There are always many ways to achieve a goal and its impossible for government to know all of them. To reduce car pollution, a government can mandate all manufacturers use pre-selected low-emission engines or set a target that all cars should only emit a certain amount of carbon regardless of the engine they use. The first option is prescriptive and procedure-focused, imposing a solution that may not work for all. The second adopts an outcomes-focus by using targets based on objectives set by the policy maker. It sets the purpose to be achieved, without prescribing how. The flexibility of this approach allows for increased compliance from businesses and citizens, protection of public goods, and more effective public services, which is especially needed in today’s fast-paced society.
Regulatory delivery
Governments worldwide issue numerous regulations to support the delivery of their policies - , including to address climate change, the digital transformation, the delivery of essential services and more. However, that a regulation exists is not enough – businesses and citizens need to follow them. The traditional approach is to penalise all who do not comply, which ignores the reality that people make mistakes many reasons that are not always criminal. This does not drive compliance, only frustration. Rather, governments need a human-oriented approach that is evidence-based, data-driven and outcome-focused by well-governed regulators that effectively drives compliance and improves welfare for society. By doing so, governments can effectively respond to citizens’ demands, support economic and social growth, enhance public administrations
Key messages
Regulations are intended to protect public interests and provide stable markets . For a regulation to be effective, it must consider and mitigate risks, such as to health, safety, the environment, and the economy. Failure to do so will lead to higher costs, fewer benefits, ineffective protection of public goods, and failing to deliver services to citizens that impacts trust in government and affects ’economic and social growth. A risk-based approach prioritises regulatory actions based on an assessment of risks posed by an activity, targeting enforcement efforts where the risks of non-compliance are highest to maximise the impact of limited resources.
Data-driven regulatory delivery leverages data analysis in decision-making process to help improve regulatory decisions throughout the policy cycle. It involves data collection to gain valuable insights into the performance of regulated entities, and takes it further by analysing and interpreting this data to inform actions. This allows regulators to be more targeted and proportionate, meeting communities’ need by combining scientific evidence with citizens’ expectations and preferences that lead to better outcomes. In times of crisis, this enables timely decisions to ensure a swift and effective response to emerging challenges.
Some services are fundamental to society, such as having safe tap water, reliable electricity and access to the Internet. Ensuring these fundamental services are reliable, effective and affordable often fall to economic regulators who make decisions on how these services should be provided and at what price. Ensuring their good governance is essential to maximise their ability to deliver. This includes having the right mandates, resources, independence and accountability to make impartial decisions and protect public interests, while building trust through fair and transparent decision making. By improving the governance of regulators, countries can enhance the quality and consistency of regulatory delivery, ultimately leading to better sectors that deliver the best services for citizens, businesses, and society.
Context
Risks are increasingly taken into consideration for regulations across OECD countries
Risk-based approaches to regulation recognise that it is impossible for the government to eliminate all risks. Regulatory actions should then be proportionate, targeted, and based on a thorough assessment of potential risks. This approach ensures that regulations encourage innovation and societal well-being by focusing on the likelihood and impact of risks, and making informed decisions even when exact probabilities are unknown. OECD data shows that most OECD countries use risk assessments in the drafting of regulations, though significantly less do so based on a strategy to adopt risk-based approaches and with assessments based on quantitative analysis.
The independence of regulators depends on a careful balance of many arrangements, including legal status, relationships with government, staff and funding.
Many governments delegate functions such as setting tariffs, authorising activities or settling disputes in utility sectors to independent bodies. This delegation signals a commitment to long-term goals beyond political cycles and may be necessary to maintain public confidence, ensure a level playing field between operators, or where decisions have significant economic impacts. The independence of regulators is achieved through a variety of means. Government involvement in the regulator’s day-to-day work can be restricted and the regulator may have some degree of financial autonomy. Legislation usually defines the skills required for candidates for the regulator’s leadership and restricts any other appointments they may hold during their term. Moreover, the leadership of most regulators faces restrictions to work in the industry directly after their term.
Related policy issues
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Administrative simplification aims to reduce bureaucratic complexity, making government processes more efficient and accessible. Complex administrative procedures can impose significant burdens on citizens and businesses when interacting with government. Regulatory burden hinders economic growth and innovation while causing undue stress and irritation. The OECD assists governments in simplifying administrative processes and improving the efficiency of public services, ultimately making life easier for people and businesses while promoting trust in government institutions.Learn more
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Technologies are evolving at an ever-increasing pace. Each wave of innovation brings new opportunities to improve society, such as with Artificial Intelligence, biotech and quantum computing. However, they also challenge regulatory governance with new unknowns, shifting targets, and risks that need to be managed. Governments have a crucial role to play in fostering innovation while ensuring the right guardrails are in place to protect people, the environment and democracy. This requires a forward looking perspective that is agile, technology-neutral and risk-based to match the expectations of contemporary society.Learn more
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In today's interconnected world, policy problems often have origins and impacts beyond traditional national borders. Regulatory responses made in isolation can lead to inconsistent or conflicting rules that create barriers to trade, investment, and innovation, while also impeding effective responses to global challenges such as climate change, public health crises, or financial stability. International Regulatory Co-operation (IRC) can help policymakers drive results by addressing these challenges and promoting regulatory approaches that work within and across national boundaries.Learn more
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Evidence is at the centre of regulating for results. Governments face complex challenges while society expects actions that maximise benefits and minimise costs. To make policies that meet these goals, governments need a smarter approach that uses evidence and risk-based approaches to make decisions. This avoids ill-conceived regulations that lead to public dissatisfaction and erode trust in government. Evidence-based regulation is crucial for tackling the most pressing problems of our time, including the climate crisis and the rising cost of living.Learn more
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Pro-competition regulation in the markets for goods and services can help boost living standards, can raise output per capita by increasing investment and employment, and can encourage firms to be more innovative and efficient, thereby lifting productivity. To measure countries’ regulatory stance and to track reform progress over time, since 1998 the OECD has been producing a set of indicators of product market regulation (PMR). This set included an economy-wide indicator and a group of indicators that measures regulation at the sector level.Learn more