that the “public interest” might be different from a politician’s aims is a central insight of so-called public choice theory, our primary subject in this chapter. Simply stated, public choice theory tries to apply the lessons of microeconomics to political decisions and institutions; the premise is that the kind of self-interested behavior one sees in markets can also been seen in the political realm. In section A, this chapter introduces you to the core concepts in public choice theory and offers several critiques. In section B, the chapter turns to potential implications of the theory for regulatory priority setting.

A. Public Interest TheoryThe Theory

Public interest theory espouses the view that legislative decision making reflects the public interest. Shaviro, 684, describes two basic versions of public interest theory:

(1) The Normative view that politicians are genuinely interested in pursuing the public interest, and

(2) The Pluralist account that the balance of private interests will produce the public good because the power of factions will be checked. (Madison, Federalist #10)Critiques Shaviro, 684, describes the critique by economists and by political scientists.

1.) The economists’ critique (which he calls “mostly theoretical”) is twofold. a) First, “when everyone ‘wins,’ everyone may lose. If 435 congressional

districts each pay $1 billion in taxes and each district receives $1 billion dollars in (worthless) pork

barrel spending, everybody loses; indeed, money must be spent to lobby for your district to get its share of the money.

b) Second, there is a collective action problem in citizens monitoring wasteful spending. Rent-seeking firms will have the incentive to lobby for favorable policies, but the government and firms must hide what they are doing. This leads to inefficient distribution of resources.

2.) The political scientists’ critique (largely empirical) is basically that interest groups do not represent a plurality of interests after all. Instead, they to represent the wealthier interests. Interest groups may conspire, making “the legislative process a positive sum game for its participants, and probably a highly negative sum game for the country as a whole.”

Finally, Shaviro points out that cognitive biases and illusions lead people to favor bad legislation and interest group transfers. Essentially, people can be manipulated into favoring bad policies. This raises the question of whether you can be “biased” about what you want.

The Supply and Demand Model of Legislation, as described by Eskridge and Frickey, 696, highlights two patterns of groups: A is highly-organized, small, and interested in tangible resources. B is disorganized, has inadequate information, large, and susceptible to symbolic reassurances. Pattern A will monopolize the tangible benefits (Olson’s collective action problem).

B. Public Choice TheoryThe Theory

Advocates of public choice theory say that it can help you to understand:(1) The political dynamic that takes place in the implementation of public interest

legislation(2) Why general interest legislation is so rare(3) Why most general interest legislation is primarily symbolic- i.e. publicity benefits

to legislator, but low actual costs imposed on anyone.The Public Choice analysis of legislation, is described by Mayhew, 700, who points out

ways in which politicians seek reelection. They advertise, they claim credit (mostly from casework), and they take positions (i.e. posturing, even if they are not instrumental in shepherding the policy through), and do case work on behalf of constituents. They can also blame agencies when they do things that the politician doesn’t like, and this makes the politician look good to his constituents.

Fiorina, 703, argues that casework and pork-barreling is “safe and profitable,” whereas lawmaking is controversial. He describes a (1) cynical view, that everyone is exploiting everyone else and that public law is a consequence of members of congress bargaining away public power in exchange for casework and pork-barreling; (2) an optimistic view of “public-spirited good old boys protecting their constituents from the ravages of bureaucracy”; and (3) an alarmist view suggesting that bureaucrats are on the ascendancy and will come to dominate Congress.The Critique

One problem with public choice theory is that it does not explain why general interest legislation (law that confers a small benefit on many people, and imposes a high cost on a small number of people, like environmental legislation) gets enacted.

Shaviro, 706, suggests some areas of public choice theory are crucially flawed because it does not recognize how politics is different from economics, leading to incorrect conclusions. There are two fundamental differences:

(1) In politics, the goods are unspecified, so we have to make assumptions about preferences, and

(2) In politics there is no uniform medium of exchange (i.e. money)C. Comparison

1. There is no question but that some aspects of the public choice approach do illuminate regulatory policy making in ways that public interest oriented approaches don’t. There is value added by having a sense of the public choice analysis.

2. In Tushnet’s view, the reason public choice analysis has caught on is (1) for political scientists, public choice has caught on because you can use formal models with it. But the more formal the model is, the less related to the real world it is. (2) In the legal academy, as Shaviro emphasizes, the public choice approach tends to have a cynical, ideological cast to it. As he indicates, you don’t have to use it in that kind of way, but for, again, sociological reasons, it tends to have that tone to it. So, you can get something illuminating out of it, but you have to be careful about over-claiming with respect to the relative understanding that you get out of public choice vs public interest approaches. There’s something to it, that’s why it’s presented, but Tushnet thinks you shouldn’t push it too far.

D. Public Interest/Choice Applied to AgenciesOne of the main features of the modern regulatory state is delegation of policy making

authority from the legislature to expert agencies. One of the things Tushnet has talked about is how the public interest and public choice analysis explains this type of analysis.

The public interest approach was that legislatures came to understand that they couldn’t deal adequately through legislation with rapidly changing social situations that required expertise, so they established agencies so that they could respond to these circumstances rapidly and expertly. Subordinate to that is the development of the modern administrative state with the injection of pluralist processes into the administrative process with the resulting ossification. So, the things that make specialization and expertise make the agencies somewhat unable to respond rapidly, as Congress intended.

The public choice approach is that by delegating authority to these agencies, members of Congress can claim credit for doing something to deal with the problem and avoid responsibility for particular decisions. The strongest version of this argument is the member of Congress voting to set up the agency, then criticizes the agency’s attempts to solve the problem in response to industry complaints, such that the member of Congress gets the benefit of saying he’s helping the public and saying to the industry that he’s on their side.

However, Tushnet says: “don’t push this too far.” It’s hard to come up with a public choice analysis for the existence of statutes like the clean air/water acts or OSHA. Given the existence of these statutes, public choice analysis can help you understand some of the details embedded in the statutes, but it cannot explain the whole thing. Also, given the possibility that statutes or particular provisions are designed for credit-claiming purposes, you have to be aware of the possibility that the statutes are primarily symbolic; that they’re not aimed at achieving anything substantial in terms of good public policy. The public choice way of thinking about symbolic statutes is that they have random effects, sometimes the effects are positive, and other times they are negative. On the adoption side: So why did these statutes get enacted? There were policy entrepreneurs who got people to care about these issues, and legislators responded to that. Tushnet would emphasize Gillete and Krier’s agency process bias (mission-commitment) the people who work at EPA really want to improve the air and water. People who work at the EPA really want to do good for the public. So the full scale story of the modern regulatory state requires public interest thinking.

The point of this discussion is to inoculate you against the romanticism of the public interest approach while simultaneously tempering the cynicism of the public choice approach; they are both important.

D. Agencies, OIRA, and Cost-Benefit Analysis 1.) OIRA as a mechanism to offset mission commitment in AgenciesThe aim of OIRA, in Tushnet’s terms, is to counter agency mission commitment. (Just as

creating broad ranging agencies like OSHA is a way to counter agency capture by specific

industries.) The way that OIRA does that is through cost-benefit analysis; E.O. 12866 said that it should. OIRA’s authority differs with respect to executive branch agencies (like the EPA) and independent agencies (like the SEC). With respect to executive branch agencies, OIRA can issue directives: “You must do cost-benefit analysis, and then send you regulation to us to review it.” But OIRA can’t do that with independent agencies, or at least, people disagree about that. OIRA can say: “it would be nice if you sent your proposals to us.” The precise form of the cost-benefit analysis has varied over the years, but 12866 is relatively pure.

With respect to the cases we read that said agencies can’t do cost-benefit analysis, that may be true, but OIRA requires agencies to prepare cost-benefit analysis. When agencies are prohibited by statute from using it, they are prohibiting from saying that they chose a standard because of cost-benefit analysis. The agency justification in that case has to be cast in terms other than cost-benefit analysis. They can say that they are doing something because alternatives are not feasible, but they can’t say it’s not cost-benefit justified. However, if they use the feasibility language, they open themselves up to challengers on review saying that they were performing under the table cost-benefit analysis.

Agencies send stuff in, OIRA looks at how they calculated the costs and benefits. Sometime (not often) OIRA economists will say: “we don’t think that this figure was generated through a very reliable method. Tell us why you used that method or do it again using the more reliable method.” As a matter of law, after the regulation is returned, the administrator of the agency has the authority to promulgate the rule as is. OIRA can’t say to the FDA: “You cannot promulgate the rule.” That being said, the President can call up the head of the FDA and say: “If you promulgate this rule, I will fire you.” Then the agency will do that and send it back and get approval or not. For all practical purposes, agencies always do what OIRA asks them to do.

2.) OIRA skewing in an anti-regulatory direction because they review only things that are presented to him and cost-estimates are based on regulatory figures.

The policy issue is: “Does OIRA review contribute to regulatory ossification?” There is a lot of quasi-journalistic writing that suggests that it does. Studies say that it takes an average of 2 months, but there are problems with these studies.

3.) The possibility that the same processes that got transferred from legislatures to agencies will get transferred from agencies to OIRA (pluralism ossification)

The other controversy is over regulations that never get proposed and so don’t go through the OIRA process. The OIRA process is, up to a point, skewed against doing new things in the sense that they can only pay attention to things that the agencies proposed. Graham, in response to this, developed this idea of a “prompt letter” to combat this. The prompt letter is something that says: “Dear Agency, OIRA noticed is a problem in your area of expertise, please think about doing something about this problem.” (pg 744) Tushnet says that he is not aware of significant studies of the use of prompt letters from OIRA, but the sense he has is that they were not under Graham and have not been under Sunstein, a significant part of OIRA’s work. Why is that?: (1) If nothing is happening, it doesn’t really come to their attention. (2) Expertise is a problem; how does somebody in OIRA know that there is a problem in the regulation of drugs or workplace safety, etc. OIRA staff members are generalists, not specialists, so it will be difficult for them to identify an unregulated area as to which regulation might be a good idea.

E. Agency Inaction Heckler v. Chaney [US, 1985], 745, held that an agency’s decision not to take

enforcement action should be presumed immune from judicial review under § 701(a)(2). Analytically, there are two things to note about this case:

First, there is a distinction draw, within the APA, between decisions which are committed to agency discretion by law (unreview) and substantive decisions not to act. If the agency rests its

inaction on a substantive ground, then that reason will be subjected to arbitrary and capricious review. If it says “our decision to act is committed to our discretion by law” what that means is “there are no standards that govern our decision not to act” and therefore, there is nothing to give a hard look to.

Second, in the APA, the provision before the arbitrary and capricious standard says that the reviewing court shall compel agency action unlawfully withheld. One of the difficulties in the general area is to distinguish between action that is committed to agency discretion by law and action that is unlawfully withheld. As a formal matter, if it is committed to agency discretion, there is no law to apply. But when you try to work out the distinction in particular cases in a claim that action was unlawfully withheld and a response that the decision was committed to agency discretion by law, it turns out to be very difficult to tell when there is no law to apply and when there is action unlawfully withheld.

TOPIC 8: THE FUTURE OF REGULATORY POLICY XIV. COMPARATIVE APPROACHESBritain:

As described by Vogel, 753, the British system is very co-operative. The term that the book uses is “corporatist.” (It is useful to distinguish between two levels here: One level is the process by which rules are made, while the second is the level at which rules are enforced.) At the enforcement level, there is co-operation. At the rule-making level, the process is that the relevant interests get into a room and negotiate what the regulation should look like; the interest groups and the agencies are equal partners in the negotiations.

Tushnet says: All the studies suggest that the bottom line outcomes in the US and in more corporatist systems are not dramatically different. If you start at the same place in the US (Great Lakes) and Europe (the Rhine river), you achieve the same amount of amelioration. So, if it’s true that the outcomes are the same under both systems, then Tushnet has two questions: (1) are there reasons for preferring one system over the other?

To the extent that these readings are supposed to help you think about alternatives to US regulation, it may be that these readings are unhelpful. That is, the regulatory style of Britain would not fit well with the political culture or institutions of the US. (Footnote – Tushnet says that this type of negotiation was attempted in the US, but really just didn’t work).

One way to think about the British approach is to use the terms in the Mendeloff readings – they engage in more extensive but less intensive regulation.Japan:

Sanders, 758, describes the peculiar interaction between violence and apology characterizes Japanese regulation. Tushnet wants to focus on the apology aspect. It’s a reasonably established fact that in cases where there is medical misadventure, the people who have bad medical outcomes tend, pretty dramatically, to sue less often if their doctor comes to them and apologizes. In Japan, the apology does have effect on regulation because being put in a position where you are culturally impelled to apologize is personally shameful and you want to avoid being put in the position and so you want to avoid doing the things that would put you in a position of having to apologize. For a Japanese executive, being put in a position where you have to apologize is like facing a liability judgment of 5 milion dollars for a American executive. They really, really want to avoid it. That’s how apologies can function in a regulatory setting there.

Tushnet asks: Is it possible to build that into the regulatory system in some way? Tushnet notes that there is some tension between instrumental aspect and expressive aspect of an apology.The US:

Kagan, 774, decribes the US system of adversarial legalism. The bottom line outcomes under adversarial legalism and corporatism seem similar, but Kagan points out that the costs of reaching that outcome are higher in the US. These are costs that are unnecessary in the sense that there are ways of reaching those outcomes that are less costly.

Tushnet says that you should note that this idea of adversarial legalism is in tension with the notion of agency capture.XV. PROPOSALS FOR REFORM

In this chapter, we take on the basic challenge posed by the comparative materials of the last chapter and ask whether the adversarial legalism associated with the US regulatory system should and/or can be softened or reformed. The proposals for general reforms discussed in this chapter are aimed at restructuring the processes or institutions that support the legalistic and rigid US system that was revealed by our comparative analysis.

[We have already proposed several reforms, in the past chapters including:]Looking back at chapter 2, the idea that the market might be the institution of first (and

sometimes last) resort for dealing with risks to human health and life is in fact a basic argument in favor of large-scale deregulation—moving from government to markets as a means of controlling risks.

Reform of the common law tort system is another possibility we have discussed. The move from individual tort actions for injuries sustained in the workplace to the administrative system of worker’s compensation, considered in chapter 6, is an important example.

The interest-group pluralism described by Richard Stewart (chapter 8) was itself a reform of the historical understanding of agency processes. As we will see in this chapter, current reformers believe the processes associated with interest-group pluralism—in particular, notice-and-comment rule-making by administrative agencies—have become too rigid and legalistic, and they fix on more collaborative methods of decision making as potential solutions.

In chapter 9, we also encountered potential reforms to decision-making criteria, in particular, cost-benefit and cost-effectiveness analysis. And in chapters 10 and 11, we considered a wide array of regulatory instruments. Of these, as we will see in this chapter, the market-based instruments—such as disclosure requirements and trading schemes—are the most fashionable among academics today. Indeed, these are the types of regulatory instruments Richard Stewart associates with the “reconstituitive law” that he endorses in the first reading in this chapter. Proposals

Stewart, 794, says that we now have “Madison’s nightmare” where the regulatory system is dominated by pluralist politics. He suggests that reconstitutive regulation is the way to get out of it. These techniques are not techniques of de-regulation, although the initial steps in these methods may look de-regulatory. Its also not merely federalism or devolution of regulatory authority to a lower level, the aim is to keep regulatory authority at the center, but again, in the initial stages you may see some decentralization and some reliance on the principle of subsidiarity (public jobs should be done at the lowest level at which they can be effectively done).

Frug, 815, thinks that may we should reconstitute politics instead of regulation. [Adversarial legalism versus reconstituted politics.] This reading expressly raises the question of a political underpinning, in the deep nature of politics in the US to new governance ideas.

Tushnet says that you should think about the argument that Cross makes: that adversarial legalism is not a phenomenon of national character, but is, at least in part, the result of some of the structural features of government in the US. The question then becomes: what kinds of regulatory reforms might be possible to overcome regulatory ossification? How could you get from intensive, but not extensive regulation to extensive but less intensive regulation in the United States? The first thing to think about is what kinds of regulatory reform proposals are interesting and possible.

One of the ones in the chapter is reconstitutive regulation – which is called “new governance” in Europe.