Executive Summary
Regulations often restrict the range of market choices available to consumers, yet they are promulgated without a quantitative analysis of that cost—a fundamental flaw in regulatory impact analysis. This paper fills the gap by supplying a portable choice-value factor. The factor compares value at the unconstrained mix with regulation-constrained value. That comparison is a quantity-index comparison of two mixes—the same comparison the national accounts use to measure real GDP. It depends on displacement and on the difficulty of substitution at a reference mix. It can be applied to regulations that fully prohibit objects that consumers might choose or rules that shift market shares without full elimination.
Demand responses can identify the substitution parameter by separating in-market switching from scale. Compliance prices or household-production loads can identify the same objects. The choice-value factor is a conditional, within-market private-value measure. Externalities, resource costs, and fiscal effects remain distinct cost-benefit items. Prior analyses of health-insurance and vehicle regulations illustrate the method.
Beyond regulatory impact analysis, quantifying the value of consumer choice provides a foundation for understanding how markets work and how constraints alter human welfare by translating observed choices into a quantitative reflection of the economic world.
*This content is in the process of Section 508 review. If you need immediate assistance accessing this content, please submit a request to Scott Smith, Scott.Smith@hhs.gov. Content will be updated pending the outcome of the Section 508 review.