Rational Boundaries for SEC Cost-Benefit Analysis

Abstract

A series of D. C. Circuit cases invalidating SEC rules on economic analysis grounds has cast the agency's rulemaking authority in doubt. We analyze this case law, noting the incompatibility of strict cost-benefit analysis procedures designed for executive agencies with the structure and processes of multimember commissions like the SEC. The SEC has, until very recently, left courts and commenters free to develop an ad hoc, open-ended jurisprudence of economics in rulemaking that has effectively reversed the deference courts have traditionally shown to agency findings in their area of expertise-in this case, financial economics. Business Roundtable v. SEC shows how this jurisprudence has proven increasingly unworkable in practice; and yet, one current legislative proposal would codify and extend it further. We provide three solutions to this conundrum.