Baseline Concepts for Regulatory Impact Analysis
Regulatory impact analysis seeks to determine the incremental effects, usually in terms of costs and benefits, of a proposed regulation or regulatory change. The purpose of this report is to provide guidance to practitioners of regulatory impact analysis in determining the appropriate baseline, or the representation of the world in the absence of regulation. Since the regulation is often not the only change in the economic or regulatory system, it is not always easy to isolate its effects. Specifying the baseline accurately is a complex future-oriented task that often requires a significant amount of analytical effort during the preparation of a Regulatory Impact Analysis. The report develops a taxonomy of three relevant scenarios: a currently unregulated situation, a more stringent regulation, and a relaxation of the current regulation. It discusses the relationships between current practices and standards that should be considered in these scenarios in the present and in the future. The report also discusses, and provides an illustration of, the effects of baseline choices on the costs and savings of regulation.