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In brief...
A study analyzing RIAs conducted by Brazilian federal regulatory agencies revealed that, in many cases, only one or two regulatory alternatives were evaluated. Moreover, the status quo option (doing nothing) was frequently excluded from the analysis. This pattern suggests that RIA may often serve as a mere procedural formality, used primarily to validate pre-determined decisions—thereby diminishing its effectiveness. In light of this finding, the study proposes an empirical research agenda to investigate how the number of alternatives evaluated in an RIA influences its overall quality.
Evaluating and Comparing Alternatives as the Core Task of an RIA
A key goal of Regulatory Impact Analysis (RIA) is to enhance the rationality of decision-making within regulatory bodies. RIA offers a structured analytical framework for evaluating regulatory measures, organizing the decision-making process into predefined steps to ensure greater coherence and a stronger technical foundation in rulemaking. Additionally, RIA promotes transparency by ensuring that stakeholders can understand the criteria and methods regulators use when selecting a specific regulatory approach.
At the heart of an RIA is the evaluation of the expected impacts of different regulatory alternatives. The structuring of this process of identifying and comparing all the possible courses of action available to the regulator is what ensures that regulatory decision-making anchored in an RIA will be more rational, deliberate, and comprehensive.
Thus, when RIA is properly conducted, with a thorough identification and comparison of regulatory alternatives, it helps prevent biased analyses that merely justify pre-determined and weakly substantiated regulatory decisions. In this context, it is crucial to recognize— as highlighted by recent academic literature (Cooper and Kovacic, 2012; Jones, 2017; Dudley and Xie, 2020)— that regulatory decisions can be influenced by cognitive biases.
Well-known behavioral phenomena, such as the availability heuristic, the representativeness heuristic, hindsight bias, and optimism bias, can lead regulators to make "short-sighted" decisions (Cooper and Kovacic, 2012). This means framing the regulatory problem too narrowly and restrictively, without considering all relevant dimensions of the issue or the full range of available decision-making alternatives.
Recognizing these effects highlights the need to adopt tools that shape the procedure (architecture) through which regulators make decisions (Dudley and Xie, 2020). Without proper evaluative tools and adversarial controls, poor regulatory decisions may lead to long-lasting societal effects. (this seems like a different issue; that is, how to evaluate outcomes after the fact; do you need to talk about this?; just a thought).
This is why a fundamental principle of the RIA methodology is the inclusion of the “status quo” (taking no action) as one of the alternatives under evaluation. Regulatory intervention is only justified if two key conditions are met: (1) the anticipated social benefits outweigh the costs imposed on both public and private stakeholders; and (2) these benefits exceed the costs by a greater margin than the option of maintaining the status quo. Additionally, within the RIA framework, assessing the status quo serves as a critical baseline, providing a necessary point of reference for comparing regulatory alternatives.
Mapping Regulatory Alternatives in RIAs of Brazilian Federal Agencies
Findings from the study "Analysis of Three Years of RIA Regulation in Brazil" reveal the difficulties Brazilian regulators face in identifying regulatory alternatives. The research examined RIAs conducted by the 11 independent federal regulatory agencies[1] over a three-year period, beginning on April 15, 2021—the date when RIA became a mandatory requirement for these Brazilian agencies under Federal Decree No. 10,411/20.
The study analyzed RIA reports produced by regulatory agencies, assessing their length, the number of alternatives considered, and the methodologies applied. In total, the research reviewed RIA reports that informed the approval of 252 regulatory acts.
When it comes to identifying alternatives in RIAs, one noteworthy finding is that only three agencies—the Mining Agency (ANM), the Cinema agency (ANCINE), and the Maritime Transportation Agency (ANTAQ)—consistently included the status quo in their analyses. However, these agencies produced a limited number of RIAs, making them less reliable as comparative benchmarks. As shown in Figure 1, incorporating the status quo remains a challenge for most other agencies, especially the Health Insurance Agency (ANS), which considered this alternative in just 61.5% of cases.
Figure 1.
Moreover, in a considerable number of cases, regulators assessed only one or two alternative regulatory approaches. Figure 2 illustrates the percentage of instances where this occurred across different agencies. The data highlight that ANS, ANTAQ, ANCINE, ANAC, and ANA explored just one or two alternatives in over a quarter of their RIAs. With the sole exception of ANVISA, this pattern was observed in at least 10% of RIAs across all agencies.
Figure 2.
Limited Alternatives, Limited Usefulness
If the status quo is meant to be one of the alternatives, evaluating only one or two options suggests that RIA may be serving merely as a tool to justify a pre-determined decision. In practice, in such cases regulators are merely testing whether an alternative—already identified as a potential solution to the regulatory problem—is preferable to the status quo (baseline). RIA, therefore, is not being used as a tool to compare a range of regulatory options, but rather to assess whether the proposed regulation represents an improvement over the pre-existing status quo.
This is why Brazilian regulators should not conduct RIAs merely to assess only one or two regulatory alternatives. When RIA is used only to validate a pre-established decision, it becomes a costly exercise with little real value. Given that RIA is already a time-consuming and resource-intensive process—requiring significant financial and human capital—its application should go beyond just confirming prior choices.
Furthermore, when the status quo is not included as an alternative, the RIA suffers from a significant methodological flaw. As emphasized in the specialized literature (Dudley et al, 2017), there is no valid justification for omitting the status quo from the analysis. A meaningful comparison of regulatory alternatives requires the status quo to serve as a baseline reference.
Indeed, "less is not more" when it comes to identifying alternatives in an RIA. If a sufficiently broad set of real and viable alternatives to address the problem is not developed, the RIA fails to fulfill its core purpose. In practice, decision-making may be occurring outside the RIA process, reducing it to a mere pro forma exercise or a post hoc validation tool.
How much to consider?
The purpose of this warning is not to advocate for incorporating as many alternatives as possible into RIAs, as doing so could make the process unnecessarily lengthy and costly. Evaluating an excessive number of alternatives can also present challenges, which is why tools like preliminary feasibility testing are used to streamline the analysis and manage complexity.
This consideration leads us to an interesting point. If evaluating only a few regulatory alternatives suggests a misuse of RIA to confirm pre-determined decisions, and if, on the other hand, considering an excessively large number of alternatives introduces excessive complexity and methodological challenges, is there an optimal range of alternatives? Could there be a numerical interval within which the quality of RIAs tends to be higher?
Defining an ideal number of alternatives for RIAs in advance may seem arbitrary, as the nature of the regulatory issue under analysis will usually dictate whether more or fewer options should be explored. Additionally, the depth of analysis required can vary depending on the complexity of the problem. Indeed, imposing rigid limits on the number of alternatives in each case would likely be counterproductive.
However, establishing a flexible guideline on the optimal number of alternatives—one that generally enhances RIA quality—could be highly beneficial in practice, providing regulators with a useful reference for structuring their analyses more effectively.
Is there an optimal range of alternatives? Does it vary depending on the regulated sector or the comparison methodology used in RIA? In the coming years, the Regulation in Numbers research project at FGV will explore these questions within the Brazilian context, aiming to generate practical insights that can help improve the quality of RIAs conducted by Brazilian regulators.
[1] In Brazil, there are only 11 independent regulatory agencies at the federal level: the Water and Sanitation Agency (ANA), the Civil Aviation Agency (ANAC), the Telecommunications Agency (ANATEL), the Cinema Agency (ANCINE), the Electricity Agency (ANEEL), the Mining Agency (ANM), the Oil and Gas Agency (ANP), the Health Insurance Agency (ANS), the Maritime Transportation Agency (ANTAQ), the Land Transportation Agency (ANTT) and the Health Agency (ANVISA). These agencies hold a status similar to that of independent commissions in the United States; they are not typical executive agencies that, in the U.S., would be subject to OIRA's oversight. We chose to study these agencies because Brazilian independent agencies were the first to adopt better regulation tools such as RIA and the first to be legally required to conduct RIAs to support their decisions. In this regard, the Brazilian experience differs significantly from that of the United States, where independent agencies (commissions) are subject to less stringent controls over their rulemaking activities.