Non‐Governmental Monitoring of Local Governments Increases Compliance with Central Mandates: A National‐Scale Field Experiment in China

Central governments face compliance problems when they rely on local governments to implement policy. In authoritarian political systems, these challenges are pronounced because local governments do not face citizens at the polls. In a national‐scale, randomized field experiment in China, we test whether a public, non‐governmental rating of municipal governments' compliance with central mandates to disclose information about the management of pollution increased compliance. We find significant and positive treatment effects on compliance after only one year that persist with reinforcement into a second post‐treatment year. The public rating appears to decrease the costs of monitoring compliance for the central government without increasing public and media attention to pollution, highlighting when this mode of governance is likely to emerge. These results reveal important roles that nonstate actors can play in enhancing the accountability of local governments in authoritarian political systems.     

The Regulation Dilemma: Cooperation and Conflict in Environmental Governance

Across the United States and around the world, businesses have joined voluntary governmental and nongovernmental environmental regulations. Such codes often require firms to establish internal environmental management systems to improve their environmental performance and regulatory compliance. Meanwhile, governments have been offering incentives to businesses that self-police their regulatory compliance and promptly report and correct violations. This article examines how governmental regulatory enforcement can influence firms' compliance with mandatory and voluntary regulations. Cooperative regulatory enforcement—in which firms self-police their environmental operations and governments provide regulatory relief for voluntarily disclosed violations—yields optimal win–win outcomes, but only when both sides cooperate. If firms are likely to evade compliance, governments are better off adopting a deterrence approach. If governments insist on rigidly interpreting and enforcing laws, firms may have incentives to evade regulations and not voluntary codes. Cooperation is possible through credible signals between firms and government.     

Extending the economic theory of regulation to the form of policy

The mutually beneficial connection between industries and the governments that regulate them is the subject of a large literature led by Stigler (1971). What has not been studied is how firms choose their desired policies from the set including entry barriers, price floors, subsidies, and demand stimulation. We take as given that government and incumbents from the supply and demand for regulation and explore the choice of political product.     

Production goes global,compliance stays local: Private regulation in the global electronics industry

Poor working conditions in global supply chains have led to private initiatives that seek to regulate labor practices in developing countries. But how effective are these regulatory programs? We investigate the effects of transnational private regulation by studying Hewlett‐Packard's (HP) supplier responsibility program. Using analysis of factory audits, interviews with buyer and supplier management, and field research at production facilities across seven countries, we find that national context – not repeated audits, capability building, or supply chain power – is the key predictor of workplace compliance. Quantitative analysis shows that factories in China are markedly less compliant than those in countries with stronger civil society and regulatory institutions. Comparative field research then illustrates how these local institutions complement transnational private regulation. Although these findings imply limits to private regulation in institutionally poor settings, they also highlight opportunities for productive linkages between transnational actors and local state and society.     

Local Capitalism and Civic Engagement: The Potential of Locally Facing Firms

The twin forces of globalization and devolution have created administrative circumstances that strain the problem‐solving capacity of local governments and increase the importance of nongovernmental processes and institutions. The literature suggests that locally owned firms are more likely to engender higher levels of civic engagement critical to buttressing that problem‐solving capacity. This research adds an additional dimension, investigating to whom those firms sell and through which supply channels. Using survey results from hundreds of local firms across five study sites, this research demonstrates that locally facing firms—that is, firms that intentionally interface with community members and other local businesses—are associated with greater levels of civic and political engagement compared with locally owned firms that sell their products to customers elsewhere. Findings suggest that local governments should look beyond the local/nonlocal ownership binary to consider how private firms can be partners in serving and supporting their communities.     

Fixed‐Term Parliaments and the Challenges for Governments and the Civil Service: A Comparative Perspective

The Fixed‐term Parliaments Act significantly reduces the powers of the Prime Minister to manage the risk of government termination and to time elections to his or her party's advantage. In this paper we ask how the Act is likely to change the way in which governments terminate, their durability and opportunities for planning in government and departments. In answering these questions we draw on quantitative comparative evidence from other European countries that operate with fixed‐term parliaments. Our analysis suggests that fixing the parliamentary term can be expected to convert some opportunistically called elections into regular elections and to stabilise governments toward the end of the parliamentary term. But the Act is also likely to have unanticipated consequences in increasing governments’ vulnerability to failure before they reach the final sessions of Parliament. We explore these unanticipated consequences and outline their implications for governing style and Civil Service planning.     

Exposure Draft, February 1981

Editor's Note: In February 1981 the Governmental Accounting Standards Board Organization Committee (GASBOC) recommended the establishment of a governmental accounting standards board. Its exposure draft will be the subject of intense examination in the coming months. Shortly after the draft was issued, the Financial Accounting Foundation, which is involved in accounting standards for private organizations, called for a single group to set standards for both public and private entities. Much more is involved than the jurisdictional issue of whether a single or a dual structure should be established for accounting standards. Once in operation, these standards will shape governmental accounting and reporting practices, much in the way that standards now dictate the accounting procedures of private firms. Many state and local governments will have to revamp their accounting structures in order to satisfy the new standards. At issue also is the question of whether standards should primarily satisfy the needs and interests of external users or those of the governmental unit. Should governments be accountable principally through the political process or through externally enforced rules? This question goes to the heart of American democracy. The way it is answered will not only influence financial management, but also the conduct and quality of government. In order to encourage informed debate, excerpts from berth the GASBOC exposure draft and the FAF statement are published here. In addition, a selected bibliography by James Chan should help readers work their way through the maze of accounting standards.     

The politics of requesting: Strategic behavior and public utility regulation

Extant models of public utility regulation assume that regulated firms make the same rate adjustment requests regardless of the political environment they will face during the rate case. Focusing on information asymmetries, the repeated interaction between the firm and the regulatory commission, and behavioral assumptions about the goals of regulators, a new model is proposed that assumes firms strategically and rationally plan their requests to respond to political and agency, as well as standard economic factors. An implication of the new model is that the effect of political factors, such as grassroots advocacy and regulator election, should be observed in request equations rather than in award equations where they are traditionally sought. This new model is tested using data from 54 telephone rate cases. The results indicate that firms do respond strategically to political factors (especially to regulator elections), and also to agency factors (such as workload), by increasing their requests. This partially explains a puzzling result in the literature and has implications for regulatory policy, interest group behavior, democratic institutions, and public management.     

Cooptation or Transformation? Local Policy Networks and Federal Regulatory Enforcement

Local policy networks can aid federal agencies, but they can also coopt federal resources for unintended purposes. Our empirical study finds that effective local networks increase both enforcement and compliance rates for the Clean Water Act. We discuss the circumstances under which effective networks can transform political culture, enhancing enforcement and compliance even in conservative areas generally opposed to regulation. The modified detection-controlled estimation procedure enables us to utilize official enforcement records from 1994 to 2000 to study both enforcement and compliance.     

Why Cryptocurrencies Want Privacy: A Review of Political Motivations and Branding Expressed in “Privacy Coin” Whitepapers

New currencies designed for user anonymity and privacy – widely referred to as “privacy coins” – have forced governments to listen and legislate, but the political motivations of these currencies are not well understood. Following the growing interest of political brands in different contexts, we provide the first systematic review of political motivations expressed in cryptocurrency whitepapers whose explicit goal is “privacy.” Many privacy coins deliberately position themselves as alternative political brands. Although cryptocurrencies are often closely associated with political philosophies that aim to diminish or subvert the power of governments and banks, advocates of privacy occupy much broader ideological ground. We present thematic trends within the privacy coin literature and identify epistemic and ethical tensions present within the communities of people calling for the adoption of entirely private currencies.     

Why Do Foundations Follow the Law? Evidence from Adoption of the Uniform Prudent Management of Institutional Funds Act

Employing a large panel of over one million firm‐years, I find evidence consistent with widespread compliance with law among U.S. private foundations despite the absence of many formal deterrence mechanisms. The research design exploits rolling state adoption of the Uniform Prudent Management of Institutional Funds Act, which lifted some existing limits on firm spending for a fraction of firms within each state. This allows the use of triple‐difference estimates that control for changes in local norms and economic conditions. UPMIFA increases firm spending, on average, implying that firms were complying with the pre‐UPMIFA regime. Interacting the triple‐difference factors with other predictors of compliance reveals no correlation between compliance and enforcement intensity, but some evidence that compliance is correlated with firm culture and reliance on accountants. These findings have potentially important implications for the governance of charitable organizations, and may speak more generally to drivers of compliance among other organizational forms.     

The Politics of Climate Policy: Strategic Options for National Governments

This article summarises the results so far of an international investigation aimed at identifying political strategies that make it easier for national governments to take more effective action against climate change while avoiding significant political damage. The numerous strategic options identified included strategies involving unilateral action by governments, strategies of persuasion, damage limitation strategies, strategies that can be used in political exchange with other political actors, and strategies designed to improve the bargaining position of governments by altering the terms of political exchange. The article concludes with a shortlist of especially promising strategies.     

Debt Issued Through Others: Conduits,Joint Powers Authorities,and Borrowing Costs in California Local Governments

The issuance of debt is a complicated and time‐consuming task requiring governments to pay substantial fixed transaction costs. Conduit financings, where one entity issues debt on behalf of a government, including bond pools, where multiple governments issue debt together, are methods that offer the potential to reduce the burdens of participating governments, ideally lowering their costs. But conduit hosts have costs of their own to cover and may not be able to offer a cost advantage to their participants. In this paper we examine debt issued under the Marks Roos Act of 1985, a law created to facilitate pooling but actually used for conduit financing. We seek to determine how issuers fare using this mechanism rather than issuing by themselves. We examine issuance costs and borrowing costs (true interest cost) and find both to be significantly lower for those governments that issued by themselves.     

Are Leftist Governments More Generous Toward Public Sector Employees? Evidence From Canada, 1967–1984

This article tests the hypothesis that leftist governments concede higher wage increases to their public sector employees than right-wing governments. Leftist governments are expected to be more generous toward public sector employees because of their commitment to public sector intervention, and because of the heavy representation of the public sector among leftist party elite and clientele. The study examines all major wage settlements signed between 1967 and 1984 in the Canadian provincial public sector and finds that, everything else being equal, wage increases are 10% higher under leftist governments. The standard economic variables (labor demand, expected inflation and spillover from previous contracts) that have been shown to affect wage increases in the private sector also emerge as significant. Finally, the data indicate that the greater the public debt the more constrained governments feel to negotiate minimal wage increases. These findings establish that a proper understanding of public sector labor relations requires a consideration of political as well as economic variables.     

Compliance costs,regulation, and environmental performance: Controlling truck emissions in the US

When explaining regulatory policymaking and the behavior of regulated business firms, scholars have supplemented economic models by emphasizing the role of public‐regarding entrepreneurial politics and of normative pressures on firms. This article explores the limits of such entrepreneurial politics and “social license” pressures by examining regulation of emissions from diesel powered trucks in the US. We find that the economic cost of obtaining the best available control technology – new model lower emissions engines – has: (i) limited the stringency and coerciveness of direct regulation of vehicle owners and operators; (ii) dwarfed the reach and effectiveness of the governmental programs that subsidize the purchase of new less polluting vehicles; and (iii) elevated the importance of each company’s “economic license”– as opposed to its “social license”– in shaping its environmental performance. The prominence of this “regulatory compliance cost” variable in shaping both regulation and firm behavior, we conclude, is likely to recur in highly competitive markets, like trucking, that include many small firms that cannot readily either afford or pass on the cost of best available compliance technologies.     

Business as Usual? Economic Responses to Political Tensions

Do political tensions harm economic relations? Theories claim that trade prevents war and political relations motivate trade, but less is known about whether smaller shifts in political relations impact economic exchange. Looking at two major economies, we show that negative events have not hurt U.S. or Japanese trade or investment flows. We then examine specific incidents of tensions in U.S.‐French and Sino‐Japanese relations over the past decade—two case pairs that allow us to compare varying levels of political tension given high existing economic interdependence and different alliance relations. Aggregate economic flows and high salience sectors like wine and autos are unaffected by the deterioration of political relations. In an era of globalization, actors lack incentives to link political and economic relations. We argue that sunk costs in existing trade and investment make governments, firms, and consumers unlikely to change their behavior in response to political disputes.     

Governing complex societal problems: The impact of private on public regulation through technological change

When addressing complex societal problems, public regulation is increasingly complemented by private regulation. Extant literature has provided valuable insights into the effectiveness of such complex governance structures, with most empirical studies focusing on how public regulation influences private regulation. Conversely, the impact of private on public regulation is less well studied. Here, we investigate this impact with a focus on technological change as possible mechanism. Based on a case study of energy efficiency in buildings in Switzerland, we find evidence of a symbiotic interaction between public and private regulation that leads to ratcheting-up of regulatory stringency. We identify technological change as the mechanism linking private and public regulation. We discuss the relevance of our findings for governance literature and regulators.     

Can non‐state global governance be legitimate? An analytical framework

In the absence of effective national and intergovernmental regulation to ameliorate global environmental and social problems, “private” alternatives have proliferated, including self‐regulation, corporate social responsibility, and public–private partnerships. Of the alternatives, “non‐state market driven” (NSMD) governance systems deserve greater attention because they offer the strongest regulation and potential to socially embed global markets. NSMD systems encourage compliance by recognizing and tracking, along the market’s supply chain, responsibly produced goods and services. They aim to establish “political legitimacy” whereby firms, social actors, and stakeholders are united into a community that accepts “shared rule as appropriate and justified.” Drawing inductively on evidence from a range of NSMD systems, and deductively on theories of institutions and learning, we develop an analytical framework and a preliminary set of causal propositions to explicate whether and how political legitimacy might be achieved. The framework corrects the existing literature’s inattention to the conditioning effects of global social structure, and its tendency to treat actor evaluations of NSMD systems as static and strategic. It identifies a three‐phase process through which NSMD systems might gain political legitimacy. It posits that a “logic of consequences” alone cannot explain actor evaluations: the explanation requires greater reference to a “logic of appropriateness” as systems progress through the phases. The framework aims to guide future empirical work to assess the potential of NSMD systems to socially embed global markets.     

The Political Importance of Financial Performance

Asset mobility is thought to constrain taxation, as firms with mobile assets can avoid taxation by locating their assets in low-tax jurisdictions. Firms with immobile assets then face higher taxes. By considering the political incentives that accompany widespread financialization, we identify a new limit to the targeting of immobile firms: Publicly traded firms with immobile underlying assets lose more value in financial markets when taxes are increased, as shareholders anticipate that these underlying assets cannot be withheld from taxation. When governments care about this loss in value, their incentive to tax immobile, publicly traded firms declines. Political concern for financial performance therefore limits the extent to which immobile assets can be targeted for taxation. We argue that broad-based participation in the stock market and democratic political institutions increase political concern for financial performance. We discuss the implications of the theory and findings for policy autonomy, firm ownership, and economic voting.