1. Developing Regulatory Impact Assessment In Azerbaijan
Assessing the impacts
Baku, September 2016
Charles-Henri Montin, Smart Regulation Consultant
Former Senior Regulatory Expert,
Ministry of economy and finance, Paris
C.H. Montin, Baku,18-19 May 2015 1

2. Contents Identify who will be impacted by the options
Identify the scale of the impact
Quantify the impacts
Gathering the evidence
Analysing the evidence
Presenting the evidence
Some quantification methods
Valuation methods for non-market impacts
Quantifying indicators

3. Who will be impacted?

4. Scale of impacts (quantitative assessment)
What is the nature of the impact?
Who will be the winners?
Who will be the losers?
What is the likelyhood of the impact
What is the scale of the impact?
Small/medium/large

5. Broaden an initial model or integrate separate studies?
Listing the impacts
“Basic” impacts
Economic
Business
SMEs
Competition
Regional development
“Additional” impacts (ex.):
Race equality
Health
Rural development
Sustainable development
Small firms
“family”
gender
etc
Broaden an initial model or integrate separate studies?

6. The quantification process
RIA is designed to support ‘Evidence Based Decision Making’
Assessing Impacts involves:
1. Gathering the evidence
2. Analysing the evidence (what does it tell us about the impacts of the draft regulation?)
3. Presenting the evidence

7. Gathering the evidence
Possible range of sources, including:
Your own knowledge and experience
The knowledge and experience of colleagues in your own organisation and other agencies
Consultation with external experts
Consultation with those that are likely to be affected
Research documents, market reports, government statistics, internet searches

8. Analysing the evidence
The evidence needs to be used to explain how and why the impacts occur. What are the ‘cause and effect’ links between the regulation and the impact indicators?
The analysis is presented in the form of a narrative in the RIA report, in which the evidence is used to validate the analysis.
This is called causal chain analysis.

9. Analysing the evidence: the proportionality principle
How Much Evidence is Needed?
Proportionate Analysis
the more significant the impacts are likely to be the greater the effort of quantification that is needed
level of detail also needs to be related to the resources and time available
the preliminary analysis will give an indication of the level of detail needed in the Final RIA

10. Presenting the Analysis
The results of the assessment should be described and explained in the text of the RIA
The significance of the impacts should also be clearly shown in tabular form
The positive impacts (benefits) and negative impacts (costs) should be shown separately
Positive and negative impacts should be quantified, where-ever possible

11. A choice of quantification methods
Benefit –cost analysis (BCA)
Monetise all major B&C: eco, fin, soc, envt… of each option
Difficult to collect stats. but most common method
Cost-effectiveness analysis (CEA)
Compare range of options in terms of costs of achieving a given outcome (benefit)
Used when difficult to monetise policy benefit
Example: US
Multi-criteria analysis
Comparison of options incorporates non-monetised impacts
Used when difficult to monetise
Ex: EU, AUS; IE

12. Quantifying impacts

13. Valuation methods for non market impacts
Stated preference methods
Contingent valuation
Choice modelling
Revealed preference methods
Travel cost studies
Hedonic price studies
Defensive expenditures
Need for economists’ inputs to make use of these techniques, for instance to apply discount rates
Hedonic demand theory is a revealed preference method of estimating demand or value. It decomposes the item being researched into its constituent characteristics, and obtains estimates of the contributory value of each characteristic. This requires that the composite good being valued can be reduced to its constituent parts and that the market values those constituent parts.
Hedonic pricing method
Certain environmental services often influence the market prices. The Hedonic pricing method is often brought into play in order to assess the economic values of such services. This method finds its application to reveal the effect of environmental attributes in changes in the local real estate pricing. It is frequently used for estimating costs related to:
- The overall quality of the environment in terms of air pollution, water pollution, and noise
- Environmental amenities which include aesthetic sights and closeness to recreational sites such as parks, beaches, etc.
It is important to note that the hedonic pricing method is based on the fact that prices of goods in a market are affected by their characteristics. For example, the price of a pair of pants will depend on the comfort, the cloth used, the brand, the fit, etc. So this method helps us estimate the value of a commodity based on people’s willingness to pay for the commodity as and when its characteristics change. 
See page 57 of the UK Green Book

14. Examples of quantifying indicators

15. The breakdown of business costs

16. Conclusion
Evidence on impacts should be quantified wherever possible but non-monetiseable impacts must not be disregarded;
Creative Economics
Quantification in market value terms wherever possible.
Quantify benefits as well as costs

17. To continue the study… Assessments methodologies
OECD: “A tool for policy coherence” (chapter 3)
UK :Better Regulation framework manual (2013)
Green Book (p. 57 sq for non-monetary impacts)
Further questions contact:
smartregulation.net
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