Economic Rationales, Learning, and Regulatory Policy Instruments

Abstract

European governments have adopted policy instruments for regulatory appraisal, oversight, ex‐post evaluation, and simplification in the context of the so‐called ‘smart regulation agenda’. In this article we compare the two most important instruments, that is, regulatory impact assessment (RIA) and the standard cost model (SCM). We answer the following questions: What are the economic rationales that, at least in principle, should make the SCM and RIA work? What are the learning models that, yet again in principle, allow the two instruments to produce effects? The RIA economic rationale is grounded in welfare economics. The SCM economics is rudimentary: one can hardly make an economic case for the SCM. With regard to learning models, RIA draws on rational‐synoptic models, whilst the SCM is inspired by experience‐based learning. We then discuss economic rationales and learning models jointly, thus explaining the different implementation patterns of the two instruments and exposing the ambiguities in the relationship among instruments, ideas, and behavioural change.

Accountability in an Independent Regulatory Setting: The Use of Impact Assessment in the Regulation of Financial Reporting in the UK

“…Specifically, we have not found evidence to establish conclusively that IA does indeed deliver on its objectives by producing better, more accountable and transparent governance practices. If anything, our findings seem to point to the opposite, that, in the words of Coletti andRadaelli (2013, p. 1065), IA is used to ''change ends with the means'' or, in other words, to create a perception of accountability by presenting a growing use of IA as a main objective. Our analysis reveals, for example, that, even where IA is formally embedded in the policy process (Groups 2 and 3 in the above analysis), a closer assessment of the extent of execution reveals partial application and what looks like a box-ticking exercise rather than a meaningful utilization of IA as an accountability instrument.…”

“…Furthermore, IA relates to policy development which precedes regulatory action and can therefore be used as a dynamic tool for enhancing the dialogue between the regulator and its audiences (Radaelli 2010). This is in contrast to other policy appraisal tools that focus on ex post oversight, such as a Standard Cost Model (Coletti and Radaelli 2013).…”

“…Our study may be taken as an empirical illustration of prior claims that an economic model of IA may potentially produce poor learning results (Coletti and Radaelli 2013). Nonetheless, it should be acknowledged that understanding, debating and judging the impact of policy measures in the area of financial reporting, which are themselves developed with a fair degree of abstraction, is a challenging task.…”

“…Hence, IA involves evaluation of various stages of regulatory development, from identifying policy alternatives and undertaking a comparative assessment of them to selecting the preferred option (Kirkpatrick and Parker 2007). Therefore, one of the contributions of IA is its potential to describe a process of rulemaking (Coletti and Radaelli 2013) and make more observable, accessible and assessable the regulator's internal decision-making, which is normally hidden from the public eye. Having access to this information can thus enable a variety of stakeholders, from the political principal to policy recipients and the public at large, to make judgements as to the nature of the policy-making process and whether the policy outputs produced as a result of it are appropriate, credible and just (Radaelli 2010).…”

“…IA has been defined as a ''process of problem definition, consultation, definition of alternative feasible options, economic analysis of the options, and a final choice that meets some criteria established ex ante, such as 'the benefits justify the costs' or 'maximization of social welfare' or, in simpler versions, 'minimization of compliance costs''' (Coletti andRadaelli 2013, p. 1058). Hence, IA involves evaluation of various stages of regulatory development, from identifying policy alternatives and undertaking a comparative assessment of them to selecting the preferred option (Kirkpatrick and Parker 2007).…”