Assessing Regulatory Alternatives
What This Guide Can Do For You
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This guide assumes that you are faced with a problem, that you
consider government intervention justified, and that you're trying
to find the best way for the Government to intervene.
In this situation, the Government's Regulatory Policy requires
departments and agencies to demonstrate that:
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Government intervention is justified, and regulation
is the best alternative.
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Canadians have been consulted.
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The benefits outweigh the costs to Canadian
governments, businesses and individuals.
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The regulatory activity impedes as little as possible
Canada's competitiveness.
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Regulatory burden has been minimized through
co-operation with other governments.
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Systems are in place and resources sufficient to
manage regulatory programs effectively.
Implicit in the Policy, therefore, is the requirement that
alternatives to regulation, and alternative forms of
regulation, be fully considered.
This Guide will help you approach the job of assessing regulatory
alternatives in an organized and consistent fashion. It is divided
into four parts:
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Part 1: How to Find the Best Alternatives |
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Part 2: Factors Affecting Behaviour |
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Part 3: Alternatives to Regulation |
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Part 4: Alternative Forms of Regulation |
This Guide is not intended to be read from cover to cover.
First, look at the analytical framework and work through the
process in Part 1.
To identify the factors at work (including social, psychological
and economic factors), go through the questions in Part 2.
Question 10 of Part 1 asks you to identify alternative
instruments that may help solve your problem. At this point, look at
the alternatives to regulation in Part 3. For each alternative,
you'll find examples and information on advantages, disadvantages,
factors favouring use, contraindicators, and program delivery
implications.
If you're considering regulation, turn to Part 4 for examples and
information on alternative forms of regulation.
This Guide is weighted neither for nor against regulation.
Rather, it stresses that combinations of instruments may be
required. What it does is provide a structure for analysis to help
you find the combination of policy options that will work best.
Other publications, guides, learning aids and brochures are
available from Regulatory Affairs & Order in Council, Privy
Council Office.
WWW: www.pco-bcp.gc.ca
Publiservice: publiservice.pco-bcp.gc.ca/raoics-srdc
Phone: (613) 943-5076
Part I: How to Find the Best
Alternatives
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The Analytical Framework
The analytical framework used in this Guide is built on the
following principles:
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regardless of how the Government intervenes, whether by
regulating, taxing, owning businesses, or promoting
voluntary action, the objective is to solve problems;
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the problems are created by the behaviours of various
players;
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so, what the Government really wants is to change the
behaviours that contribute to or create the problem;
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however, there are powerful external factors (economic,
social, and psychological) that influence how much the
behaviours conform with what the Government wants; they may
have a much greater impact than any intervention by
government;
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the optimal strategy, therefore, is either to strengthen
the factors that bring about the desired behaviours (the
incentives), or to weaken or eliminate the factors that
bring about undesirable behaviours (the disincentives);
- the Government's decision on how to handle a problem should
be based on a systematic comparison of possible
alternatives.
Finding possible alternatives involves answering 13 questions. These
questions reflect the Government's Regulatory Policy and, flowing
from that, the key information requirements of the Regulatory Impact
Analysis Statement. They also reflect the latest thinking on how to
integrate risk management principles into regulatory decision-making
and how to maximize compliance with regulatory requirements.
Question 1. What is the problem?
Begin by defining the problem. You don't want to get too technical
at this stage, but do look for the real problem. For example, is the
problem that some people still don’t know about the hazards of
smoking, or is it that health costs from smoking-related illnesses
are too high and we want to reduce the costs? Is it that
unsuspecting consumers could mistake margarine for real butter, or
is it that every dollar spent on margarine is three cents less
income for our dairy farmers? You'll probably find that the problem
is multi-faceted. The Government's approach to solving problems is
normally multi-faceted too.
Question 2. Is government intervention
justified?
Consider whether the Government should intervene. The Government
can't deal with every problem; why should it get involved in this
one? While elected representatives will make the final decision,
your work is to inform them -- to analyze the problem, find
precedents, and assess the implications of action or inaction.
Question 3. What
is the objective of intervention? |
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If you conclude that the Government should be trying to do
something, ask yourself, “What do we want to accomplish?” This
is the stage where you define the objective in terms of, for
example, reducing the risk or injury or sickness to a specified
level or range.
As you formulate your objective, remember that even if people
followed a standard of behaviour 100 per cent, you probably wouldn't
be able to completely eliminate the problem. Particularly for safety
and health problems, therefore, you'll want to define the objective
in terms of acceptable risk levels. Think about how society views
the activity, and to what degree it's willing to tolerate the harm
you're trying to prevent. This kind of issue cannot be dealt with
simply by applying economic analysis; it requires a political
judgment.
Risk Analysis and Regulatory
Decision-Making
Risk analysis can be a powerful tool in helping you find the
right type and stringency of regulation. But it is only a help --
not the whole solution. Somebody still has to make judgments about
how much risk can be tolerated. This becomes particularly important
in the area of safety and health regulation.
The noted regulatory expert, W.T. (Bill) Stanbury, has observed
that people seem to be more concerned with how they may die or be
injured than with how likely they are to die a certain way. Health
risks from smoking and drinking are significant and well documented,
yet we do not impose extensive or stringent regulatory controls on
consumption of tobacco and alcohol. By contrast, workplace injuries
seem to bother us more: we have elaborate rules and processes to
reduce the risk of this type of harm. Yet even here, the degree of
regulatory control is best described as moderate.
A greater contrast is our strong aversion to dying in a plane
crash. We go a long way to minimize the risk by regulating such
matters as who can fly a plane, how healthy they must be, what
training they must have, what level of expertise they must attain,
who can offer air services, the design and manufacture of aircraft,
and maintenance of the equipment.
Why the differences? A key factor appears to be how much control
the individual has over the activity that may cause harm. The more
control the individual has, the more we are willing to tolerate
higher levels of risk (e.g., smoking). As the individual’s control
over the situation diminishes, our willingness to tolerate risk
decreases as well (e.g., air safety).
Question 4: What
are the behaviours that are creating or contributing to the
problem? |
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Translating the problem into specific behaviours is a critical
step: these are the behaviours you want to change. Make sure you
focus on the behaviour, not the problem. For example:
More helpful statements
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Less helpful statements
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Manufacturers are making certain products that could
hurt people.
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Products are unsafe.
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Manufacturers are not making efficient household
appliances.
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Household appliances are energy
inefficient. |
The companies operating on this river are
dumping too much waste into the water. |
These streams are polluted. |
Question 5: Who are the key players?
Remembering that it's people who make decisions and take action,
start to define the key players. Who are they? What is their
interest in the matter? How are they behaving? The more you know
about them, the greater your chances of success. Divide them into
two groups: those whose behaviour you want to change and those who
may be able to help.
Those whose behaviour you want to change. Identifying
these people precisely is very important because different
alternatives may work at different levels and on different people.
If there are only a few, identify them individually. If there are
many, break them down into categories. Consider: geographic
location, market-structure, level of production, size of firm,
nature of ownership, position in firm, importer or exporter. Work
down through the levels within organizations and out into the
marketplace. Include owners, directors, officers, workers, advisors,
insurers, creditors, debtors, customers, and supporters.
Those who may be able to help. There are others who may have
an interest in whether and how the problem is tackled (e.g.,
consumers, industry associations, consumers’ associations,
environmental groups). First, identify the people who would benefit
directly. Then find those who might benefit indirectly or who simply
want to see the problem fixed. Don't forget to look at those whose
behaviour you want to change; some of them may be potential allies
as well. Ask yourself:
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If the problem were solved, can we identify the people
who would benefit? Who are they and where are they located?
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How strong is their individual and collective interest in
seeing the problem solved? Do they favour certain
approaches?
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Are they organized? Do they have resources?
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Are they in a better position to bring about a change in
behaviours? Have they been, or are they likely to be,
effective in promoting change?
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How can you strengthen the relationship with these people
or gain new allies?
Question 6:
What is the behavioural profile? |
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A behavioural profile is simply a way of describing to what
extent the various players are engaging in problematic behaviours.
It will help you identify the priorities for action if the
Government decides to intervene.
It is important to differentiate by categories of players (or by
individuals if the group is very small). You may have to group
related behaviours together to make the task manageable. You can
draw up the profile in words or represent it as a graph.
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What behaviours pose the greatest risk to achieving the
Government’s objectives?
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What are the most important targets for government
attention, taking into account both the frequency and
consequences of the contributing behaviours?
Question 7: What external factors are
influencing the behaviours?
A variety of factors influence the behaviour you're trying to
change. Although most are external to the Government, they can be
influenced to varying degrees by government intervention.
The next step, therefore, is to figure out which factors are
working for and which against the behaviour you want. Looking at
each behaviour or each group of behaviours, assess whether the
following factors are operating as incentives or disincentives to
the change you want.
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Do people understand and accept that there is a problem?
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Do they understand and acknowledge their contribution to
the problem?
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Do they understand and accept the Government's
objectives?
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Do they understand and accept what you want them to do?
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Are they capable of to behaving that way?
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Are social and psychological factors involved?
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Are economic considerations involved?
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Can the Government or other players monitor behaviour,
promote the desired behaviour, and sanction non-conforming
behaviour?
Part 2, Factors Affecting Behaviour, describes
how these factors operate. It also poses questions to help you think
about each factor.
Question 8:
What (changes in) behaviours do you want? |
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At this point, you are translating the objectives into desired
changes in behaviour. Either you want people to do more of something
they are already doing, or you want them to do less. Often, it isn't
a matter of eliminating a behaviour entirely, but of modifying it in
some way. Remember to focus on the behaviour, not the objective. For
example:
More helpful statements
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Less helpful statements
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We want manufacturers to design, develop, and
manufacture products that are less likely to hurt
people.
We want importers to import products that are less
likely to hurt people.
We want people to buy products that are less likely
to hurt them.
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We want safe products.
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We want manufacturers to make more efficient
household appliances.
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We want more efficient household
appliances. |
We want companies to reduce the amount of
pollutants they are discharging into the water so that
the maximum level of pollutants is x parts per billion. |
We want clean water. |
Question 9: How
much change in behaviour do you really need? |
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This question builds in a reality check. You need to determine
what level of non-conforming behaviour you are willing to tolerate.
Remember:
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no matter what the form of government intervention,
people probably won't conform to the desired standard of
behaviour 100 percent; and
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even if they did, would it automatically mean that you'd
achieved your objective?
How much change in behaviour would be needed, then, to declare
success? The answer to this question gives you a meaningful target,
expressed in terms of behavioural change. Now you can begin to
assess alternative ways for the Government to accomplish this
change.
Question 10: What instruments will
best bring about the desired behaviours?
Now that you have a target, you can think about how to achieve it.
First, consider the public policy instruments other than regulation
that governments use to influence behaviour:
- taxation
- expenditure
- loans and loan guarantees
- user charges
- public ownership
- persuasion
- modification of private law rights and
- insurance schemes
To determine whether one or more of these might be appropriate,
work your way through Part 3: Alternatives to Regulation.
If, however, you select regulation, you can look into the
alternative forms of regulation listed in Part 4.
At this stage, you are simply identifying possible instruments.
Many can be rejected quite easily. For instance, if the minister has
said that the Government has no money to spend on the problem, it's
a waste of time to seriously consider large-scale expenditure
programs. In other words, keep an open mind, but weed out methods
that are obviously not viable. Make a note of those approaches you
think might be viable based on what you've learned from answering
questions 1 through 9.
The most important thing to remember during this first cut is the
strategy for the Government's intervention. You want to maximize the
benefit gained from the Government's involvement. The best
intervention methods will strengthen the factors working in favour
of the desired behaviour, or weaken those working against it.
Since this approach relies on, rather than working against, the
economic, social, and psychological forces that shape the behaviours
you want to change, it is more likely to result in less intrusive
types of intervention.
Question 11:
How would each alternative work in practice? |
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You now have a short-list of possible methods for intervention.
The next step is to create a preliminary model of how each
alternative would work. This allows you to think through the
practical implications of an alternative before conducting a more
detailed impact analysis.
For most alternatives, you'll need only a brief outline of
arrangements in four areas:
- statement of desired behaviours (behavioural specifications)
- promotion
- monitoring and
- sanctioning
You may be familiar with these categories from modelling
regulatory programs, but they also work for non-regulatory
alternatives.
- How will you determine and modify the behavioural
specifications? Who will be involved?
- Might this be handled through an industry organization
or perhaps
- an independent standards-writing body?
- How will consumer interests be involved?
- What form will the specifications likely take?
- Who will approve them?
- How will they be updated?
- How will you promote compliance ? Who will be involved?
- Will government play a role?
- Will the standards body publish them?
- Will educational programs be provided?
- How will you monitor behaviour to determine whether people
are complying? Who will be involved?
- How, and by whom, would non-conforming behaviour be
sanctioned? Who would be involved?
Now when the minister asks, “What are our options and how would
they work?”, you will have the answers. Logically, the minister's
next question would be, “What do you think we should do?" To
have the answer ready, you'll want to assess each alternative in
more detail, determining its viability and its comparative
advantages.
Question 12:
What are the comparative advantages of each alternative? |
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ifferent types of approaches -- regulatory and non-regulatory --
give inherently different levels of assurance that the risk will be
reduced. To judge which of the regulatory and non-regulatory
alternatives you've identified are applicable and suitable, you'll
need to assess each of them according to the following criteria:
- Is it legal?
- Would it be effective?
- Would it be efficient?
- Would it be fair?
- Is it too intrusive?
- How visible would it be?
- How fast can I have it?
- Is it responsive?
a) Is it legal?
There are legal limits on what actions governments can take in
dealing with problems. The Constitution Act allocates legislative
(and governing) authority, setting limits on what matters federal
and provincial governments are allowed to deal with. The Canadian
Charter of Rights and Freedoms sets limits on how governments can
exercise their authorities. Constitutional common law principles
also apply. There may be other, non-constitutional, legal
requirements that could limit use of an alternative. To get help,
contact your Department of Justice legal advisor.
b) Would it be effective?
Here, you're judging how close the option will take you to the
target you specified in Question 9. Look at precedents in other
jurisdictions or other areas of federal involvement. Review the
factors that operate as incentives and disincentives to the desired
behaviours. There may be other forms of government intervention that
are more effective than regulation.
- How would this alternative stengthen or weaken the factors
that influence the behaviours contributing to the problem?
- Can this alternative be focused specifically on these
factors and the related behaviours?
- Would it be possible to get a broad consensus on the desired
behaviour?
- How difficult and costly would it be to detect
non-conforming behaviour?
- Would there be meaningful rewards for those whose behaviour
conforms?
- Would there be meaningful sanctions for those whose
behaviour does not conform?
- On balance, how close would this alternative bring you to
the target?
c) Would it be efficient?
An efficient solution is one in which the benefits equal or exceed
the costs. To determine this, you'll have to assess the following:
- benefits;
- cost to government (incluing costs of participating in
voluntary
- arrangements);
- direct private sector1 and government
compliance costs;
- general economic (allocative) efficiency losses; and
- the impact on the ability of relevant markets and
participants to adjust over time (including the impacts on
productivity and competitiveness).
You need to find out in what direction the balance is tipped, and
by how much. At this stage, just try to get a general idea of
benefits and costs.
Be realistic: you're not going to be able to reduce everything to
a simple dollar comparison. Your analysis will have two parts:
quantifiable impacts and non-quantifiable impacts.
d) Would it be fair?
Ministers and others will instinctively gauge the fairness of a
proposed action, so it's important for you to have done so first.
Who would win and who would lose? By how much? How would this change
the relative standings of the various players affected?
e) Is it too intrusive?
Most people would agree that the Government shouldn't interfere
with people’s lives or the affairs of the private sector unless
there is a very good reason. The Regulatory Policy reflects this.
They would also agree that, even then, interference with individual
rights and liberties should be kept to the absolute minimum. There
are four facets to intrusiveness: scope, depth, precision and
subject:
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Scope: How many people would be affected by this method
of intervention?
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Depth: How detailed would the standards of behaviour be?
Is this macro- or micro-management?
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Precision: What form would the behavioural specifications
take? If, for example, a standard is required, can you get
by with a performance specification or will you have to
address technical design attributes?
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Subject: What kind of behaviour is being addressed? Is it
something that is generally accepted as being the Government’s
business, or is it something that is clearly out of bounds?
f) How visible would it be?
If there is a choice between a highly visible and a not so visible
way of doing a good thing, government will usually choose the
former. This makes perfect sense: government is there to serve the
people; people need to know if, when, and how they are being served.
If this alternative is used, therefore, will it be evident that the
Government is taking action to deal with the problem? Is this
alternative more or less visible than the others? Can the visibility
be increased through government action such as public announcements
or other communications?
g) How fast can I have it?
Most politicians enter public life because they really want to do
good things for people. You can assume that they'd prefer to see
these good things happen sooner rather than later. The minister will
want to know about any significant differences in timing for the
alternatives.
You should be prepared, therefore, to indicate how quickly each
alternative could be implemented and how long it would take to
generate results. For instance, regulation might be more effective,
but might take two to three years to implement. A voluntary approach
might result in somewhat lower levels of compliance but might be
achievable in six to twelve months. What steps would be necessary to
implement this alternative? How long would it take? How long would
it take to modify the behaviours and achieve the Government's
objectives?
h) Is it responsive?
It's possible that ministers and others will reject an
alternative that is highly effective, efficient, fair, and speedy.
Why? In addition to everything else, the alternative has to be seen
to respond to the problem that is being addressed. It should
establish that concerns about the problem are legitimate and that
there is a need for government involvement.
If the alternative is too complicated to be believed, it won't
be. If it doesn't address the contributing behaviours head-on,
people will think that the Government isn't serious about fixing the
problem. If it isn't tangible, if it doesn't have form, structure,
and specifications that define the desired behaviour, it will be
viewed as a smoke-screen.
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Does this alternative send a signal that the problem
being addressed is real and important?
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Will people be able to understand how it will work and
how it will help?
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Will people see it as a direct attack on the problem, or
as a side-stepping manoeuvre?
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Does it include a clear specification of the desired
behaviours?
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Will there be something tangible (e.g., a set of rules,
an institution) that people can point to as evidence of the
Government's intervention?
Question 13.
What combination of alternatives would work best? |
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The factors that influence the behaviour you want to modify are
likely to be complex and inter-related. Therefore, the best solution
will probably be a combination of techniques that work on different
aspects of the problem. Most regulatory systems rely on an
assortment of techniques to modify behaviour.Activities that promote
compliance (e.g., training, public communications, financial
assistance) often comprise a major part of a regulatory system.
Various forms of requirements are often mixed together in statutes
and regulations. For example, licensing systems may control who can
provide a product, but they often also incorporate standards and
pricing controls.
If you can get what you want without regulation, so much the
better. If you can't, perhaps non-regulatory techniques can play a
part. What mix of regulatory and non-regulatory instruments would
apply the greatest leverage to the factors that influence the
behaviours?
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