U.S. v. Microsoft: Breaking Up Should Be Hard to Do

Mr. Hahn argues that breaking up Microsoft is not warranted on the basis of a careful reading of the facts. He asserts that a breakup is likely to do more harm than good.

How Changes in the Federal Register Can Help Improve Regulatory Accountability

See Hahn for a more recent analysis published in the Administrative Law Review. Congress has recently become more receptive to using economic analysis in regulatory decisionmaking. To improve regulation, an important first step is to provide useful information that is accessible to the public and other interested parties. The government is an essential source of that information for many federal regulations. Within the government, a central repository of information on regulation is the Federal Register. This paper examines how the Federal Register could be used to improve the regulatory process by providing information to interested parties in a "user-friendly' format." Two important conclusions emerge from this analysis. First, Federal Register notices that present regulatory analysis currently exhibit a great deal of variation in the kind of information that is presented. Second, with some key changes in the requirements for including and presenting information, the content of these notices could be improved dramatically. While this analysis focuses on federal regulation in the U.S., the findings and policy recommendations are readily applicable to other jurisdictions dealing with regulatory reform in and outside of the U.S.

The Impact of Economics on Environmental Policy

Environmental economists have seen their ideas translated into the rough-and-tumble policy world for over two decades. They have witnessed the application of economic instruments to several environmental issues, including preserving wetlands, lowering lead levels, and curbing acid rain. This essay examines the impact of the rise of economics in the policy world on the making of environmental policy. I focus on two related, but distinct phenomena-the increasing interest in the use of incentive-based mechanisms, such as tradable permits, to achieve environmental goals; and the increasing interest in the use of analytical tools in regulatory decision making, such as benefit-cost analysis. I argue that economists and economic instruments have had a modest impact on shaping environmental, health and safety regulation, but that economists will play an increasingly important role in the future. Although the role of economics is becoming more prominent, it does not follow that environmental policy will become more efficient. This apparent inconsistency can be explained by the political economy of environmental policy.

The FCC Cross-Ownership Rules Should Be Repealed

The Federal Communications Commission prohibits a business from owning a small newspaper and a small radio station or television station in the same town. I argue that the FCC's cross-ownership rules containing these prohibitions should be repealed because they do not have a useful economic justification.

The False Promise of "Full Disclosure"

In this essay, I address the problem of conflicts of interest in the context of funded research and opinions that are disseminated to the public by academics, think tanks, and individuals affiliated with think tanks. I argue that "full disclosure" may be a laudable goal, but is likely to be a disaster in practice. In addition, I argue that some disclosure norms imposed by the media are not likely to be very helpful in promoting useful information for their audiences, and will likely have unintended adverse consequences. There are no simple solutions to the problem of identifying conflicts of interest and potential biases associated with research and opinions reported in the media. I believe the problem could constructively be addressed by honing the thinking skills of the media and the public, not something that is likely to happen immediately because the demand isn't there.

How Changes in the Federal Register Can Help Improve Regulatory Accountability

For working paper version, see Hahn, September 1998.

The Litigating States' Proposed Remedy for Microsoft

State officials face well-funded, well-organized coalitions of in-state businesses arguing for the prosecution of an out-of-state company, an unequal political contest. Accordingly, the state attorneys general (AGs) have resisted settlement attempts and have pushed both the Justice Department and the courts for stronger action against Microsoft. In the process, the interests of consumers, the AGs' nominal clients, have been paid little more than lip service. The nine litigating states and the District of Columbia together account for just 27 percent of the U. S. population. But they do represent many of Microsoft's most vocal rivals. California is home to Apple, Palm, Oracle, Sun Microsystems, and Netscape. Massachusetts is home to the Lotus division of IBM as well as major operations of Sun and Oracle. Utah is home to Novell. By far, the most overreaching provision in the litigating states' proposal is the prohibition on 'binding' middleware code to Microsoft's operating system software. In short, the litigating states would require Microsoft to allow licensees to remove the software code for any function that a Windows licensee could conceivably single out, while still requiring Microsoft to maintain the performance of the operating system. If Microsoft were able to comply technically, which is far from clear, it would have to rewrite Windows from scratch as a combination of thousands of separable, modular components. This would balkanize Windows as a platform for applications software. Developers would no longer be able to count on the presence of key segments of software code. Indeed, to ensure that their software worked properly, developers would have to provide those features themselves. As a result, consumers would encounter different flavors of Windows with differing capabilities. Adding to Microsoft's (and consumers') woes, the litigating states would require Microsoft to license large amounts of its intellectual property to competitors for little or no compensation. Competitors would get Microsoft's software code for free. But consumers would suffer in the long term from decreased innovation since Microsoft would be left with little incentive to develop Windows or many of its applications programs.Technology and Industry

An Analysis of the Costs and Benefits of Delaying the Release of Windows XP

Various parties are urging Microsoft to delay the release of their new PC operating system, Windows XP. Those calling for a delay cite features in Windows XP that they claim threaten competition in software in ways reminiscent of Microsoft's actions to protect Windows from Netscape Navigator's Internet Browser in the mid-to-late 1990s. However, Hahn argues that circumstances in the case of Windows XP are quite different. While it is not possible to quantify the impacts of delay, the evidence strongly suggests that the costs would be substantial and the benefits to competition would be minimal at best. Indeed, there is good reason to believe that the release of Windows XP will increase consumer choice and provide additional competition in key software - most significantly, in instant messaging. In the end, the evidence leans heavily towards supporting the timely release of Windows XP. The only parties that clearly stand to gain from a delay are Microsoft's rivals.

Government Analysis of the Benefits and Costs of Regulation

Recently, Congress has shown a greater interest in assessing the economic impact of regulation. The interest is driven in part by estimates that federal regulation cost several hundred billion dollars annually. In 1996, Congress required the director of the Office of Management and Budget to provide estimates of the total annual benefits and costs of all federal regulatory programs and estimates of the benefits and costs of individual regulations. This essay reviews the increasing use of economic analysis in regulatory decision making, critically assesses the first OMB report, and considers how the use of economic analysis can help inform regulatory decision making. It argues that policy makers need to address a growing body of evidence that casts doubt on the effectiveness and efficiency of much regulation.Regulatory Reform

Regulatory Reform: Assessing the Government's Numbers

This paper provides the most comprehensive assessment to date of the costs and benefits of federal regulatory activities. The assessment, based on the government's own numbers, shows that the net benefits for final regulations promulgated from 1981 to mid-1996 approach a net present value of $1.6 trillion. The analysis also shows that the government can significantly increase the net benefits of regulation. Less than half of final regulations pass a neutral economist's benefit-cost test. Net benefits could increase by approximately$280 billion if agencies rejected such regulations. Net benefits could also increase if agencies replace existing regulations with more efficient alternatives, or if agencies substantially improve regulatory programs. The efficiency of individual regulations varies by agency and by the type of risk the regulation is designed to reduce. Regulations from the Department of Transportation comprise over half of the total net benefits of final regulations, although they account for less than 10% of all regulations. The net benefits of regulations from the Environmental Protection Agency account for only about a third of total net benefits, primarily because of 19 Clean Air Act regulations with high net benefits, although two-thirds of all regulations are EPA regulations. On average, regulations that reduce cancer risk are less efficient than other social regulations, and EPA cancer regulations appear less efficient than other cancer regulations. Regulations that reduce the risk of car, fire, or work-related accidents are generally more efficient than regulations that reduce the risk of cancer and heart disease. The study also shows that the efficiency of regulations has not declined over time, as some scholars suggest. Furthermore, the introduction of formal regulatory oversight by the OMB does not appear to influence the cost-effectiveness of regulations. The paper shows that agency compliance with regulatory impact analysis requirements in Reagan's Executive Order 12291 and Clinton's Executive Order 12866, the basis for agency estimates of the costs and benefits of regulation, is usually superficial. As a result, the quality of such analyses is generally poor. Partly because of the poor quality of analyses, it appears that agencies do not often use the analyses to improve regulatory outcomes. If Congress and the White House are serious about regulatory reform, they must cooperate to enforce the regulatory impact analysis requirement. Successful enforcement requires high-level political support, statutory language requiring all agencies to adhere to established principles of economic analysis, and rigorous review of agency analyses by an independent entity. At this time, it is unclear whether law makers are willing to exert the political muscle necessary to achieve real reform.