Impact Assessment for Developing Countries: A Guide for Government Officials and Public Servants

189 Pages·2022·1.742 MB·English

by  Takuya Nakaizumi

Contributions to Economics
Takuya Nakaizumi
Impact
Assessment
for Developing
Countries
A Guide for Government Officials and
Public Servants
Contributions to Economics
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Takuya Nakaizumi
Impact Assessment
for Developing Countries
A Guide for Government Officials and Public
Servants
TakuyaNakaizumi
KantoGakuinUniversity
Yokohama,Japan
ISSN 1431-1933 ISSN 2197-7178 (electronic)
ContributionstoEconomics
ISBN 978-981-19-5493-1 ISBN 978-981-19-5494-8 (eBook)
https://doi.org/10.1007/978-981-19-5494-8
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Preface
Thepurposeofthisbookistointroduceimpactassessment(IA)forimprovingregu-
lation,especiallyindevelopingeconomies.IA1isaprocessthatpreparesevidencefor
decision-makersontheadvantagesanddisadvantagesofpossibleregulatoryoptions
byassessingthoseoptions’potentialimpacts.
ThemostimportantpurposeofIAistoimproveregulationbyidentifyingregu-
latoryissuesandassessingcostsandbenefitsatanearlystageofregulationmaking.
Evenroughestimatescancontributetoimprovingregulation.Furthermore,because
developingcountriesfaceahigherdegreeofresourcescarcityandmust,therefore,
endeavortouseresourcesmoreefficiently,itismoreimportantforthedeveloping
world,ascomparedtothedevelopedworld,toestablisharegulatorysystemthatis
asefficientaspossible.
Myspecialtyiseconomics,specificallycontracttheory(organizationeconomics)
and the economics of regulation. I wrote this book based on my theoretical back-
groundandmanyyearsofexperienceintroducingIAinJapanandPakistan,dissem-
inatingIA,andconductinginterviewswithrelevantofficialsintheUnitedKingdom,
theUnitedStates,andotherOrganizationforEconomicCo-operationandDevelop-
ment(OECD)countries.AppointedbytheJapanesegovernmentin2000,Ibeganmy
professionaldutiesbyinterviewingDr.JohnMorralIII,chiefoftheOfficeofInfor-
mationandRegulatoryAffairs(OIRA)intheUnitedStatesOfficeofManagement
and Budget (OMB) at that time. He was kind enough to fulfill my request, and he
sharedimportantinformationregardingIA.Healsointroducedmetoseveralimpor-
tant US government officials, for example, Dr. Neil Eisner and Dr. Bob Klothe of
USDepartmentofTransportation(DOT),Dr.BrettSnyderoftheUSEnvironmental
ProtectionAgency(EPA),andDr.RandallLutterattheAmericanEnterpriseInsti-
tute (AEI) in 2000, Food and Drug Administration of US Department of Health
and Human Services (FDA) in 2004, Resource For the Future (RFF) in 2011. I
havevisitedthemseveraltimesin2000s.Eachgraciouslyintroducedmetoseveral
importantpersons,includingDr.DominicMancini.Theinformationtheyimparted
1Severalcountriesusetheterms“regulatoryimpactassessment”or“regulatoryimpactanalysis”
insteadofIA;however,thesearebasicallythesame.
v
vi Preface
to me encompasses the key concept of implementing IA to produce better regula-
tion.Ofcourse,anymistakeismyown.Thereafter,ItrackedIAprogressinOECD
countries. This entailed conducting several interviews with US and UK officials.
My Japanese government contacts graciously introduced me to several important
persons,includingDr.SeanEnnisintheUSDepartmentofJusticeandDr.Andrei
Greenawalt,formerviceofficerofOIRA.
After the Japanese government mandated IA in 2008, I focused on competi-
tionassessment,whichentailsassessingwhether regulationunnecessarily restricts
competition.IwasappointedtoaJapanFairTradeCommissionstudygroup,andI
conductedseveralinterviewswiththeaboveofficialsin theUnitedStates(in2009)
and the officials of Competition Market Authority(CMA) or other Ministris in the
UnitedKingdom(in2018)regardingcompetitionassessment.
IwasalsoappointedregulatoryreformadviserinPakistanbytheJapanInterna-
tionalCooperationAgency(JICA).MyobjectivewastohelpthePakistangovernment
introduceIAandregulatoryreformwithintheperiod2013–2015basedonmyafore-
mentionedexperience.ThankstotheexcellentteamsinPakistan,Ihadamemorable
timethere.IwouldliketothankallthestaffofJICAPakistanandtheIERU,including
Mr.AamirQawi,Dr.NatashaJehangirKhan,Ms.HibaHaiderZaidi,KomalKenneth
Shakeel,andmycounterpartandconsultant,Dr.NaveedIftikhar.Thesepeoplewere
members of the best team that I have had the honor of working with and are also
goodfriends.IamparticularlygratefulforthespecialsupportIreceivedfromformer
ChiefJusticeTassaduqHussainJillaniofthePakistanSupremeCourt.
This book is a practical guide for better IA and competition assessment toward
improved regulation. I describe the essence of such assessment and simplify the
importantaspectsincludingtheunderlyingphilosophyandbestpracticesforgovern-
mentofficials,especiallythoseindevelopingcountrieswhowishtointroduceorI
orarealreadyimplementingIA.
We take the rather conservative view that we can realize any achievement by
learning incrementally from poor choices. Additionally, we focus on the concept
of the baseline and system design for conducting IA appropriately, rather than on
detailedanalysismethods.
Theprogressandspreadofevidence-basedmethods,ontheotherhand,havebeen
remarkableinrecentyears,andstrategiesforincorporatingthemintoIAconstitute
an important issue. The novel coronavirus (COVID-19) epidemic has also made
strategies for incorporating crisis management into policy assessment a pressing
issue.Thisbookmentionsthem,butthereisvastliteratureexplainingmethodsand
institutional design. While I refer to that literature as much as possible, the main
purposehereistoclarifythewholepicture.
InPartIofthisbook,weintroduceIA.Chapter1explainstherelevanceofIAand
provides an outline that includes several remarks on introducing IA in developing
countries.
In Chap. 2, we describe the philosophy. The appendix to Part 1 lists the basic
principlesofIA.
In Part II, we introduce IA procedure and institutional design, mainly referring
toEuropeanUnion,UK,andUSgovernments.Toimproveregulation,itisessential
Preface vii
forIAtocoincidewithearly-stageregulationmakingandthatadequatereviewsare
provided.
PartIIIdescribestheIAmethod,whiletheassessmentviewpointisaddressedin
Chap. 8. Firstly, IA entails analyzing the necessity of a measure and then demon-
stratingitssufficiencyviacost–benefitanalysis.Anassessmentreportisproduced,
showingcorrectionpointsidentifiedthroughpubliccommentary,aswellascompli-
anceissues.Here,necessitymeansascertainingwhethertherehasbeenanymarket
failure,imperfectcompetition,orotherdistortionthattheprivatesectorhasfailedto
address.Afterjustifyingthenecessity,oneneedstoestablishsufficiencytointroduce
theproposedregulationbyquantifyingandmonetizingcostsandbenefitsasmuchas
possible,afteraccuratelyformulatingthebaselineandthecounterfactual.Evidence-
basedpolicymaking(EBPM)playsanimportantroleincost–benefitanalysis.Thus,
wedescribehowtousetherecentdevelopmentofcausalinferenceinEBPMtoassess
thebenefitsandcostsofregulation.
InPartIV,weexplaincompetitionassessment.Itisdifficult,however,toquantify
theeconomicimpact,andmainstreamcompetitionassessmentisbasedoneconomic
theory. In developing countries, the market economy is weaker than in developed
economies because there are few operational firms, resulting in imperfect compe-
tition. In some markets in Pakistan, only state-owned firms and foreign-owned
enterprises operate. If foreign direct investments were heavily regulated, foreign-
owned enterprises’ position would be weakened, causing market monopolization.
Thus, weak market conditions require greater competition considerations. Hence,
competitionassessmentismoreimportantindevelopingcountriesthanindeveloped
economies.
PartVaddressescurrentissuessuchasnudge(Chap.11),theCOVID-19pandemic
and crisis management (Chap. 12), and regulatory reform and the digital transfor-
mation(Chap.13).ConcludingremarksaregiveninChap.14.Usingtheexampleof
theCOVID-19pandemic, weexplain strategiesfordealingwithproblems thatare
sourgentthatdecisionsmustbemadeimmediatelybeforeevidencecanbeobtained.
Among my contacts are several Japanese researchers and government officials
whoprovidemewithaccesstoimportantinformation,discussions,andopportunities.
IwouldliketothankTokyoUniversityemeritusProf.YoshitsuguKanemoto,emeritus
Prof.AkiraMorita,Prof.TanabeKuniakiofTokyoUniversity,Prof.AtsuoKishimoto
of Osaka University, Prof. Tatsuya Ono of Tottori University, and Mr. Masamichi
Takasaki of MUFG (in 2007), Dr. Yohei Kobayashi of MUFG, along with many
governmentofficialsattheMinistryofInternalAffairsandCommunication(MIC),
Ministry of Economy, Trade and Industry (METI), Japan Fair Trade Commission
(JFTC),andJapanInternationalCooperationAgency(JICA)inMinistryofForeign
AffairsofJapan(MOFA).Thisresearchisheavilybasedoninterviewswithgovern-
ment officials from several countries, as well as on cooperation with my fellow
researchers.AndWendyHuang,ChiekoKehoe,Marc-AnthonyIsaacswhohelped
viii Preface
me to sum up the interviews as assistants. I express deep thanks to all those offi-
cialsandresearchers.ThisworkwassupportedbyJSPSKAKENHIGrantNumbers
JP15K00473,JP19K01562,JP17H02501,andJP20K01643.
Yokohama,Japan TakuyaNakaizumi
Contents
PartI OutlineandSignificanceofImpactAssessment(IA)
1 OutlineandtheNecessityofImpactAssessment(IA) ............. 3
1.1 Why Impact Assessment (IA) Matters in Developing
Countries? .............................................. 3
1.2 WhatisImpactAssessment(IA)? ........................... 6
1.3 ImportanceofIAandWaystoIntroduceittoDeveloping
Countries ............................................... 8
1.3.1 ImportanceofIAinDevelopingCountries ............ 8
1.3.2 Ways to Introduce IA Into the Government
inDevelopingCountries ........................... 9
1.3.3 Obstacle of Introducing IA Into Developing
Countries ........................................ 11
1.4 LessonIntroducingIA:PakistanandJapan ................... 13
References .................................................... 15
2 RoleofEvidence-BasedAssessmentinDemocracy ............... 17
2.1 Introduction ............................................. 17
2.2 OptimalityofEvidence-BasedPolicyinDemocracy ........... 18
2.3 FacingInformationAsymmetryandDifficultyofAnalysis ..... 20
2.4 ConcludingRemark ...................................... 21
AppendixofPart1:PrincipleofIA ............................... 22
References .................................................... 26
PartII Procedure and Organization of Conducting Impact
Assessment(IA)
3 Procedure of Impact Assessment (IA) and Concept
ofInstitutionDesignforConductingImpactAssessment(IA) ...... 29
3.1 Introduction ............................................. 29
3.2 KeyComponentofInstitutionalDesignforConducting
ImpactAssessment(IA) ................................... 30
ix