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Defining the problem, its extent and causes

The problem definition should describe and provide evidence of the nature and scale of the problem. You should identify the actors, sectors and social groups that are primarily affected by it. Where the problem is not confined to the EU, you should also identify international aspects of the problem. You should explain why it is a problem, why the existing or evolving situation is not sustainable, and why public intervention may be necessary.
Public intervention is normally justified on the grounds of market/regulatory failures, or because of equity concerns or a discrepancy between the fundamental goals of the EU and the existing situation. In practice, the need for intervention often arises from a combination of these reasons. Some of the major reasons for public intervention are presented below.

Market failures:

  • Market prices do not reflect the real costs and benefits to society ('externalities')
  • Insufficient supply of public goods
  • Missing or weak competition (including abuse of market power)
  • Missing or incomplete markets
  • Information failures, such as imperfect information or lack of access to information for decision takers (including consumers and public authorities), unless caused by a regulatory failure

Regulatory failures:

  • Inadequately defined property rights/legal framework
  • Poorly defined targets and objectives
  • Unintended consequences resulting from public intervention
  • Regulatory capture of public authorities
  • Implementation and enforcement failures

Discrepancy between the fundamental goals of the Union and the existing situation, for example protection of fundamental rights, combating discrimination, safeguarding the security of citizens, strengthening social cohesion or promoting distributional justice

You need to establish the ‘drivers’ – or causes – behind the problem (how particular factors lead to the problem). This will help you to tackle causes rather than symptoms. Problems should not be defined as a ‘lack of something’ or as 'need for something', as this can bias the definition of objectives and the choice of policy instruments.

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