BROAD OPTIMALITY IN AGENCY RULEMAKING.

• Author: Shadarevian, Vartan

INTRODUCTION 336 I. AGENCY RULEMAKING: AN OVERVIEW 339 II. THE DISCUSSION ON EVALUATING AGENCY RULEMAKING 343 A. Procedural Layering 345 B. Concerns About the Big Picture 346 1. Concern about Agency Agendas 346 2. Ossification 348 3. Cumulative Effects of Regulation 349 4. Retrospective Review and Regulatory Budgets 350 5. Sunsetting & Experimental Rules 351 C. Ships Passing in the Darkness 353 III. TWO CONCEPTS OF OPTIMALITY 355 A. Optimality, Metrics, Criteria 357 1. Optimality and Criteria in Evaluating Rules 357 2. Single-dimensional Metrics vs Multi-dimensional Approaches 359 3. Criteria vs Decision Procedures 360 B. Narrow vs Broad Optimality 361 1. Narrow Optimality 361 2. Optimal Regulatory Strategies 363 3. Broad Optimality for Agency Decisions 364 C. Political vs. Technical Decision-making 366 IV. ANALYZING FAILURES OF BROAD OPTIMALITY 368 A. The Problem of Foregone Regulation 368 1. Understanding the Problem of Foregone Regulation 369 2. Foregone Deregulatory and Modifying Rulemakings 370 3. Foregone Regulation vs. Inaction 371 B. Interdependency Error 372 1. Defining Interdependency Error 373 2. Examples of Interdependencies 374 3. The Pitfalls of Narrow Optimality 374 C. Negligence of Procedural Value 376 1. Credible Commitment Value 376 2. Trust and Relationship-Building 379 3. Soft Law & Influence 380 4. Democratic Values 381 D. Existing Critiques Conceptualized as Failures of Broad Optimality 382 V. WHY BROAD OPTIMALITY FAILS 383 A. Agency Behavior 384 B. Oversight 386 C. Procedure 390 CONCLUSION 391 INTRODUCTION

On the second-last day of the Trump administration, the U.S. Department of Health and Human Services (HHS) published the "SUNSET" rule. The SUNSET rule, had it gone effective as planned on March 22, 2021, would have amended nearly all of the approximately 18,000 HHS regulations to include self-executing "sunset" provisions--provisions that add expiration dates for rules, and would act to terminate the rule at some future date, unless the HHS expressly renews the rule. The HHS under the Biden administration quickly changed tune, initially delaying implementation of the SUNSET rule, and eventually proposing its re-peal. (1)

The SUNSET rule was ostensibly driven by a real concern about agencies systematically failing to repeal obsolete regulations. However, the resulting politicized back-and-forth over the SUNSET rule, a "midnight regulation" published by the outgoing Trump administration, (2) was indicative of a wider trend in agency rulemaking, whereby pragmatic arguments provide a thin veil for partisan visions of aggregate rulemaking. As a result, the proposed solutions to concerns about the "big picture" of rulemaking, such as the SUNSET rule, have been blunt, band-aid solutions that fail to address the nuanced problems they claim to solve.

This lack of rigor stands in contrast with the processes that drive individual rulemakings. Concerns about arbitrariness in agency action led policymakers to adopt increasing levels of procedure for agency action. (3) Implicit in these procedures were two priorities: the idea that procedures should ensure that a promulgated rule is better--according to some measure--than similar alternatives, including the status quo. The result, in terms of developing agency procedures, was a progressive layering of additional types of due diligence that the agency was required to carry out. Agencies, in turn, have become increasingly analytical in considering rules, producing Regulatory Impact Analyses stretching for hundreds of pages. Some scholars have even gone so far as to suggest that a technocratic agency, carefully weighing benefits and costs, negates the importance of partisanship or value disagreements in rulemaking. (4) The standards for adjudicating rules have become increasingly precise and technocratic, and ostensibly insulated from the more capricious of political winds. (5)

On the other hand, agencies lack technical approaches and standards for evaluating aggregate rulemaking behavior. Debates about overall rulemaking effectiveness remain intractably political; empirical and technical questions about aggregate agency behavior have become conflated with value judgments. Moreover, procedure and oversight, where they exist, are in the wrong place since they only address the process behind proposing individual rules. Agencies face remarkably little scrutiny and procedure when it comes to their overall decisions on what to regulate, what not to regulate, and how to fact-find to make better decisions. The U.S. public has been forced to place an increasing amount of trust in career regulators to choose the right combinations of agency rulemaking decisions from a sea of potential options, with no guarantee that principles of sound deliberation are being followed in the aggregate.

Indeed, aggregate agency behavior is significantly suboptimal. It has become clear that focusing excessively on evaluating individual rules--and adding procedures to an agency's rulemaking checklist--has outlived its usefulness. (6) In the earlier days of the administrative state, what we shall term "narrow optimality"--the idea that agencies must choose the best rule out of alternatives (including that of doing nothing) may have been sufficient to guarantee optimality overall; agencies did not have to choose from quite as many regulatory options, and the analysis an agency could carry out was simpler and less cumbersome. But rulemaking has become an increasingly complex activity, with agencies having to narrow down reasonable courses of action from a large universe of potential courses of action. And agencies are expected to carry out increasingly thorough due diligence on rules they are proposing. To this end, the contemporary debates on rulemaking reflect an increasing sense that there is more to evaluating agency conduct than ensuring they pick well between regulatory alternatives or doing nothing. However, aside from pointing out individual ways in which aggregate rulemaking fails to be effective (or as effective as it could be), commentators have failed to articulate how we should assess agency rulemaking on-the-whole. Analyses of rulemaking lack a conception of "broad optimality".

This Article therefore proposes a concept of "broad optimality" to judge aggregate rulemaking behavior and defends its use in judging agency action. According to such a standard, agencies behave optimality when--according to a criterion chosen by the agency, such as Cost-Benefit Analysis (7)--they could do no better in their rulemaking actions. This standard stands in stark contrast to the current procedural and oversight focus on ensuring that regulators do no harm and pick the best option out of a limited set of alternatives, both of which establish a minimum standard for individual rules to meet but which fail to consider the broader objectives picture of a regulatory project. Indeed, if we like the idea of narrow optimality in principle--even if we do think agencies might spend too little or too long time on it--there is no reason not to think about agency action in terms of broad optimality as well.

The link between narrow and broad optimality is not straightforward, and one does not guarantee the other. Even when an agency always picks the best rule out of immediate alternatives (including doing nothing), it may fail to achieve broad optimality in important and systematic ways. This Article analyzes the way in which a narrow conception of optimality, even when correctly applied, results in suboptimal agency action. In doing so, it proposes a taxonomy for understanding failures of broad optimality, categorizing the resulting suboptimal behavior into three categories: (1) foregone rulemakings; (2) interdependency error; and (3) negligence of procedural value. Prominent critiques of regulatory procedure and of agency regulations in general, such as concerns about ossification or cumulative effects, can be understood in the context of our taxonomy.

The analysis has distinct policy implications. Current procedure and oversight of agencies is distortionary, focusing too much on making the case for individual rules and removing the burden for agencies to prove they are generally acting efficiently and thinking about the overall effect of their regulations. Successful reforms would move the focus away from the rule, and to the rulemaking program at large. Furthermore, there is evidence that neglecting broad optimality is costly, potentially losing billions of dollars in potential net benefits and compromising the ability of the administrative state to carry out its statutory commands. For example, another article points out that very few scholars or practitioners have noted the problem of rule interdependency--the idea that groups of rules have benefits and costs different from the sum of benefits and cost of the individual rules. (8)

Part I of this article gives an overview of agency rulemaking. Part II summarizes the ongoing discussion on how agency rulemaking should be evaluated. Part III discusses 'optimality' as a concept and introduces the concepts of 'narrow optimality' and 'broad optimality'. Part IV introduces a taxonomy of broad optimality failures. Part V discusses the reasons broad optimality fails. Part VI lays out proposals for optimizing agency rulemaking.

1. AGENCY RULEMAKING: AN OVERVIEW

   An agency's ability to regulate begins with a delegation of rulemaking ability by Congress. (9) Once Congress does so, the Administrative Procedure Act (APA), (10) Regulatory Flexibility Act, (11) the Paperwork Reduction Act, (12) and several Executive Orders lay out the general procedural requirements for rulemaking for most agencies. (13) The APA creates various means by which agencies may promulgate a rule. The APA defines a rule to mean any "statement[s] of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy." The...