ECONOMICS AT THE GAO

The articles in this section are part of a set submitted simultaneously to Contemporary Economic Policy (CEP) to illustrate the policy relevant economic work that occurs at the U.S. Government Accountability Office (GAO, formerly the General Accounting Office). The articles and the GAO's reports in general are consistent with CEP's objectives of communicating high-quality economic analysis on policy issues, to focus research on current issues of widespread concern, and to increase awareness among economists. The four articles in this section investigate strategic industry behavior stemming from the Environmental Protection Agency (EPA) air regulation affecting diesel engines, setting priorities for homeland security expenditures, the potential for discriminatory decisions in appeals to the Social Security disability program, and the potential for market power in wholesale gasoline markets resulting from corporate mergers. These articles are briefly sketched and then the context of economics work at the GAO is presented. Lam and Bausell investigated a recent EPA regulation that imposed more stringent emission standards on diesel engines as of October 2004. Among the many strategies truck operators could have taken to comply, the article investigates whether truck operators pre-bought trucks with "older" diesel engines ahead of the date of compliance that in effect could offset some of the planned impact of the regulation. Using production data of trucks with diesel engines, Lam and Bausell found that the production of trucks with older diesel engines went up about 20%-30% in the 6 months leading to October 2004, despite accounting for factors such as the strength of economy. In the second contribution, Farrow investigated basic approaches to setting priorities for homeland security expenditures in response to increased calls for an allocation based on "risk." Acknowledging the challenges of quantifying risk in heterogeneous settings and against an intelligent adversary, several expected cost-minimization models are developed to define the kinds of trade-offs that public or private managers might pursue. The relevance of the marginal investment rules so derived is illustrated with examples from GAO reports related to port security and border control among other applications. The third contribution by Godtland et al. is a test for racial disparities in the Social Security Administration's (SSA) decision to award disability benefits for the nation's two largest disability cash assistance programs. Using newly available data, they developed a comprehensive econometric model of the appeal level of SSA's disability decision-making process. Among other findings, they determined that attorney representation plays a role in explaining racial differences in benefit awards that are appealed. Finally, Karikari et al. examined the impact of the wave of mergers in the U.S. petroleum industry in the 1990s on the wholesale prices of both conventional and boutique gasoline specifications. They used an innovative econometric technique that accounts for correlations across gasoline terminals over time and contemporaneously in a model where gasoline inventories and refining capacity utilization rates are regarded as endogenous to gasoline prices. Their model also accounts for the supply disruptions in the Midwest and the West Coast regions of the country, as well as crude oil prices, a major component of gasoline prices. The authors found that the majority of the mergers resulted in wholesale gasoline prices that were higher by a few cents per gallon. As little is published about the context in which GAO economists work, the remainder of this introduction is a brief survey of the opportunities and limits for the work of economists in GAO, "the investigative arm of Congress." GAO employs more than 80 full-time Ph.D. economists who are primarily focused on what GAO calls "performance audits." (1) Within the 3,200 analysts and staff of the GAO, economists represent a distinct skill set but must find ways to interact and to contribute on research teams where the economist's view is often one of many views among the analysts. …