Law Review Article Challenges SEC's Cost-Benefit Analysis of Conflict Minerals Rule Compliance
Commentary by Steven Lofchie
Legal academics Jeff Schwartz and Alexandra Nelson argued against the SEC's claim that compliance with the final version of the Conflict Minerals Rule would cost the industry between $3-4 billion in the first year alone. They stated that the claim "rested on inapt and unsound economic models and empirical work." For that reason figures determined by the SEC should "play a muted role in the ongoing public discourse" surrounding the Conflict Minerals Rule, and policymakers should question the expansion of quantified cost-benefit analysis ("QCBA") requirements.
Regarding the SEC's compliance-cost estimate, the authors argued that:
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in the case of the Conflicts Mineral Rule, the SEC's analysis was poorly done;
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QCBA is not actually required by law; and
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qualitative analyses generally are superior.
Commentary
It seems odd to give up on the notion of attempting to quantify the direct costs of regulation, notwithstanding the academics' view that the analysis of the Conflicts Mineral Rule was poorly done. The better approach would be for the SEC to try to understand what it did wrong (or right) in analyzing costs. After all, what reasonable business – or household, for that matter – would give up on the notion of estimating costs simply because it failed to do a good job in particular instances?
In general, for the SEC to overestimate costs would be unusual. Much of the time, the SEC's cost estimates seem far too low. Even so, there is no way for the SEC to get better at this unless it tries to conduct estimates and, after a rule is adopted, then determine the actual costs in order to learn from the experience.