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. It is noted in the 1995 OECD checklist (3rd question) 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 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.
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