6 Analyse the options
Having identified the full range of feasible options, the next step is to analyse the costs, benefits and risks of each option. The analysis needs to show how each option would alter the status quo, which option is likely to be the most effective for solving the problem, and which option has the highest net-benefit.
Options analysis should be the fundamental concern of any decision about whether to regulate and in what way. All options analysis must aim to answer:
- How does the option broadly measure up against the objectives? Answering this question may require a full impact analysis of each option.
- What is the net impact (or net benefit or cost) of taking any of the available options?
- What are the distributional implications of the options being considered? Options analysis requires evidence and analysis of who wins and who loses - and by how much.
The options analysis should structure the analysis on the different elements of the problem. This may require identifying the particular decision-points and different policy tools within an option that might address discrete elements of the broader problem. This requires an appropriate framework for analysis.
Where the problem is related to particular risks, these should have been clearly identified. The options should describe how those risks would be:
- voluntarily accepted by those bearing the consequences of any risk, eg, requiring participants to sign waivers of liability
- transferred to other parties, eg, making certain parties liable for consequences of their actions (such as advice to uninformed clients)
- mitigated (reduced in likelihood or consequence), eg, by mandating safety equipment to minimise the injuries that could be sustained, or
- avoided, eg, prohibiting the activity which could lead to the risk.
6.1 Identify the full range of impacts
This stage involves identifying the full range of impacts, and providing a qualitative description or explanation.
Impacts can be positive or negative (ie, include both costs and benefits), and include economic, fiscal, compliance, social, environmental and cultural impacts. They include direct and indirect (flow-on) effects; one-off and recurring or on-going impacts. RIA needs to identify whether an option would increase or decrease the net-benefit to society compared with the status quo.
Discrete impacts should be separately described and accounted for:
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Economic impacts include the dynamic effects on overall welfare and reflect changes to overall production and consumption. They are relevant to gauging overall efficiency by considering whether the behaviour of consumers, business, and the community might be:
- Altered positively to achieve the RIA objectives or create other net-benefits to society, or
- Distorted with negative consequences - creating opportunity costs. Welfare losses can arise from regulation which impairs competition, stifles innovation, artificially constrains pricing or valuation decisions, or generally restrains the economic activity of individuals and firms (eg, by distracting people from more productive endeavours).
- Fiscal costs are borne by public agencies (and ultimately, the taxpayer) in administering the regulation or law. They include the costs of implementation, formulating standards, monitoring and enforcing compliance, and adjudicating disputes or administering appeals.
- Compliance costs are the direct costs that regulated parties will face in order to comply with regulatory options. They include the cost of collecting and reporting information, equipment purchases and the development of new processes and reporting systems.
Compliance costs are usually the most prominent and identifiable impacts. However, while they may affect individual or group behaviour, compliance costs may be less significant from a net economic benefit (society-wide) point of view. Cost estimates in options analysis are likely to be subject to assumptions about how regulatory options might be implemented or how businesses might choose to comply.
Consideration should be given to ways in which costs, particularly compliance costs, may be reduced or minimised. There may be trade-offs between compliance costs and the administrative costs to government - these should be explicitly identified. For instance, greater flexibility in the ways regulated parties could comply with regulatory requirements may minimise their costs, but may increase the costs of administering the regulation. The key informational requirements are set out in the following box.
Key informational requirements for identifying compliance impacts
The specific costs on regulated and third parties should be separately identified from fiscal and wider economic impacts of regulation and should be tested with affected parties through consultation. RIA aims to make agency assessments of compliance cost impacts more transparent by identifying:
- One-off costs, such as acquiring sufficient knowledge to meet the regulatory obligations, retooling production processes, purchasing or leasing additional equipment and buildings, legal/consultancy fees and training expenses.
- Recurring and ongoing costs, such as staff costs or time, consumable materials, inspection fees/licences, costs imposed by enforcement processes, form filing (that is, costs arising from the need to devote additional time and resources to satisfying regulatory requirements).
- The parties likely to be affected. If the costs will be borne by businesses, the sector and sizes of firms should be identified to give an indication of magnitude.
- An assessment of the risks or uncertainties associated with cost estimates.
- Overlapping compliance requirements with other agencies or regulatory regimes. It may be possible to design compliance processes so that information is shared between two related compliance processes.
