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101 Concepts for the Level I Exam

Essential Concept 20: Benefits and Costs of Regulation

Regulatory burden refers to the costs of regulation for the regulated entity.

Net regulatory burden is the private cost of regulation less the private benefits of regulation.

A cost-benefit analysis should be conducted before any new regulation is implemented. Regulators should consider both the implementation costs of regulation as well as the indirect costs.

Post implementation, the actual costs and benefits should be compared with the expected costs and benefits. This ‘retrospective analysis’ allows for a more informed assessment of whether any changes need to be made to the regulation.

Regulators can also make use of ‘regulatory sandboxes’, where new regulation is first tested in a sandbox environment for example a subset of an industry, before being implemented for the whole industry.