Reviewing the Stock of Regulation

Background and context

This is the latest in a series of reports on “best practice principles” produced under the auspices of the OECD Regulatory Policy Committee. As with other reports in the series, it provides an extension and elaboration of principles highlighted in the OECD 2012 Recommendation of the Council on Regulatory Policy and Governance (OECD, 2012[1]).

The principles are intended to be relevant and useful to all member governments. They thus offer general guidance rather than providing detailed prescription. Nevertheless, in seeking to invoke “best practice” the principles are intentionally ambitious. Few if any countries could be expected to meet them all. But since they are grounded in the actual experience of different countries, they should not be seen as unattainable or merely aspirational.

“Evaluation” versus “review”

The literature generally identifies three forms of ex post evaluation of regulation (or other policy programmes): those concerned with administration, with compliance and with “outcome performance” (Coglianese, 2012[2]). However the role that ex post reviews play in completing and renewing the regulatory cycle, as discussed below, suggests the need for a more holistic interpretation.

Ex post assessments of regulatory performance in practice involve a symmetry with ex ante assessments: through verifying that stated objectives have actually been met, determining whether there have been any unforeseen or unintended consequences, and considering whether alternative approaches could have done better. This requires clarity about the intended objectives and/or outcomes sought. It also needs data requirements to be embedded such that outcomes can later be measured.

From this perspective, reviews can be thought of as conceptually broader than evaluations, as they generally encompass proposals for change and may need to revisit the original regulatory objective and its ongoing appropriateness or legitimacy. (For example, an evaluation of a regulation intended to restrict competition may find that it had done that very well, but the approach itself may no longer be accepted as in the public interest.) In other words, while reviews will need to call on evaluation techniques, they have a broader role to play.

The approaches employed for reviews of regulations, like regulations themselves, need to be “fit for purpose”. The extent to which this is satisfied can be considered at two levels: first with regard to broad approaches and review mechanisms, and second with regard to the tools or methodologies employed as part of these.

Why review existing regulations?

The “stock” of regulation is extensive in all countries, typically having accumulated over many years, and its effects across the community and economy can be pervasive. While much of the regulatory stock yields important benefits, its effectiveness will vary and the associated costs can sometimes be greater than is necessary to achieve a policy objective.

The potential for regulation to have significant impacts – whether positive or negative – necessitates it being carefully assessed before implementation. While this is now generally recognised and regulatory impact assessment processes have become increasingly common (OECD, 2015[3]), assessments in the past may not always have been adequate, or undertaken at all.

Even where regulations are rigorously tested before being introduced, not all of their effects can be known with certainty. The regulatory endeavour is essentially experimental in nature, depending to some extent on judgments about causal relationships and responses.

Importantly, regulations that have been properly assessed and well designed, and thus deemed fit for purpose initially, need not remain so. Markets change; technologies advance and preferences, values and behaviours within societies evolve. Moreover, the very accumulation of regulations over time can lead to interactions among them that exacerbate costs or reduce benefits, or have other unintended consequences.

It is also evident that the stock of regulations will generally be much larger than the flow, with the aggregate impacts commensurately greater. Even a small improvement in the quality of the regulatory stock, therefore, could bring large gains to society.

This is illustrated by the documented instances of cost savings under regulatory burden reduction programs in several OECD countries (OECD, 2011[4]). But there is also considerable potential for other gains from addressing adverse incentive effects on innovation, investment and efficiency. The OECD has analysed the potential gains to member countries from reforms to product and labour market regulations and other structural reforms, finding that convergence to best practice over a five year period would generate sizeable gains for the majority (Bouis and Duval, 2011[5]). To take a specific example, reforms to anti-competitive regulation in Australia during the microeconomic reform programs of the 1980s and 90s were estimated to yield gains totalling some 5% of GDP, with households across all income groups significantly better off (Australian Productivity Commission, 2006[6]).

Evaluations of existing regulations can also yield useful learnings about ways of improving the design and administration of new regulations – for example, to reduce compliance costs or change behaviour more effectively. In this way, ex post reviews complete the “regulatory cycle” that begins with ex ante assessment of proposals and proceeds to implementation and administration (OECD, 2015[3]).

Importantly, the knowledge that new regulatory initiatives will be reviewed can engender greater public support for them (or weaken opposition) and may enhance trust in government itself. Trust is likely to be further increased by inclusive review processes that draw on views and evidence from stakeholders and the public (Lind and Arndt, 2016[7]).

Why a need for “principles”?

The importance of using ex post reviews to assess the ongoing worth of regulations is recognised in the OECD 2012 Recommendation on Regulatory Policy and Governance (OECD, 2012[1]). It states that member governments should:

Conduct systematic reviews of the stock of regulation … to ensure that regulations remain up to date, ... cost effective and consistent, and deliver the intended policy objectives.

Based on the Indicators of Regulatory Policy and Governance surveys, systems for the ex post review of regulation remain less developed than for other components of the regulatory cycle, particularly ex ante assessments, with fewer countries having formalised arrangements. For example, some form of ex post evaluation was recorded as obligatory by only 60% of member countries, compared to around 90% for ex ante assessment (OECD, 2015[3]), (OECD, 2018[8]). There was little improvement between the two surveys, apart from a rise in the use of stock/flow linkage rules (Figure 1).

Figure 1. Requirements to conduct RIA and ex post evaluation

Notes: Data for OECD countries is based on the 34 countries that were OECD members in 2014 and the European Union. Data on new OECD member and accession countries 2017 includes Colombia, Costa Rica, Latvia and Lithuania.

Source: Indicators of Regulatory Policy and Governance Surveys 2014 and 2017, http://oe.cd/ireg.

The reality is that ex post assessments of regulations are in some respects more demanding and less straightforward than assessments undertaken at the proposals stage. This reflects in part the challenges posed by the large number of regulations potentially involved, and a need for different approaches and methods in different contexts.

There will typically also be more political or bureaucratic resistance to scrutiny of regulations in place than for those in prospect. This is understandable, in light of the possibility of a review finding that certain regulations introduced previously have been unduly costly or failed to achieve their objectives.

Given the weaker incentives for ex post than for ex ante assessments, it is useful to have systems in place to ensure that reviews are conducted. The following principles should assist in guiding improvements in the areas where this is needed.

References

[6] Australian Productivity Commission (2006), Potential Benefits of the National Reform Agenda, Report to the Council of Australian Governments, https://www.pc.gov.au/research/completed/national-reform-agenda/nationalreformagenda.pdf (accessed on 2 July 2020).

[5] Bouis, R. and R. Duval (2011), “Raising Potential Growth After the Crisis: A Quantitative Assessment of the Potential Gains from Various Structural Reforms in the OECD Area and Beyond”, OECD Economics Department Working Papers, No. 835, OECD Publishing, Paris, https://dx.doi.org/10.1787/5kgk9qj18s8n-en.

[2] Coglianese, C. (2012), Measuring Regulatory Performance: Evaluating the Impact of Regulation and Regulatory Policy, http://www.oecd.org/gov/regulatory-policy/1_coglianese%20web.pdf.

[7] Lind, E. and C. Arndt (2016), “Perceived Fairness and Regulatory Policy: A Behavioural Science Perspective on Government-Citizen Interactions”, OECD Regulatory Policy Working Papers, No. 6, OECD Publishing, Paris, https://dx.doi.org/10.1787/1629d397-en.

[8] OECD (2018), OECD Regulatory Policy Outlook 2018, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264303072-en.

[3] OECD (2015), OECD Regulatory Policy Outlook 2015, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264238770-en.

[1] OECD (2012), Recommendation of the Council on Regulatory Policy and Governance, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264209022-en.

[4] OECD (2011), Regulatory Policy and Governance: Supporting Economic Growth and Serving the Public Interest, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264116573-en.