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OAQPS Economic Analysis Resource Document

9.2 Key Principles of Clear and Effective Communication

    To help the analyst present the results of economic analysis, six principles of communication are identified and briefly described below.

  • Use Clear and Transparent Language:  As indicated above, the ultimate objective of ISEG’s economic analyses is to provide information to decisionmakers. Therefore, all aspects of the analysis should be presented in such a manner that the decisionmaker can completely understand the results of the analysis and the methods by which the results were derived. Analytical results should be able to withstand close scrutiny by the decisionmakers themselves and by external parties. Making the analytical results clear helps achieve that goal. On June 1, 1998, President Clinton issued a memorandum directing Federal executive departments and agencies to use “plain language” in the development of all Federal rulemaking activities. While the directive applies specifically to the publication of FR notices (see Chapter 3), the spirit of the memorandum is to encourage clear, understandable writing wherever possible.
  • Identify Data Sources and Assumptions:  The EA/EIA document should always include a description of all data sources and references used in the analysis, subject to confidentiality constraints imposed by CBI agreements. This information should be presented in such a way that decisionmakers and other analysts can obtain these data and other source materials with relative ease. In addition, the analyst should clearly identify all relevant assumptions made in the course of the analysis.
  • Describe the Modeling:  For those not trained in economics and other quantitative disciplines, econometric and other economic models can often appear unapproachable. Therefore, it is important that the analyst describe the modeling techniques used in the analysis in clear and understandable terms. The level of detail of such a discussion will depend on the technical expertise of the audience. Analytical detail may be appropriate for an audience of economists but not for the wide range of disciplines typically represented in the workgroup or senior management. The discussion needs to be targeted to the audience. Providing the basic reasoning underlying the modeling framework not only bolsters the credibility of the results among noneconomists, but it also ensures that decision makers correctly interpret the results of the model.
  • Characterize Uncertainty:  As discussed at length in Section 7 of this manual, all EAs are subject to uncertainty. Uncertainty may arise from data, models, or general lack of information. When summarizing results for decisionmakers, the analyst should identify uncertainties that could alter a decision and explain the implications of plausible alternative assumptions.
  • Make Alternatives Comparable:  Because several regulatory alternatives are often evaluated at different stages in the regulatory process, the process of narrowing the field to a preferred alternative requires some form of direct comparison. The ideal way to communicate the full range of consequences of a regulatory option is to convert all of these consequences to a single metric. From the perspective of welfare economics, the most sensible metric is monetary, because it provides a platform for comparing the benefits of the action with its costs (i.e., the benefits that society foregoes to obtain the benefits of the regulation) in a manner that is consistent with the tradeoffs that members of society make all the time—the exchange of dollars for goods and services.
  • Clearly Identify Nonmonetized and Nonquantified Effects:  Often some of the consequences of a regulatory action are not able to be quantified or monetized. To the extent that the regulatory action being analyzed is expected to result in such costs or benefits, monetized benefits and costs may misrepresent the full range of impacts of the regulation. Therefore, it is important to clearly present the full range of benefits and costs that cannot be quantified or monetized. One way to present these is through a table structured similarly to Table 9-1. Potential health effects of the regulatory action are identified, a subset of those identified are shown to be quantified in the analysis, and a subset of those quantified are shown to be monetized. This presentation provides some sense of the extent and nature of the omissions from the monetary estimate of benefits. This may become critical information if the monetized costs exceed the monetized benefits, in which case the decisionmakers must evaluate whether the implicit value of the nonmonetized benefits is high enough to favor regulatory action.


 9.0 Intro

 9.1 Communication
   Goals, the Audience,
   and Challenges

 9.2 Key Principles of
   Clear and Effective

 9.3 A Note on Visual    Communication
    The method of presentation is particularly important for two types of economic results:
  • net social benefits, and
  • equity effects and economic impacts.
    Table 9-2 provides an example of how net benefits results can be presented in an understandable manner. Eight different regulatory options are evaluated, starting with the least stringent option at the top of the table and working down to the most stringent

Table 9-1
Table 9-2
option. Monetized benefits and costs are presented in separate columns. This presentation allows the reader to trace results presented in the table back to the respective cost or benefits chapter or section. The far right column presents the results (monetized net benefits). It is transparent to the reader that the net benefits estimate equals benefits less costs. For external comparisons, the table could include the year in which the dollars are denominated. If there are significant nonquantified or nonmonetized benefits or costs to consider, another column might be added to the right of the monetized net benefits column to identify these factors.
    As discussed throughout this document, the focus of equity/impacts analysis is on the distributional consequences of rulemakings. The general analytical requirements for these analyses are outlined in Section 6. The key point in terms of presenting the results of these analyses is to ensure that the results are sufficiently disaggregated to show impacts separately for the groups and sectors of interest.

1 This discussion of communication principles borrows heavily from the draft guidance document Guidelines for Preparing Economic Analyses, prepared by EPA’s Office of Policy. As of this writing, a preliminary draft of this document (July 1998d) is being circulated throughout the Agency for review and comment.

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