implementing ria: benefits, challenges and best practices

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2011/SOM1/EC/WKSP2/006 Session 3

Implementing RIA: Benefits, Challenges and Best Practices

Submitted by: Jacobs & Associates

Workshop on Using Regulatory Impact Analysis to Improve Transparency and

Effectiveness in the Rulemaking Process Washington, D.C., United States

3-4 March 2011

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www.regulatoryreform.com

Implementing RIA: BenefitsImplementing RIA: Benefits, Challenges and Best Practices

Scott JacobsManaging Director, Jacobs and Associates

Copyright held by Jacobs and Associates. This material may not be reproduced without permission.

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APEC Workshop: Using Regulatory Impact Analysis to Improve Transparency and Effectiveness in the Rulemaking Process

March 3-4, 2011

Washington, DC


Many governments have lost control of their regulatory functions

Regulatory systems are fragmented, decentralized, captured and resistant to changeg

Who regulates? How much? No accounting of overall costs or benefits of regulation anywhere United States: over 50 regulatory bodies with over 800 separate

departments and offices operating on different statutes European Union: more than 2,000 regulatory bodies at national levels Kenya: Est. 300 licenses in 2005…found 1,500 in 2006, amidst 178

regulatory bodies. Moldova: Est. 400 -500 business regulations… then found 1,300 Croatia: Identified 300 procedures – then found almost 1 500 among


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Croatia: Identified 300 procedures then found almost 1,500 among almost 70 regulatory bodies

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How businesses see the chaotic regulatory environment


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When quality is low, regulatory systems breed corruption and abuse

“W b ilt ld f“We built a world of bureaucracy and lust for power. A world of corruption, of small and big privileges and interests for anyone


interests for anyone who could take advantage of other people.“

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-- Greek Prime Minister George Papandreou, 11 September 2010, announcing a deregulation program

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Regulatory quality is difficult everywhere


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Regaining control of the regulatory system requires systemic solutions

Reforms aimed at Reforms aimed at single rules will never catch up with the productive capacities of governments to


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governments to create regulations.

Regulatory reform is a systemic issue. Regulatory

reform.

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The OECD Agenda for Low-Cost, Low-Risk Regulation

I. Build a regulatory management system Strategic medium-term regulatory reform policy (5 years) Engines of reform at the center of government

II. Build the institutions to carry out good regulation One stop shops Inspections reforms Due process

III. Improve the quality of new regulations (flow) RIA


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Stakeholder consultation Central quality controls

IV. Upgrade quality of existing regulations (stock) Targeted deregulation, simplification, codification (Doing

Business, Standard Cost Model) Broad-based reforms (Regulatory Guillotine)

President/ PM/ Council of Ministers

StakeholderStakeholderAdvisory Council

P bli

Central UnitFor regulatory

quality

RIA

Parallel Unitin

Parliament

The Jacobs and Associates functional map of regulatory quality capacities

Quality in Flow Of New

Regulations(Ministries)

Review the Stock ofRegulations(Ministries/

public/private)

Build InstitutionsFor Better

Regulations

Regulatory guillotine“Doing Business”

Clear quality standards for new regulations (efficiency,

Electronic regulatory registry

PublicConsultation

RIALegal controls

Build capacitiesin Ministries

agendaSectoral reviews & re-engineeringWTO convergence strategy

economic standard, etc)Central review & quality controlRegulatory Impact Analysis Stakeholder consultationChecks for WTO conformity

Rationalize inspectoratesSilence is consentOne stop shopsDue process

Monitor Results, Adapt Rules

Copyright Jacobs and Associates 2010. No reproduction withoutpermission

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The global spread of RIA


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Why is ex ante RIA so popular?

Basic principle: Government should know the consequences of its actions before it actsconsequences of its actions before it acts Ex ante analysis extended to non budget policies

Too many regulatory failures Financial crisis

More competitive economies require: Lower regulatory costs

Lower regulatory risks


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Lower regulatory risks

Policies require more coordination: environment and trade, food safety and agricultural policy, etc

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Precision of the analysis is LESS important than openness of the process

H��

�� -Salvadore Dali

Precision is NOT a requirement. M t d l ti b


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Most good solutions can be identified with fairly imprecise analysis, if validated through public consultation


But RIA is hard to do well – the world has many discouraging examples

A study of 27 EU countries in 2008 A study of 27 EU countries in 2008 concluded: • In almost all cases we have examined,

there is a large gap between requirements set out in official documents and actual Impact Assessment practice. In most countries we found examples of both good and bad practice, but typically


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good and bad practice, but typically assessments are narrow, partial and done at a late stage. In many countries, a large share of proposals is not formally assessed or is assessed with a 'tick box mentality'.

Source: EVIA (Evaluating Integrated Impact Assessments project), 2008

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The OECD has identified many barriers to mainstreaming RIA Insufficient institutional support and staff with appropriate skills to

d t RIAconduct RIA. Limited knowledge and acceptance of RIA within public institutions

and civil society reduces its ability to improve regulatory quality. Lack of reliable data necessary to ground RIA Lack of a coherent, evidence-based and participatory policy

process. RIA by itself will not solve all the problems in a regulatory regime.

Indifference by the public administration mainly due to inertia in the


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Indifference by the public administration, mainly due to inertia in the political environment.

Opposition from politicians concerned about losing control over decision-making.

A rigid regulatory bureaucracy and vested interests that oppose reforms.


Yet there are also many good examples from Europe…. European Commission, 2008 p

• As part of a more general culture change, impact assessment has become embedded in the working practices and decision making of the Commission, and has changed how policy is shaped. Commission decisions on whether and how to proceed with an initiative are based on transparent evidence, stakeholder input and thorough analysis of options...

E C i i 2009


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• European Commission, 2009 The most effective way of creating a better regulation

culture is by making those people who are responsible for policy development also responsible for assessing the impacts of what they propose.

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….North America….

The United States Office of Management and Budget (OMB) reported in 2008 that the cost-effectiveness of federal regulations is increasing over time, that is, each dollar spent on complying with regulations produces more benefits: The estimated benefits of major regulations issued from

1992 to 2007 exceed the estimated costs by more than four fold. The estimated benefits of major regulations issued over the last seven years exceed the costs by more than


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over the last seven years exceed the costs by more than seven fold.

The core instrument used in the federal government to improve the cost-effectiveness of policy options is RIA.


…and countries in transition.

In Moldova, an assessment* found that new regulatory l d d b 39% d i th 11 th fproposals decreased by 39% during the 11 months of

2008 under RIA, compared to the same period of 2007, when RIA was not mandatory. The report states: RIA Secretariat members believe the change is owing to the

RIA, which started to prevent some of the unjustified regulations ....the main impact of RIA is changing the mindset of civil servants, who started to realize the principles of better regulation and main elements of RIA. It can be perceived already in discussions and debates with


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can be perceived already in discussions and debates with civil servants that they have become more knowledgeable and grounded in their arguments for regulations.

* Roman Ladus, European Network on Better Regulation, 2008

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Trade rules also call for more transparent and results-based regulations Empirical justification of regulations isEmpirical justification of regulations is

supported by international trade rules

General Agreement on Trade in Services (GATS) requires that standards be "based on objective and transparent criteria" and be "not more burdensome than necessary to ensure


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ythe quality of the service"

Such principles establish a more transparent standard for national decision-making.


RIA and cost-savings: Victoria State, Australia Between 2005-06 and 2009-10, the RIA processBetween 2005 06 and 2009 10, the RIA process

achieved estimated gross savings of $902 million (in present value terms) over the 10 year life of the regulations.

For every dollar invested in the RIA process, gross savings of between $28 and $56 were


g gidentified.

Source: Victorian Competition and Efficiency Commission, Cost-effectiveness of regulatory impact assessment in Victoria. Sam Abusah and Catherine Pingiaro,,Staff Working Paper, February 2011,

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RIA and cost-savings: Vietnam “Each full RIA is estimated to cost approximately USD 500,

but the introduction of RIA is expected to save the privatebut the introduction of RIA is expected to save the private sector 100,000 times that amount through a reduced or more efficient regulatory regime.”

Source: OECD (2010) CUTTING RED TAPE. ADMINISTRATIVE SIMPLIFICATION IN VIET NAM. SUPPORTING THE COMPETITIVENESS OF THE VIETNAMESE ECONOMY

Example: Mr. XX prepared a RIA report on a possible Electro Magnetic Compatibility (EMC) Regulation under the ASEAN Agreement on


Compatibility (EMC) Regulation under the ASEAN Agreement on Harmonized Regulatory Regime of Electrical and Electronic Equipment. He showed the costs to all parties, including businesses, government and consumers. However, he could not identify any tangible benefits of the regulation. Mr. XX recommended to the government that promulgation of the EMC regulation be canceled. Source: USAID internal document

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Other positive results of RIA RIA, when it is done well, improves the cost-effectiveness of

policy decisions and reduces the number of low-quality and unnecessary regulationsunnecessary regulations.

– In Moldova, new regulatory proposals decreased by 39% during the 11 months of 2008 under RIA

– In Korea, in the first year of RIA, more than 25% of regulatory proposals were rejected by the central Regulation Reform Committee.

– 20% of regulatory proposals were modified or retracted as a result of RIA in the Netherlands.

RIA improves the transparency of decisions, and enhances consultation and the participation of affected groups. RIA h l i d t l h d i t


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RIA has also improved governmental coherence and intra-ministerial communication.

In Canada, prolonged use of IA, with guidance and training, induced a cultural change among regulators.

RIA is associated with an increase in the use of alternatives to traditional forms of regulation.

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Use of RIA in U.S. EPA: Direct effect of a CBA on the regulatory outcome may not be

its most important influence on the regulatory process Otherits most important influence on the regulatory process. Other ways RIA influenced the development of regulations:

guiding the development of the regulation;

adding new alternatives;

eliminating non cost-effective alternatives; and

adjusting alternatives to account for differences among industries or industry segments


industries or industry segments.

making upper management at EPA and other regulatory agencies more aware of the implications of their decisions.

Source: U.S. Environmental Protection Agency (EPA). 1987. EPA’s Use of Benefit–Cost Analysis, 1981–1986. USEPA-230-05-87-028.Washington, DC: U.S. EPA 21


Cass Sunstein: CBA is a pro-democratic reform “There are democratic advantages. . . interest groupsThere are democratic advantages. . . interest groups

often manipulate policy in their preferred directions, sometimes by exaggerating risks, sometimes by minimizing them, sometimes by utilizing heuristics and biases strategically so as to mobilize public sentiment in their preferred directions.

An effort to produce a fair accounting of actual dangers


An effort to produce a fair accounting of actual dangers should help to diminish the danger of interest group manipulation.”

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How RIA improves public sector performance Analysis: Calculating the

costs and benefits ofFaster learning, increasing benefits of

t ti fi di l t tcosts and benefits of government action

Consultation and responsiveness to a wider range of interests

Integrating multiple policy goals (social and economic

government action, finding lowest cost solutions, reducing policy failures

Transparency, building trust, and reducing regulatory risks for private sector, reduce “information monopolies”

Policy coherence in a complex world; break down vertical silos and promote


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goals (social and economic policies)

Change of regulatory culture to reduce unneeded intervention and symbolic regulation

break down vertical silos and promote horizontal thinking

Accountability for actions and results (within ministries, to the public). Client-oriented, credible, and responsive government


What is RIA? An evidence-based process of informing policy decisions RIA is a highly adaptable policy analysis used in a wide RIA is a highly adaptable policy analysis used in a wide

range of administrative contexts to help regulators make the right choices.

RIA is a process of:

• asking the right questions in a structured format to support faster learning and a wider and more transparent policy debate.


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p p y

• systematically and consistently examining selected potential impacts arising from government action or non-action,

• communicating the information to decision-makers and stakeholders

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Quality standards for RIA: The challenge function from a central RIA watchdog

A government should establish the authority of a central quality control unit to require a minimum level of quality before a RIA goes to ministers.

A process of review by the central unit should be established.

A ministry unable to comply h ld l i h it i bl t


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should explain why it is unable to meet minimum standards.


Coordinating consultation with RIA The draft RIA should be published on the

t l W b t l i i t d d h ldcentral Web portal, a minimum standard should be specified, including providing at least 30 days for feedback after publication of the central Web portal, and the regulator should describe the response, if any, to comments received.


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The 10-Step RIA Process Define Problem and Set Goals

1. Define and refine the problem and its drivers to ensure the broadest possible range of potential solutions

2. Establish a baseline – what will happen under the status quo? 3. Set the goals for public policy

Select Options and Collect Data4. Initially and informally consult with sectoral experts in business associations in high-

impact Member states to validate problem definition, problem profiling, baseline, and goals, and to identify issues and potential options

5. Select the options to be considered 6. Select the method, scope, and depth of analysis 7. Map data needs and collect data on detailed benefits and costs of options through

business surveys and other data sources


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Analyze and Consult on RIA and Draft Policy 8. Analyze, compare options, and draft RIA and policy documents 9. Present RIA and proposal to stakeholders for consultation

Finalize Proposed Policy and RIA 10. Refine and finalize RIA and policy after consultation


The 10-Step RIA Process - 1

Define Problem and Set Goals1.Define and refine the problem and its drivers to

ensure the broadest possible range of potential solutions

2.Establish a baseline – what will happen under the status quo?

3.Set the goals for public policy


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g p p y

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The 10-Step RIA Process - 2

Select Options and Collect Data4. Initially and informally consult with sectoral experts

in business associations in high-impact Member states to validate problem definition, problem profiling, baseline, and goals, and to identify issues and potential options

5.Select the options to be considered


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6.Select the method, scope, and depth of analysis

7.Map data needs and collect data on detailed benefits and costs of options through business surveys and other data sources


The 10-Step RIA Process -3

Analyze and Consult on RIA and Draft Policy 8.Analyze, compare options, and draft RIA and policy

documents

9.Present RIA and proposal to stakeholders for consultation


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The 10-Step RIA Process -4

Finalize Proposed Policy and RIA 10 R fi d fi li RIA d li ft10. Refine and finalize RIA and policy after

consultation


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The OECD Recommendation starts with the most important question:

Is the problem correctly defined? The problem to be Is the problem correctly defined? The problem to be solved should be precisely stated, giving clear evidence of its nature and magnitude, and explaining why it has arisen (identifying the incentives of affected entities)


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Test case: Cell phone ban in California

Several studies have established that phoning using hand held phones while driving increases crash risk.

Problem definition

The number of car accident has increased… BECAUSE people are talking on hand-held cell phones.

A i B d hi id d bl d fi i i


Action: Based on this evidence and problem definition, California banned hand held phone use while driving


Looking at the evidence: Cell phone use in cars

Ban on Cell

Phone Use

Other States

California


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Real example: Children are poisoned by eating pills from bottles in their homes

Problem definition: Children are being Problem definition: Children are being poisoned by eating pills.

Goal of regulation: Reduce poisonings of children under 5 who are eating pills

Problem to solved by regulation: It is too easy for children to open medicine bottles.

Regulatory solution: Design bottle caps


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Regulatory solution: Design bottle caps that are hard to open – the “child-proof” caps

Regulation adopted


Result: Child Poisonings Increased

Result; Increase in child poisonings after the l ti b ff ti Wh ?regulation became effective. Why?

Design problems caused an offsetting behavioral change. Many consumers (older people) did not close bottles because they could not get the tops off. Poisonings from “open bottles” rose by almost 20 percent in the six years after rule was adopted.

Moral hazard problem with “child proof” caps:


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p p pParents felt less need to take precautions about storing medicines away from their children because the caps are "child-proof." There was a large increase in poisonings from unregulated medicines as parents became more careless.

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Asking the Right Questions: Six Questions that Senior Managers

Should Ask about RIA



1. What is the problem the regulator is trying to solve? We don’t have any regulation in this area yet (confusion of ends We don t have any regulation in this area yet. (confusion of ends

and means) We need to change existing legislation. (confusion of ends and

means) People are dying. (vague definition) The Director/Council told me to write the regulation. The market is confused

___________________________ Medicine bottles should be harder for children to open (problem is

defined as a technical issue)


___________________________ Children have too much access to dangerous medicines and we

want to reduce the risk of accidental poisoning (problem defined broadly with clear objective)

Current regulations are failing to solve the problem but impose high costs (identified regulatory failure)

Consumers don’t have the information they need to buy safer products. (identified market failure)

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2. Is regulation really needed?

We don’t know about the future so we must act We don t know about the future, so we must act now. (ignorance justifies regulation)

________________________

The problem will just get worse without government regulation.

________________________Th d t h th t t d i i ti


The data show that trends are increasing over time, and the RIA shows that other effects such as consumer preferences are unlikely to change the trends.

Since there are two possible trends, the analysis assesses the impacts of the regulation against both baselines.


3. What are the key assumptions in the RIA and what happens if you change them?

Assumptions? We didn’t make any Assumptions? We didn t make any. We are sure our assumptions are correct.

__________________________

The RIA shows the results as a single estimate because we didn’t have time to assess different assumptions.


__________________________ The key assumptions are listed in the RIA and the

results are shown as a range to demonstrate changes in assumptions.

Stakeholders confirmed our assumptions or suggested changes to them.

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4. Which alternative approaches should we consider?

None Regulation was the only real solution None. Regulation was the only real solution. Three options – do nothing, our preferred approach,

and full reform. Directives versus regulations. (confusion of legal

instrument with alternative approaches) ______________________

We had little time, but we explain why no options could be effective.


_______________________ We show the effects of four options: no further EU

action, direct regulation, information disclosure, and economic incentives.

Stakeholder consultation confirmed that two alternatives have been effective in other cases and so we added other options in the final analysis.


5. Do the benefits justify the costs of the proposal/is it proportional?

It is a matter of safety/health and so the costs don’t matter It is a matter of safety/health and so the costs don t matter. It was too difficult to estimate the benefits, but we are sure they are

large. We don’t know if this is the most cost-efficient approach because

we didn’t assess other options. The Minister wants the regulation so the benefits and costs are

irrelevant._________________________

Our RIA suggests that benefits are large and justify costs, but we were unable to quantify possible benefits.

The effectiveness of the regulation is unclear, but we show different scenarios and the benefits seem very high while costs are low


scenarios and the benefits seem very high, while costs are low.

__________________________ We were able to quantify costs and benefits so you can compare

them under different assumptions. In the most likely scenario, the benefits justify the costs.

We show the benefits and costs for different options and you can see why we picked this one as providing the lowest cost per unit of benefits.

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6. How was the RIA revised after stakeholder consultations?

We didn’t have time to consult We didn t have time to consult. No one made any suggestions/everyone liked the

proposal. We didn’t change the proposal at all. We didn’t

receive any good feedback. ________________________

We made a few changes to make stakeholders happy.


________________________ We assessed all the suggestions and really

improved the proposal. Our choice of regulatory option was confirmed by

comments. We were able to reduce costs (increase benefits)

substantially.


Six key questions that senior management should ask about the RIA

1. What is the problem that regulators are trying to solve in this proposal?

2. Is regulation needed (what will happen if there is no regulation)?

3. What are the key assumptions in the RIA and what happens if you change them?

4. Which alternative approaches should we consider?


pp5. Do the benefits justify the costs of the proposal/is it

proportional?6. How was the RIA revised after stakeholder

consultations?

implementing ria: benefits, challenges and best practices

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