Abstract
Regulatory costs are an essential aspect of the efficiency and quality of regulations. Moreover, they are a genuine loss of welfare which have a negative impact on national income. Surprisingly, regulatory costs are often neglected or misinterpreted in regulatory assessments, except—though only recently—for administrative compliance costs. One important reason is the lack of a clear and consistent definition as well as a practical and exhaustive typology of regulatory costs. This conceptual paper presents a cost taxonomy that takes into account all costs of regulation. We identify 16 direct and two indirect regulatory cost types. The former are costs borne by society in preparing and implementing regulations. For the government, they consist of information, decision-making, drawing-up, planning, administrative start-up, operational, monitoring, and enforcement costs. Citizens and businesses, on the other hand, incur rent-seeking, information, planning, three types of compliance, delay and enforcement costs. The indirect costs comprise the efficiency loss plus, in the event of poorly designed or market-based regulation, also transaction costs. The neglect of any of these costs may lead to the underestimation of costs in absolute or relative terms and thus to inefficient regulatory choices.
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Notes
Compliance costs (administrative burden) and, to a lesser extent, enforcement costs are part of most standard RIAs. Commission of the European Communities (2007), Action Programme for Reducing Administrative Burdens in the European Union, Brussels: CEC, COM (2007) 23.
SMART stands for specific, measurable, achievable, relevant, time-bound. See: Drucker (1954)
For instance, public campaigns, education, labelling, audits, benchmarking, checklists.
For instance, liability, contracts, management agreements, public enterprises.
For instance, taxes, subsidies, tradable permits.
For instance, licensing, quota.
Ibidem, 391.
Ibidem, 42.
Ibidem.
Or the number of consumers who will divert away from the more costly product.
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Marneffe, W., Vereeck, L. The meaning of regulatory costs. Eur J Law Econ 32, 341–356 (2011). https://doi.org/10.1007/s10657-010-9194-7
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DOI: https://doi.org/10.1007/s10657-010-9194-7