9. Aggregating and Comparing Costs and Benefits

Once costs and benefits of different regulatory options have been identified and estimated, the next critical step in RIA is their aggregation and comparison. This stage is central to decision-making, as it determines whether a regulatory option produces a net positive impact on society, and how that impact is distributed across stakeholders.

This step can be thought of as answering the question:

What is the likely net benefit (benefit minus cost) of each option?

RIA frameworks across jurisdictions emphasise that the purpose of aggregation is not merely arithmetic consolidation, but structured comparison across options, enabling policymakers to identify the alternative that delivers the greatest net benefit. As noted in a policy primer by the Mercatus Center, RIA requires a comparison of alternatives “so that the alternative with the most net benefits can be identified.”

Similarly, guidance from the OECD stresses that policymakers must assess costs and benefits across stakeholders to determine whether regulatory interventions enhance overall welfare and justify their associated burdens.

9.1. Conceptual Foundations of Aggregation

Aggregation in RIA operates at two levels. First, it involves consolidating impacts across different categories—monetary, quantitative, and qualitative. Second, it involves aggregating across stakeholders—such as firms, consumers, government, and broader society.

At a conceptual level, aggregation is grounded in welfare economics, where policy choice is framed as selecting the option that maximises net social benefit (i.e., total benefits minus total costs). It must account not only for total magnitude but also for distributional effects, as costs and benefits may accrue to different stakeholders. UK and EU guidance explicitly require that RIAs consider how impacts are distributed “within and between groups,” highlighting that aggregation is not purely an exercise in summation but also in distributional assessment.

9.1.1. Aggregation at the Stakeholder Level

One approach to aggregation involves first analysing costs and benefits at the level of individual stakeholder groups and then comparing net impacts across these groups.

Under this approach, regulators estimate the net impact for each stakeholder category—for example:

• regulated firms (compliance costs vs efficiency gains)
• consumers (price reductions vs reduced choice, if any)
• government (administrative costs vs improved policy outcomes)

This method is particularly useful where impacts are unevenly distributed or where trade-offs between stakeholders are central to policy choice.

The approach is reflected in the framework used by the Prudential Regulation Authority, which explicitly analyses costs and benefits at multiple levels—firm-level, market-level, and macroeconomic level—before considering their overall effect.

For instance, prudential regulation may impose direct compliance costs on financial institutions but generate benefits for depositors, policyholders, and the broader economy through increased financial stability. The PRA recognises that such impacts may involve transfers between stakeholders, where costs borne by one group may correspond to benefits for another.

This stakeholder-level aggregation is particularly valuable in sectors such as finance, telecoms, and competition law, where regulatory interventions often involve redistribution of surplus rather than purely net creation of welfare.

9.1.2. Aggregation at the Aggregate (Economy-Wide) Level

An alternative and widely used approach is to aggregate all costs across stakeholders and all benefits across stakeholders to determine a single net impact at the societal level.

This approach is characteristic of standard cost-benefit analysis, where Net Social Benefit = sum of Total Benefits on all stakeholders- sum of Total Costs on all stakeholders

Under this framework, a regulatory option is considered desirable if aggregate benefits exceed aggregate costs, even if some stakeholders are worse off.

In the United Kingdom, regulatory proposals are often summarised using the Equivalent Annual Net Cost to Business (EANCB) metric, which converts impacts into an annualised net figure to facilitate comparison across options. Similarly, EU-level RIAs aim to demonstrate that “the benefits resulting from the proposal justify the costs” and that the regulation produces a positive net impact on society as a whole.

This aggregate approach is particularly useful where policymakers need a single decision metric, but it must be complemented by stakeholder-level analysis to ensure that important distributional effects are not obscured.

9.1.3. Matching Types of Costs and Benefits

A critical methodological principle in aggregation is that like must be compared with like. This means that:

• Monetary costs should be compared with monetary benefits
• Quantified (non-monetary) costs should be compared with quantified benefits
• Qualitative costs should be compared with qualitative benefits

This principle ensures analytical consistency and avoids misleading comparisons.

RIA guidance across jurisdictions emphasises that impacts should be monetised wherever feasible, but where monetisation is not possible, they should at least be quantified or qualitatively described.

In practice, this often leads to a layered presentation of results, where:

• monetised impacts are aggregated into net present value or annualised figures
• quantified impacts (e.g., number of consumers benefiting) are presented alongside
• qualitative impacts (e.g., trust, fairness, innovation) are discussed narratively

This layered approach ensures that decision-making is informed by the full spectrum of impacts, rather than being constrained by what can be monetised.

In practice, RIAs across jurisdictions adopt a combination of these approaches.

In the United Kingdom, Impact Assessments routinely present a summary table of costs and benefits, including monetised impacts (e.g., compliance costs, cost savings), alongside qualitative impacts (e.g., improved consumer confidence). The use of EANCB provides a standardised metric for comparing options.

In EU practice, RIAs emphasise demonstrating that benefits outweigh costs, while also identifying who gains and who loses, thereby combining aggregate and distributional analysis.

The PRA’s cost-benefit framework provides a particularly sophisticated example, tracing impacts from firm-level effects to market-level and macroeconomic outcomes, and recognising that some impacts may offset each other across stakeholders.

These examples highlight that aggregation is not a purely mechanical exercise but involves judgment, transparency, and careful interpretation of evidence.

9.2. Key Analytical Considerations and Challenges

Several challenges arise in aggregating costs and benefits.

First, there is the risk of double counting, particularly where the same impact is captured through multiple channels (e.g., time savings and productivity gains). Care must be taken to ensure that each impact is counted only once.

Second, aggregation may obscure distributional impacts, particularly where aggregate net benefits mask significant losses for specific groups. This underscores the importance of presenting both aggregate and stakeholder-level results.

Third, some impacts represent transfers rather than net welfare gains. For example, a regulation that shifts surplus from firms to consumers may produce distributional effects without changing total welfare. Regulators must distinguish such transfers from genuine efficiency gains.

Finally, uncertainty in estimates must be transparently addressed, often through sensitivity analysis or scenario-based aggregation.

In synthesis, aggregation of costs and benefits is the culmination of the RIA process, translating detailed analysis into decision-relevant conclusions. It requires both technical rigour and analytical judgment, combining monetised, quantified, and qualitative impacts across stakeholders.

A robust approach to aggregation typically involves:

• analysing impacts at the stakeholder level
• aggregating impacts at the societal level
• ensuring consistency across types of impacts

When undertaken carefully, aggregation enables policymakers to determine not only whether a regulatory option is beneficial in aggregate, but also how those benefits and costs are distributed, thereby supporting more transparent, accountable, and evidence-based decision-making.

9.3. Maintaining proportionate boundaries to RIA analysis

RIA should be sufficiently comprehensive to capture the material consequences of the regulatory options under consideration, but it should not become an open-ended exercise in tracing every conceivable consequence of an intervention. A regulatory measure may produce a first-order effect on the parties directly subject to it, followed by second-order effects on suppliers, consumers, competitors and workers, and then further effects on investment, prices, employment, innovation, household expenditure or other markets. In principle, this chain can continue almost indefinitely. If every possible downstream consequence is required to be identified, quantified and monetised, the RIA may become unending, while the additional analysis may contribute little to the actual regulatory decision.

This is one reason why proportionality is a fundamental principle of RIA. Proportionality does not mean ignoring indirect or unintended consequences. Rather, it requires the regulator to distinguish between effects that are material to the decision and effects that are sufficiently remote, uncertain or insignificant that analysing them in greater detail would not materially change the assessment of the available options.

The European Commission recognises the need to identify the relevant impacts without attempting to analyse every possible effect with the same degree of detail. This is particularly important because regulatory proposals can have economic, social and environmental consequences extending across different groups and over different time horizons. The purpose of proportionality is therefore to ensure that analytical resources are concentrated on those consequences that are most relevant to the decision.

The regulator should consider the strength of the causal relationship, the likelihood and magnitude of the effect, the availability and reliability of evidence, and whether including the effect is likely to alter the comparison between regulatory options.

First-order effects will ordinarily warrant detailed analysis. These may include compliance costs imposed directly on regulated entities, price changes experienced by consumers, changes in access to a service, or administrative costs incurred by the government. Second-order effects may also require analysis where there is a credible causal pathway and a reasonable likelihood that their magnitude could materially affect the decision. These could include scenarios where compliance costs are likely to be passed through into consumer prices or where a regulatory requirement could materially affect market entry. By contrast, effects that depend on several uncertain behavioural or economic assumptions and are unlikely to affect the relative ranking of the options may appropriately be recorded qualitatively rather than subjected to increasingly elaborate modelling.

This does not mean that regulators should ignore longer causal chains. Material indirect and unintended consequences should remain within the scope of RIA, particularly where they could change the preferred option. The appropriate response to uncertainty is often to record the effect, explain the causal mechanism, assess its likely direction and significance, and, where feasible, test it through sensitivity or scenario analysis. There is little value, however, in attempting to attach increasingly precise monetary estimates to an effect when the underlying causal relationship itself is highly uncertain. False precision can make an RIA appear more rigorous while actually making the decision-making process less transparent.