The Development of Regulatory Impact Assessment
I. What is Regulatory Impact Assessment?
4. The Application of the Efficiency Principle to the Regulation Process
The adoption of RIA both in US and EU was justified by the objective to reach a better regulation, that means an efficient regulation.
A growing number of country believed that the better way to reach improvements in regulatory process was to introduce the economic approach in the evaluation of the impact of proposed regulation according to a efficiency criterion. But what kind of efficiency have to conduct the decisions of policy-makers?
As mentioned above there are different concepts of efficiency and then, different way through which regulation can be considered efficient.
Efficiency can be analyzed from an allocative perspective that means that regulation hat to reach an optimal allocation of the resources. But in which way the allocation of resource can be optimal? If we use the Pareto criterion of efficiency, a situation is efficient if there is no way to rearrange things to make at least one person better off without making anyone worse off. This definition is very difficult to apply in policy word because sometimes it is difficult to compare the different outcomes and to evaluate which outcome is more worthy to be pursued. For this reason a more realistic criterion to reach the allocative efficiency in the issuing of regulation may be the Kaldor-Hicks criterion that looks to the net gain of a change: an outcome is more efficient than another one if the gainer of the change is so better off than can compensate the looser. This criterion, applied to the regulation process seem to find its practical application tanks the cost-benefit analysis used in the RIA method.
But there is another aspect of the efficiency to be take in account, that is the productive efficiency, that means that the desired outcome is reached by the lower amount of resources possible. Also in this case the main tool in the analysis of regulatory process is the cost-benefit analysis.
The efficiency criterion is difficult to purse, especially when the regulation affected fields in which the costs and benefits are not quantifiable in monetary terms. In these cases some scholars questioning about the soundness of the economic approach in general, and CBA in particular, to the regulatory process, because a cost-benefit analysis can support also inefficient regulations.
The main critique is the incapacity of the regulatory impact assessment model to apply the economic approach in a correct way: at the foundation of the emergence and growing application of the Regulatory impact assessment there is the intention to solve other kinds of political problem that are not coherent with the efficiency principle.
In particular there are two different kinds of problem that the RIA could be able to explain and that can help to better understand the great success of RIA in the two main context of application of this economic methods: RIA may be analyzed as a tool to solve the principal agent problem in US and a legitimating problem in the European contest.
In the US the institutional context in which RIA has developed is designed in a way that lead to the rise of a typical agency problem. The main features of this context are: delegation to regulatory agencies, Presidential oversight, the presence of a special type of administrative law and judicial review of the rulemaking.
For Posner RIA is principally a device whose justification depends on its capacity to help authoritative institutions such as Congress, the presidency, and the courts to monitor subordinate institutions such as agencies59 . Within the RIA process the request to the agency to implement a cost-benefit analysis has not the scope to assure that regulation are efficient but instead to assure that that elected officials maintain power over agency regulation. In fact, in the Posner view the cost-benefit analysis is able to change “a relationship of asymmetric information to one of full
59 Posner E. , Controlling Agencies with Cost-Benefit Analysis: A Positive Political Theory Perspective, University of Chicago Law Review, v. 68, 2001
information”. This characteristic of CBA enables the President to rely less on the interest group that lose part of their capacity to influence regulatory power.60
The main feature of RIA, that made this political tool unique, seem to be their capacity to assure to the principal an on-going control over the agencies: in fact, RIA produces control exactly when norm are being formulated.61
In the EU context the tool of RIA seem to respond to the need of legitimating its regulatory system.
The history of EU was characterized by the ambitious to built a strongest and integrated institutional environment in which the European institutions could operate. To reach this goal the European Union, after the last disastrous tentative, tried the way of the economic approach, as it use at the beginning of its history market concept to built a political framework. From this perspective the use of Regulatory Impact Assessment procedure seem to be a tool used to reach the legitimacy so much desired in the past years. According to Radaelli politician want to adopt RIA for two reasons: 1) better regulation increases the legitimacy of the regulatory system, and this may have a positive impact on the popularity of the incumbent; 2) in open economies better regulation increases the competitiveness of a country. A good regulatory environment increases foreign direct investment and deters domestic firms from moving some high value functions abroad62.
In the course of the second part of the thesis, we will try to understand what kind of motivations there are for the adoption of RIA in EU context, in particular if on the basis of the RIA carried out by the European Commission there are the respect of the technical and economic nature of the tool or if it was used in order to justify other kind of motivations.
60 Posner E., Controlling Agencies with Cost-Benefit Analysis: A Positive Political Theory Perspective, University of Chicago Law Review, v. 68, 2001
61Radaelli C., De Francesco F., Troeger V., The implementation of Regulatory Impact Assessment in Europe, Paper