CONFERENCE on

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CONFERENCE on Regulatory Impact Assessment Ankara
- 19, 20 and 21 April, 2006 PART II 19 April
pm Good RIA practices in selected EU member
states 2. RIA practices in ITALY Mario Martelli
m.martelli_at_agora2000.it
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Contents

• Background and context
• When to undertake a RIA?
• What are the main steps to be taken when
  undertaking a RIA?
• Who should be consulted and at what stages of the
  process?
• What data is needed and what are the best sources
  for compiling relevant data?
• What can be done to avoid RIA delaying the policy
  making process?
• How to assure the quality of RIA?
• How to use RIA post facto or ex ante?

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In Italy, direct public intervention has been
common since the 1930s

• In 1970s, government failures as state manager
  were recognized
• Public enterprises did not achieve social and
  economic objectives
• The administrative apparatus suffered from
  elephantiasis

Positive role of Art. 104c of the Stability and
Growth Pact or the EU Treaty
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The elements of the Italian RIA

• Introduced in Italy as a part of the
• Semplificazione Law Art. 5, L. 50/99
• Operational with 2 Specific Rules of the
  Presidency of the Council of Ministers
• 3/2000 e 9/2001
• A set of activities supposed to be carried out by
  Public entities and administrations while they
  are planning regulations, in order to assess, on
  a ex-ante basis their effects on citizens,
  enterprises and PA

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The purpose of the Italian RIA
The Italian RIA establishes if a regulatory
intervention is really necessary, and it directs
the regulator toward the less onerous solutions
for the beneficiary. It allows to consider
different relevant options, and to assess them on
the base of their cost and benefits (or, better,
on relevant Pros and Contra), providing for the
consultation of the interested beneficiary
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A major objective improving competitive
advantage

• The Italian RIA improving competitive
  advantage
• Poor performance of one sector has negative
  effects as inputs for productive sectors (June
  2003 Report - Italian Antitrust Authority)
• Costs for enterprises connected to bad
  regulation represent a competitive disadvantage
  factor
• As part of the public administration reforms, RIA
  is a modern instrument for the administration
  to improve its decision processes without slowing
  them down

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What RIA was in the 2001-2004 experimentation
A modern instrument for the administration to
improve its own decisional processes without
making heavier and slowing down the action The
new regulatory provisions have been evaluated not
only vis-à-vis their abstract coherence with
values considered worthed to be carried out, but
as well, and especially, with regards to the pros
and contra for citizens, enterprises, and the
public sector, in the light of the economic
programming objectives (agenda)
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Italian RIA overview

• 2001 to 2005
• 5 RIAs carried out at national level
• 18 RIAs carried out at regional level (out of 21
  regions)
• Establishment of RIA permanent offices/project in
  Tuscany, Piedmont, Friuli V.G.

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RIA who the Italian experience?

• It is essential to create a balance between
  centralization and decentralization
• The role of sectoral Ministries
• they have the relevant expertise and know the
  problem better ...
• ... but they tend to use RIA to justify rather
  than to assess their regulatory proposals
• The role of the Center of the Government
• need of an external review of the work of the
  sectoral Ministries
• can facilitate the dialogue among different
  Ministries on the same proposal
• the Center should not expropriate the
  regulatory functions of sectoral Ministries, but
  should rather integrate the RIAs into the
  regulatory process
• International experience shows that only a later
  stage in the developement of a RIA system may
  consist in moving from a top-down approach to a
  decentralized one

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A RIA process the typical 4 steps

• Think!

• Identify policy options to meet the objectives.
• Consider the most appropriate delivery mechanisms
  (regulatory/non-regulatory approaches).
• Begin to narrow the range by means of screening
  for technical and other constraints, and by
  measuring against criteria of effectiveness,
  efficiency and consistency.
• Draw up a shortlist of potentially valid options
  for further analysis.

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The OECD Checklist for Regulatory Quality

• 1. Is the problem correctly defined?
• 2. Is government action justified?
• 3. Is regulation the best form of government
  action?
• 4. Is there a legal basis for regulation?
• 5. What is the appropriate level (or levels) of
  government for this action?
• 6. Do the benefits of regulation justify the
  costs?
• 7. Is the distribution of effects across society
  transparent?
• 8. Is the regulation clear, consistent,
  comprehensible and accessible to users?
• 9. Have all interested parties had the
  opportunity to present their views?
• 10. How will compliance be achieved?

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Italian RIA the process foreseen in the RIA
sheet
1. Normative Framework 2. Social, economic, and
legal needs are foreseen by administration and
beneficiaries for each proposed regulatory
intervention 2.1. Reasons for the
intervention 2.2. Consultation 3. General and
specific objectives of the action 4. Area of
intervention 5. Assessing options 6.
Economic analysis and results 6.1. Analysis
Results 6.2. Prospective RIA continuation 7.
ME of the new rule
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The Italian RIA strategy
GENERAL SPECIFIC
Problems identification
OBJECTIVES
EXPECTED RESULTS
Ex ante evaluation ECONOMICAL assessment (CBA,
costs effectiveness)
RELEVANT OPTIONS FEASIBLE OPTIONS
ACTIVITY
PREFERRED OPTION
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Private Cost and Social Cost

• Private Cost is what any one person gives up due
  to the regulation
• Social Cost is what the society gives up due to
  the regulation
• Net Social Cost Net Private Cost 3rd Party
  Cost 3rd party Gains

Public and Private Sunlight, 2002

• RIA cost estimates are of social costs (social
  cost estimates)
• Private costs are important when we consider
  distributional issues
• Never confuse social costs with private costs
  always present them separately

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Cost benefit analysis from the past
in the affair of so much importance to you,
wherein you ask my advice, I cannot far want of
sufficient premises, advise you what to
determine, but if you please I will tell you how.
When those difficult cases occur they are
difficult, chiefly because while we have them
under consideration, all the reasons pro and con
are not present to the mind at the same rime,'
but sometimes one set present themselves, and at
other times another the first being out of
sight. Hence the various purposes or inclinations
that alternately prevail, and the uncertainty
that perplexes us. To get aver this, my way is,
to divide half a sheet of paper by a line into
two columns writing aver the one Pro, and aver
the other Con. Then during three or four days
consideration, I put down under the different
heads short hints of the different motives, that
at different times occur to me, for or against
the measure. When I have thus got them all
together in one view, I endeavor to estimate
their respective weights,. and where I find two,
one on each side, that seem equal, I strike them
both auto If I find a reason pro equal to some
two reasons con, I strike out the three. If I
judge some two reasons con, equal to some three
reasons pro, I strike out the five and thus
proceeding I find at length where the balance
lies,' and if after a day or two of farther
consideration, nothing new that is of importance
occurs on either side, I come to a determination
accordingly. and, tho' the weight of reasons
cannot be taken with the precision of algebraic
quantities, yet, when each is thus considered,
separately and comparatively, and the whole lies
before me, I think I can judge better and am
less liable to make a rash step,' and in fact I
have found great advantage tram this kind of
equation, in what may be called Moral or
Prudential Algebra
Benjamin FRANKLIN, September 19, 1772
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Cost benefit analysis
A policy assessment method that quantifies in
monetary terms the value of all policy
consequences to all member of the society. The
net social benefits measure the value of the
policy (NSB B C)
Social decision making The underlying CBA logic
resources are scarce and the decision maker has
to address them where they are suppose to
maximize the benefit for the society as a whole
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The intervention logic
Objectives and problems identification
Context analysis
Strategy definition
Strategy coherence appraisal (regarding the
context analysis and the regulatory framework)
Expected results assessment
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The importance of defining the problem/need
correctly

• No analysis can compensate for poor problem
  definition.
• Incorrect problem definition will result in
  regulatory failure or even perverse results.
• The OECD Recommendation
• starts with the most important question
• Is the problem correctly defined? The problem to
  be solved should be precisely stated, giving
  clear evidence of its nature and magnitude, and
  explaining why it has arisen (identifying the
  incentives of affected entities)

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Identifying the baseline/1
RIA is an incremental analysis

• that compares a regulatory action with a
  baseline.
• Assessing impacts of an action requires that we
  first identify what would happen if we did
  nothing (the counterfactual).

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Identifying the baseline/2

• A RIA must be based on a clear statement of the
  baseline What will happen in future if no action
  is taken?
• This is often not easy, because the consequences
  of the current situation are not often not clear
  (consider the problem of global warming)

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Choosing a Baseline

• Choice of a baseline may require
• consideration of many factors, including
• evolution of the market,
• changes in external factors affecting benefits
  and costs,
• changes in regulations.
• The baseline should reflect the
• future effect of current programs and policies
  (the importance of the Agenda).
• Pros and cons should be assessed
• against the same baseline.

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Conditions/assumptions to be assessed in a RIA
FEASIBLE OPTIONS
Relevant Options
PREFERRED OPTION

• Analysis of Assumptions/conditions
• (organizational and financial, economical,
  social)
• Analysis of criticality

Economical analysis
Feasibility
Option choice
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Alternatives
Be brave! Dont be scared seek
alternatives. Remember that .

• ... you dont need to be brave to do something
  you are obliged to do in any case
• The Grapes of Wrath (1940) - H. Fonda

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Mixed options and differential regulation
Why having only
There are few pure solutions. The best solution
is usually a mix of alternatives and traditional
regulation. Providing for different obligations
according to the sector involved, the firms
dimension or the social class avoid to impose the
same costs indifferently. In this case we have
differential regulation (for example, less
stringent obligations for SMEs, cheaper tickets
for young people, etc.).

if you can have a mixed fried
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What is public consultation in a broad sense?
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Public consultation forms
1) INFORMATION
Decision maker
citizens
decision
2) CONSULTATION
citizens, firms and representatives of interest
organizations
Decision maker
decision
direct partecipation
3) NEGOTIATION
representatives of interest organizations
Decision maker
decision
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Consultation and RIA

• Consultation as a research method to gather
  quantitative data and opinions and to promote and
  simplify transparency and public participation.
• Cognitive role (reducing asymmetric information
  between regulator and society)
• Its main goal is not negotiation with interest
  groups, but the enrichment of the empirical basis
  for decision-making. A good regulation should
  always take into account different points of view

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Market failures - Asymmetry

• Information asymmetry
• Consumers (but even government) do not have the
  same information (quality and quantity) of
  producers

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Guiding principles
Consultation key issues
Variables

• Planning consultations
• Starting as soon as possible
• Clarity, transparency, simplicity of procedures
  and tools
• Assign responsibilities
• Monitoring and feedback of the results

• Phases
• Actors
• Contents
• Techniques

Consultation Plan
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WHEN TO CONSULT
Appropriate timing must be fixed on a
case-by-case basis, but consultation should
start as early as possible. Also, consultation
should be seen as a recurring process rather than
a one-off event. Depending on the issue at
stake and the consultation objectives, you may
find it useful to arrange for a series of
consultations as the proposal develops. Consider
the risk of consultation fatigue
RIA start
Consultation Plan
needs
Consultation
Objectives
addressees
options
effects
Conclusion
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Consultation Techniques
Survey
Panels
Semi-structured Interviews
Focus groups
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The Italian regional experience about RIA/1
Consultation contributions

• For the administrations
• Clearer problem definition, better identification
  of objective and expected results, expansion of
  the info available
• Use of innovative techniques with promising
  resuts
• Higher communication flows among different
  administrations , better use of different
  competencies, visibility
• For those consulted
• Greater participation in the decisional process
  higher awareness of the participation
• For RIA
• Gathering of info and opinions about options,
  unexpected problems, costs and benefits

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Consultation limits
The Italian regional experience about RIA/2

• Difficulties in planning and conducting
  consultation as soon as possible
• Difficulties in coordinating different
  administrations each owning a piece of relevant
  info
• Majority of informal contacts
• Data gathered not exhaustible (both qualitatively
  and quantitatively)

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Data - The relevance of figures
Have a head for figures. That is to say, we
must attend to the quantitative aspect of a
situation or problem and make a basic
quantitative analysis. Every quality manifests
itself in a certain quantity, and without
quantity there can be no quality. To this day
many of our comrades still do not understand that
they must attend to the quantitative aspect of
things -- the basic statistics, the main
percentages and the quantitative limits that
determine the qualities of things. They have no
figures in their heads and as a result cannot
help making mistakes.

• Methods of work of party committees.
• This was part of Mao Tse-tung's concluding
  speech at the Second Plenary Session of the
  Seventh Central Committee of the Communist Party
  of China.
• March 13, 1949

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Data collection a critical issue (1)

• Good data collection
• strategies are crucial
• Plan in advance
• and develop an inventory of data sources

Data might be the Achilles heel of your RIA
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Data collection a critical issue (2)

• You will usually need much highly specific data
  that is tailored to the questions raised by the
  specific regulation.
• RIA must start as early as possible to leave time
  for identification and satisfaction of data
  needs. This can be a time-consuming part of the
  RIA process.
• Much data needed is held by the regulated
  community. Data collection is a public-private
  task. You must develop working relations with
  private sectors partners.

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How we can compensate when we cannot find enough
data

• In the absence of adequate valid data, clearly
  identified assumptions are necessary for
  conducting the RIA.
• Transparency is even more essential to test the
  assumptions. Analysis of the risks, benefits, and
  costs associated with regulation must be guided
  by the principles of full disclosure and
  transparency.
• Shift data costs to the stakeholders by asking
  questions in the consultation period. Those
  affected by regulations have the incentives to
  provide the data necessary to complete RIA.

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Guard against data capture

• Stakeholders will provide much of the needed data
  ? high risk of biased RIA
• This risk can be managed by diversifying data
  sources, a check and balance approach.
• Data biases can also be detected by being
  completely transparent. When data are weak, the
  more external review that RIA receives, the
  better it is likely to be.
• The latter is also true for RIA as a whole. The
  more the process is open the more it is likely to
  be accurate. Furthermore, a transparent process
  enhances RIA legitimacy

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Two important points to take into account

• Stakeholders are probably not accustomed to
  support their requests with data and figures ? It
  is necessary to define as soon as possible clear
  rule of the game.
• The analysis of data influences the composition
  of the RIA team the role of statisticians is
  essential in finding, selecting, and validating
  data and data sources. This could require
  organizational consequences (the role of the
  statistical office during RIA is fundamental)

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Planning key points

• Starting early and with proper resourcing
• Planning ahead every phase (deadline,
  consultation, etc)
• Setting clear objectives
• Identify options, including alternatives

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Alice or the policy-maker/analyst relation

• (1862) Lewis CARROLL Alice s adventures in
  wonderland,
• when she was a little startled by seeing the
  Cheshire Cat sitting on a bough of a tree a few
  yards off. The Cat only grinned when it saw
  Alice. It looked good- natured, she thought
  still it had very long claws and a great many
  teeth, so she felt that it ought to be treated
  with respect.
• Cheshire Puss,' she began, rather timidly, as
  she did not at all know whether it would like the
  name however, it only grinned a little wider.
  Come, it's pleased so far,' thought Alice, and
  she went on.

Would you tell me, please, which way I ought to
go from here?' That depends a good deal on
where you want to get to,' said the Cat. I
don't much care where--' said Alice. Then it
doesn't matter which way you go,' said the Cat.
--so long as I get SOMEWHERE,' Alice added as
an explanation. Oh, you're sure to do that,'
said the Cat, if you only walk long enough.'
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Planning pitfalls

• Starting when policy decision already taken
• Fuzzy objectives (reduces options)
• Inadequate time or planning
• Failure fully to assess impacts on
  market/stakeholders
• In any case, at least
• Use appropriate expertise to assess all relevant
  impacts
• Quantify where possible
• Acknowledge and reflect uncertainties in results

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Improving RIA with RIE (Regulatory Impact ex post
Evaluation)

• The next step of a developed RIA system is to
  extend the approach from an ex ante assessment to
  an ex post evaluation, using similar methods
• An ex post monitoring can relate to a compliance
  analysis system, which evaluates the level of
  complance of a regulation
• The role of failures (and of poor RIAs) learning
  from poor RIAs can be very useful. However,
  self-evaluations are not sufficient and often may
  not be objective enough. A more formal,
  independent and objective check should therefore
  be provided