Economics tools and guidance

This page provides practical economics tools and resources to support regulatory policy development and analysis. It is designed for policy advisers to help define problems, assess options, and understand the impacts of regulation.

Regulation influences behavior 

Regulation affects people’s incentives (i.e. the rewards and costs they face) and people respond to those incentives through the choices they make. For example, if regulation makes driving at peak times more expensive, some people will choose to travel at different times or use public transport.

Because regulation influences behaviour, understanding how people are likely to respond is critical to designing effective regulation. Good regulation shapes incentives so that people’s choices lead to better outcomes. Conversely, poor regulation can create confusion, add unnecessary costs, and lead to worse outcomes.

How economics helps

Economics provides a framework to understand and predict how behaviours are likely to change in response to regulation. It helps policy advisors assess the trade-offs faced by individuals, households, businesses, and governments.

Designing better regulation

Applying economic analysis helps ensure regulation is targeted, proportionate, and delivers net positive outcomes to New Zealanders.

Economics is therefore crucial to good regulatory design. It helps policy advisers to:

• anticipate behavioural responses to regulation
• identify unintended consequences or where regulation accidentally encourages the opposite of what was intended
• avoid unnecessary costs and distortions which may interfere with beneficial market transactions.

Economics is used throughout the policy process. In practice, this includes:

• Problem definition: identifying the underlying issue, including whether it reflects a market failure, and whether government intervention is justified.
• Options identification: identifying the options to address the issue, including non-regulatory or private market solutions, and the potential impacts of those options.
• Cost-benefit analysis: assessing whether the benefits outweigh the costs to give net positive outcomes for society.
• Post-implementation review: analysing the impacts of regulation after it has been implemented.

The resources below support these steps.

These resources provide practical guidance on applying economic tools in policy work:

• Problem definition and options identification. This resource applies the concepts of market failure and government failure to decide whether government action is needed, and what form it should take.
• Cost-benefit analysis. This resource provides guidance on assessing the expected benefits and costs of policy options.

The Ministry undertakes cost-benefit analysis of regulatory issues arising in our reviews and from the Red Tape Tipline. Following are case studies to help agencies understand what good practice cost-benefit analysis looks like.

• AML property transactions cost-benefit analysis (2025) (299 KB, Pdf)
• Telecommunications cost-benefit analysis (2025) (395 KB, Pdf)
• Nurse practitioners cost-benefit analysis (2025) (355 KB, Pdf)

The Ministry for Regulation's Economics Team undertakes economic analysis and research. This helps support transparent and evidence-informed decision-making, provides insights into where regulation is working well, and helps policy advisers design better regulation. We do this in three main ways:

1. Providing advice into policy and reviews. We work with our policy and review teams to test ideas, assess costs and benefits, and understand how people and businesses respond to existing or proposed regulation.
2. Undertaking research and analysis. We carry out research on how regulation affects behaviour, markets, and outcomes. This helps identify what works, what doesn’t, and why.
3. Developing tools and capability. We produce practical guidance and provide case studies to support agencies in applying economic analysis in their work.