The search for alternatives to regulation is a powerful tool to ensure the quality of regulation. This requires testing whether to regulate is the best appropriate option, and if regulation is chosen, how to achieve it with the least possible cost.
The OECD has emphasised the importance of a range of options when considering how to deal with a policy issue. The third question on the 1995 OECD checklist for regulatory decision-making is to consider whether regulation is the best form of government action. It is noted in the checklist that: "Regulators should carry out, early in the regulatory process, an informed comparison of a variety of regulatory and non-regulatory policy instruments, considering relevant issues such as costs, benefits, distributional effects and administrative requirements". The challenge is to ensure this occurs in practice.
In fact, the first response by governments to a perceived policy issue is often to regulate. But was this the best possible action the government could have taken? In many situations there may be a range of options other than traditional ‘command and control’ regulation available to achieve the government’s policy objectives. The ‘regulate first’ approach may mean that more effective and efficient policy instruments are being overlooked. This is an important issue because the use of an inferior policy instrument may have significant implications for competition, economic performance and may be less effective in meeting wider social objectives.
Alternatives were initially discussed in the OECD report: Regulatory Policies in OECD Countries: From Interventionism to Regulatory Governance (2002), where Annex II has a discussion on the use of regulatory alternatives in OECD countries.
The OECD also prepared a report updating and extending the earlier work of the OECD on alternatives to traditional regulation, drawing on the experiences of individual countries in using alternative approaches. The report also provides a framework to assist policy makers in selecting those instruments that are particularly applicable in different circumstances, facilitating the desire of many countries to reduce red tape and the burdens imposed on agents by unnecessary or overly prescriptive regulation.
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