Apart from the “programmed” and “managerial” review mechanisms, the timing of which will largely be pre-determined, opportunities can usefully be taken to conduct other reviews on an ad hoc basis. Indeed some of the largest gains from reform have resulted from such ad hoc initiatives (OECD, 2011[1]). That said, given limitations on financial resources and the availability of people with the necessary skills – as well as a need to avoid “review fatigue” – it is important that any such reviews be carefully chosen and sequenced to maximise benefits over time.
High priority should be given to reviewing regulations that have a) wide application across the economy or community and b) potentially significant impacts on citizens or organisations – i.e. “breadth and depth” – and for which there is c) prima facie evidence of a “problem”.
The three criteria need to be jointly satisfied. A regulation that had wide coverage but involved very little impact, may not be worth the trouble of a review, or at least should have lower priority than one that had both breadth of coverage and depth of impact. However the third criterion is just as important, as the payoff from reviewing even a major area of regulation that is performing well could be expected to be lower than for a less significant one that is not. Moreover, the absence of a perceived problem would likely make it hard to obtain “buy-in” from stakeholders or the public.
Evidence of regulatory failings (undue costs, distortion of incentives, unintended third-party effects) can usefully be obtained pro-actively via surveys or other consultative mechanisms (a “stocktake” review for example) as well as in response to complaints that may be made by those affected. (Examples include the UK Red Tape Challenge, Korea’s “Petition Drum” reforms, etc.) However some preliminary testing or vetting of such feedback is desirable to assess its validity and thus ensure that the costs of conducting a review would be warranted.
Attention to sequencing is important to maximise the realised gains from reform.
Since the outcome of prioritisation exercises rarely involve much precision, more than one area of regulation will typically have comparable claims. It will commonly not be feasible to review all of these at once and thus other criteria need to come into play.
One relates to any connections between the regulatory areas concerned that could provide a logical reason for doing some before others. For example, a regulation may have effects downstream that relate to other areas of regulation. Normally in such cases it would be preferable to review “up stream” arrangements first. The regulation of producers versus consumers of energy is a topical example. Regulations designed to reduce carbon emissions can be directed at either and typically do both. However requirements affecting production may obviate a need to separately regulate consumption.
Secondly, there will be advantages in choosing a sequence of reviews that takes into account the relative difficulty of implementing identified reforms. This could result from complexity, disruption during the transition or (more commonly) political opposition. The expected payoff from different review exercises would obviously differ where the prospect of obtaining necessary political support differs, even if the substantive gains to be had from reforms were identical in each case.
Thus proceeding in areas that face less political opposition or other implementation challenges makes pragmatic sense. That said, reviews should not be chosen solely according to this criterion, as this could miss areas of greatest potential benefit. The opposition to reform may be overestimated, and in any case it can often be reduced by the review process itself, to the extent that it demonstrates convincingly the gains on offer (OECD, 2010[2]). An example of this is the review into private health insurance regulation conducted by the Industry Commission in Australia in 1997. It found that while the principal of “community rating” – that ensures no discrimination of fees or access based on risk factors – had strong support, in its then form it was leading to “adverse selection” and inequities. These justified amending it to provide for a “loading” on the price of cover for those who defer joining that rises with age of entry. While the Government had previously expressed support for the status quo, it ended up changing the regulatory framework as the review had proposed.
There are benefits in reviewing regulations as a group, rather than singly, where the regulations concerned are interactive or operate jointly to achieve related policy objectives.
The object of ex post reviews is to determine whether changes to a regulation would achieve better outcomes. Where more than one regulation is involved, and overall outcomes are jointly determined, the regulatory regime will generally need to be reviewed as a whole (Box 7.1). Otherwise changes made to parts of a regulatory system may interact with other parts of the system in ways that detract from the intended outcomes. By the same token, if a policy regime contains a mix of regulation and other policy instruments (such as financial transfers) it may be necessary to undertake a wider policy review.