A report from the “Q exercise”

Regulatory policy today is still grounded in principles and tools designed a few decades ago, but the context has changed significantly. To determine whether the current framework can help countries meet the challenges of contemporary societies, the OECD launched the Regulatory Policy 2.0 project. This report sets out the results from the second phase of the project, which included an exercise to map beliefs around better regulation. The exercise, involving government officials and regulatory experts, has identified four internally coherent belief systems about what better regulation is today, which core aims it should have, and where it should go in the future. Based on this analysis, the report provides empirical evidence and implications for the future direction of regulatory policy

Improving Risk Regulation

Confronted with the challenge of improving regulatory performance, many governments in the world are looking for ways to better manage risks, in particular those risks that develop in complex systems, with stakeholders from various sectors, and that are marked by uncertainty. This report includes five authored pieces about: The contribution of transnational private regulation to revisiting risk regulation (Scott), Emerging strategies to manage system-level risks: an examination of private sector, government and non-governmental organization initiative (Yosie), Potential scope and challenges of behaviourally informed regulation (Renn and Florin), and Managing uncertainty in drug development and use, by enhancing adaptability and flexibility in pharmaceuticals regulation (Oye et al.)

Smarting Up EU Risk Management: The Needed Step Forward

Managing risks related to public health and safety while protecting the environment is now one of the principal functions that public opinion expects from the European Union. This sentiment has visible repercussions on EU policymaking, as it has been estimated that risk management counts for more than 70% of all regulatory decisions taken in Brussels. While it is common sense to regulate risk, excessive risk-aversion can sometimes backfire. Since risk management is key for spurring innovation and economic growth while preserving high standards of living, getting it right helps address many of the challenges faced by Europe today. Account must be taken of the benefit side of the regulatory equation. Poor or disproportionate regulation can put a roadblock in the way of sustainable prosperity. To be sure, significant improvements have been made in the EU risk governance over the past decade, in part because of the Better / Smart Regulation agenda of the European Commission. New risk assessment bodies have been set up and existing ones have been reorganized. New policy objectives were conferred on the EU by expanding its scope of intervention to encompass, for instance, life-style risks. Technical guidelines for impact and risk assessment have been introduced, and both public consultation and regulatory oversight have been enhanced. The appointment in late 2011 of a Chief Scientific Adviser by the President of the Commission creates unparalleled potential for ensuring that reliable, well-founded scientific evidence will form the basis for EU legislative and regulatory decisions. More recently, the establishment in February 2013 of a Science and Technology Council is a testament of the President’s commitment to investing in science and innovation. Yet, gaps still persist in these reforms—most notably the lack of consolidated formal policies and guidelines in key areas such as the quality of scientific advice and risk communication. The European Risk Forum (ERF), a Brussels-based think tank, was one of the few contributors to the 2012 public consultation on Smart Regulation that raised these issues. The ERF recently published an Action Plan, capitalizing on several years of research and relying on OECD good practices as well as cross-sectoral lessons from direct private sector expertise. The Action Plan lays out clear principles, procedures, and tools that will help the EU institutions find the best ways to handle risk. It covers a wide range of issues, including: The Action Plan emphasizes, among other issues, the extensive use of evidence, especially science; clear and comprehensive descriptions and assessments of problems and their underlying causes; the rigorous definition of policy objectives; a realistic understanding of the costs and benefits of policy options; and a timely and extensive consultation of stakeholders. The development of a thorough, evidence-based understanding of the benefits of government action is an essential prerequisite for making high quality risk management decisions. It helps improve effectiveness by highlighting “cause-effect” relationships and facilitating comparison of regulatory options. To that end, the technical guidance for the rigorous measurement of health, safety, and environmental benefits should be improved to require the use, wherever possible, of cost-effectiveness analyses and techniques like willingness-to-pay and value-of-statistical-prevented-fatality. Another critical front is the application of the precautionary principle, which can in itself cause harm if considered in isolation. If a substance is banned, such a ban may on occasion lead to the use of an even more dangerous (or less-known) substance in its place—the famous “risk-risk paradox.” Regulators should systematically review the precautionary measure so that it should be possible to adapt it once the unknown risks become known. However, not everyone within and outside the EU regulatory process is yet willing to embrace this approach. The issue is not to look exclusively at the quantity and burdensome character of regulation, a pitfall into which many smart regulators fall. Nor is it to only promote and support excellence in European research, a fundamental pre-condition in itself. (The current record of European Nobel Prize winners is impressive, as we must remain mindful that there are more scientists at work today than there have been cumulatively throughout history of mankind. They are equipped with tools and computing skills that were unimaginable even 25 years ago.) The issue at stake here is rather the conversion of such research into new jobs, markets, and growth. Future prospects for growth and prosperity in Europe very much depend on a vision of society that is favorable to innovation and progress. Most governments are organized in silos—with disparate ministries and agencies for the economy, finance, employment, social services, education and trade. But innovation and growth occur across all these policy areas—and also in social concepts such as science and education, technology, labor market mobility and public attitudes towards change. It requires a consensus about the kind of society we want – something that Smart Regulation should help trigger

Multi-Level Regulatory Governance: Policies, Institutions and Tools for Regulatory Quality and Policy Coherence

Multi-level regulatory governance is becoming a priority in many OECD countries. High quality regulation at a certain level of government can be compromised by poor regulatory policies and practices at other levels, impacting negatively on the performance of economies and on business and citizens’ activities. The most common problems that affect the relationship between the public and the private sectors are duplication, overlapping responsibility and low quality. These affect public service delivery, citizen’s perception, business services and activities, as well as investment and trade. More positively, following certain principles and good practices for high quality regulation in a coherent way as well as facilitating co-ordination among regulatory institutions at different levels of government can bring improvements to the regulatory system as a whole.

Homo Economicus, Behavioural Sciences, and Economic Regulation: On the Concept of Man in Internal Market Regulation and its Normative Basis

We investigate how EU law conceptualizes the individual to whom internal market regulation is addressed. Our analytical point of departure is a stylized information paradigm , whereby for reasons of internal market benefits, market players have to bear the burden of perceiving and processing information that is relevant in respect of an intended transaction, as well as disadvantages should they be ill-equipped to cope with this assignment. Although the ECJ implemented the normative concept of a well-informed, observant and circumspect consumer, it never adopted such a stylized information paradigm . The EU legislature assists market players in perceiving and processing information, and even seeks to steer their decision-making process. We reconsider whether or to what extent this should be understood as an advancement of an information paradigm or rather as a “behavioural turn”. Only a differentiated approach that balances the internal market rationale with potentially conflicting rights meets the exigencies of EU law