Regulatory Errors with Endogenous Agendas

How do a regulator's decisions depend on the characteristics and strategies of its external clients? We develop a theory of approval regulation in which an uninformed regulator may veto the submission of a better‐informed firm. The firm can perform publicly observable experiments to generate product information prior to submission. We find that when experimentation is short, Type I errors (approving bad products) are more likely for products submitted by firms with lower experimentation costs (larger firms), while Type II errors (rejecting good products) should be concentrated among smaller firms. These comparative statics are reversed when experimentation is long. We perform a statistical analysis on FDA approvals of new pharmaceutical products using two different measures of Type I error. We find consistent support for the counterintuitive hypothesis that, under particular conditions, errors are decreasing in the size of the firm submitting the product.     

Regulation through titling laws: A case study of occupational regulation

This case study examines a form of occupational regulation infrequently examined in academic literature – titling laws. These laws regulate who may legally use a phrase, or title, to describe their work to the public. Focusing on the interior design industry, this article demonstrates how industry leaders use titling laws as the first step in a push for full occupational licensure. In so doing, they allege a need for regulation out of concern for public health and safety, but as data in this case study indicate, there appears to be no threat to public health and safety from unregulated interior designers. Instead, designers advocate for increased regulation of their own industry, through the evolution of titling laws to full licensure, due to the benefits it affords them.     

Regulation under uncertainty: The coevolution of industry and regulation

As production and design disintegrate and become more collaborative, involving dynamic relations between customers and firms supplying complex subsystems and service, products and production methods become more innovative but also more hazardous. The inadvertent co‐production of latent hazards by independent firms is forcing firms and regulators to address the problem of uncertainty – the inability to anticipate, much less assign a probability to future states of the world – more directly than before. Under uncertainty, neither the regulator nor the regulated firms know what needs to be done. The regulator must induce firms to systematically canvas their practices and identify potential hazards. But recognizing the fallibility of all such efforts, the regulator must further foster the institutionalization of incident or event reporting procedures: systems to register failures in products or production processes that could be precursors to catastrophe; to trace out and correct their root causes; to alert others in similar situations to the potential hazard; and to make certain that countermeasures to ensure the safety of current operations are taken and the design requirements for the next generation of the implicated components or installations are updated accordingly. In this essay we develop these arguments and look closely at changes in the Norwegian offshore oil and gas industry and its regulator, the Petroleum Safety Authority to better understand the coevolution of vertically disintegrated industry and new forms of regulation.     

Innovation and public space: The developmental possibilities of regulation in the global south

Important product and process innovations are often developed in “public spaces” that promote collaboration and provide shelter from market competition. Given that most collaborative spaces are costly to establish, the possible implications are bleak for economically strapped developing countries. This paper highlights a less conspicuous – if not unknown – source of collaborative space: the regulatory process. Regulators can induce innovation by promoting collaboration across organizational, sectoral, and disciplinary boundaries in the interest of regulatory compliance. This paper documents the innovative consequences of efforts to regulate the use of lead‐based glazes in the Mexican ceramics industry and reconsiders several recent studies of upgrading in other countries that appear to have been driven, at least in part, by the regulatory process. Drawing on these cases, this paper makes four primary points: (i) that innovation in regulatory spaces is more common than previously acknowledged and is producing meaningful improvements in product quality and working conditions in developing economies; (ii) that promoting innovation in these regulatory spaces is an important developmental tool for countries that are “regulation‐takers” and have many low‐tech sectors; (iii) that this dynamic extends current conceptions of regulatory discretion, as well as development literature on state‐society synergies; and (iv) that establishing collaborative public spaces as a common conceptual framework is a critical step toward understanding the consequences of social regulation on upgrading.     

The introduction of professional regulation and labor market conditions

There has been increasing concern by policy makers about the impact of occupational regulation and the process by which it is introduced. This paper examines the introduction of mandatory licensure laws to replace public certification of registered nurses at the state level. Historical analysis supports the hypothesis in economic models that small groups with concentrated interests like occupations will dominate the introduction of laws and suggests examining changes in labor market conditions may be useful in predicting future demands for legislation. Estimates of an empirical model of the diffusion of licensure across states for nurses suggests this type of quality assurance regulation was introduced first where the quality of services was probably already relatively high and that policies reducing the impact of licensure on geographical mobility may reduce pressure for new laws. Patterns in the introduction of laws also have implications for evaluating their impact.     

Promoting customer engagement: A new trend in utility regulation

This paper traces a new development in regulation that encourages utilities to engage more directly with their customers. We make four contributions: First, we perform a comprehensive analysis of how regulators are using customer engagement, and offer a simple model for understanding different customer engagement initiatives. Second, we review assessments of customer engagement. We find that there are no quantitative, empirically robust assessments of the effectiveness of customer engagement as a regulatory tool. Third, we develop two detailed case studies of an energy regulator and a water regulator that are in the forefront of customer engagement efforts. We find that there is no direct link between the engagement strategy used and the economic incentives received by a firm. Finally, we propose a framework for improving the customer engagement process. The new framework relies on microeconomics, modern tools of program evaluation, and supplying the regulated firm with direct incentives to engage with the customer.     

Temporary legislation,better regulation,and experimentalist governance: An empirical study

This article presents the findings of an extensive multi‐method empirical study that explored the relationship between temporary legislation, better regulation, and experimentalist governance. Temporary (or “sunset”) legislation – statutory provisions enacted for a limited time and set to expire unless their validity is extended – is often hailed as a key tool for promoting experimental and better regulation. Despite the importance of temporary legislation and the burgeoning theoretical scholarship on the subject, there is still a dearth of empirical studies about how temporary legislation is used in practice. The lack of empirical evidence creates a lacuna in at least three areas of theoretical scholarship, concerning temporary legislation, better regulation, and experimentalist governance. This paper is a first step to fill this gap.     

Trust,regulation, and redistribution why some governments overregulate and under-redistribute

For many social scientists, government intervention is linked to low levels of social trust and corruption, while others associate it with high trust and low corruption. We aim to reconcile these contrasting views by distinguishing the opposing effects of trust on two alternative types of government intervention: regulation and redistribution. We argue that distrusting individuals demand more governmental regulation (H1) but less government redistribution (H2), and this could be one of the mechanisms explaining why countries with low levels of trust tend to both overregulate and under-redistribute. And the effects of trust on policy preferences are conditional on the quality of institutions. The higher the level of quality of government in a particular region, the more high-trusting individuals will like government redistribution and dislike government regulation that restricts the operations of free markets (H3). We test these hypotheses with data from the latest round of the European Quality of Government Index (EQI) survey, which covers 77,000 individuals from 185 regions of 21 EU member states.     

Is regulatory innovation fit for purpose? A case study of adaptive regulation for advanced biotherapeutics

The need to better balance the promotion of scientific and technological innovation with risk management for consumer protection has inspired several recent reforms attempting to make regulations more flexible and adaptive. The pharmaceutical sector has a long, established regulatory tradition, as well as a long history of controversies around how to balance incentives for needed therapeutic innovations and protecting patient safety. The emergence of disruptive biotechnologies has provided the occasion for regulatory innovation in this sector. This article investigates the regulation of advanced biotherapeutics in the European Union and shows that it presents several defining features of an adaptive regulation regime, notably institutionalized processes of planned adaptation that allow regulators to gather, generate, and mobilize new scientific and risk evidence about innovative products. However, our in-depth case analysis highlights that more attention needs to be paid to the consequences of the introduction of adaptive regulations, especially for critical stakeholders involved in this new regulatory ecosystem, the capacity and resource requirements placed on them to adapt, and the new tradeoffs they face. In addition, our analysis highlights a deficit in how we currently evaluate the performance and public value proposition of adaptive regulations vis-à-vis their stated goals and objectives.     

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.     

Regulatory inspection and the changing legitimacy of health and safety

The regulation of conduct via law is a key mechanism through which broader social meanings are negotiated and expressed. The use of regulatory tools to bring about desired outcomes reflects existing social and political understandings of institutional legitimacy, the meanings attached to regulation, and the values it seeks to advance. But these contextual understandings are not static, and their evolution poses challenges for regulators, particularly when they reflect political framing processes. This paper shows how inspection has been reshaped as a tool within the United Kingdom's health and safety system by changes in the meanings attached to the concept of “risk‐based regulation.” While rates of inspection have fallen dramatically in recent years, the nature and quality of inspection have also been fundamentally reshaped via an increasingly procedural and economically rational “risk‐based” policy context. This has had consequences for the transformative and symbolic value of inspection as a tool of regulatory practice.     

Responsive regulation at the Dutch Food and Consumer Product Safety Authority: An empirical assessment of assumptions underlying the theory

Responsive regulation usually boils down to the assumption that enforcers should not shift to coercing before it has become clear that persuading does not work. This presupposes that it is possible to determine what the correct enforcement style is, that enforcers can apply the most suitable style, and that enforcers control the negative unintended consequences of their conduct. We have studied the applicability of these presuppositions at the Dutch Food and Consumer Product Safety Authority by way of observations, interviews, and a survey. The applicability of all three presuppositions has proven problematic; enforcement agents apply different styles in comparable cases; they are impeded in applying the most appropriate style; and they do not control the perverse consequences of their conduct because regulatees tend to perceive it as more coercive than intended by inspectors. Our findings are not unique to this inspectorate and hence raise questions about the applicability of the theory of responsive regulation.     

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.     

Regulatory regimes and accountability

This research considers accountability issues for new forms of regulation that shift the emphasis from prescribing actions to regulating systems or regulating for results. Shortfalls at various levels of accountability are identified from experiences with these regimes in the regulation of building and fire safety, food safety and nuclear power plant safety. These experiences illustrate how accountability shortfalls can undermine regulatory performance and introduce a potential for subtle forms of regulatory capture. These concerns underscore the importance of finding the right fit between regulatory circumstances and the design of regulatory regimes.     

Does transnational private governance reduce or displace labor abuses? Addressing sorting dynamics across global supply chains

The attention of practitioners and scholars of private regulation of working conditions is focused on whether and how corporate buyers can help improve labor and safety standards in the factories that supply them by adopting codes of conduct, joining social certification schemes, participating in social audit processes, and financing safety improvements. I argue that more attention should be paid to the possibility that private regulation schemes – whatever degree of compliance they achieve – mostly result in a displacement effect or sorting dynamic that leaves the overall level of working conditions unchanged. I sketch a research agenda aimed at identifying the conditions under which a sorting dynamic can occur and at conceiving innovative private governance designs that could avoid it.     

Regulation by generalization

Both criminal and regulatory laws have traditionally been skeptical of what Jeremy Bentham referred to as evidentiary offenses – the prohibition (or regulation) of some activity not because it is wrong, but because it probabilistically (but not universally) indicates that a real wrong has occurred. From Bentham to the present, courts and theorists have worried about this form of regulation, believing that certainly in the criminal law context, but even with respect to regulation, it is wrong to impose sanctions on a “Where there’s smoke there’s fire” theory of governmental intervention. Yet, although this kind punishment by proxy continues to be held in disrepute both in courts and in the published work, we argue that this distaste is unwarranted. Regulating – even through the criminal law – by regulating intrinsically innocent activities that probabilistically, but not inexorably, indicate not‐so‐innocent activities is no different from the vast number of other probabilistic elements that pervade the regulatory process. Once we recognize the frequency with which we accept probabilistic but not certain burdens of proof, probabilistic but not certain substantive rules, and probabilistic but not certain pieces of evidence, we can see that defining offenses and regulatory targets in terms of non‐wrongful behavior that is evidence of wrongful behavior is neither surprising nor inadvisable.     

Codes in context: How states,markets, and civil society shape adherence to global labor standards

Transnational business regulation is increasingly implemented through private voluntary programs – such as certification regimes and codes of conduct – that diffuse global standards. However, little is known about the conditions under which companies adhere to these standards. We conduct one of the first large‐scale comparative studies to determine which international, domestic, civil society, and market institutions promote supply chain factories' adherence to the global labor standards embodied in codes of conduct imposed by multinational buyers. We find that suppliers are more likely to adhere when they are embedded in states that participate actively in the International Labour Organization treaty regime and that have stringent domestic labor law and high levels of press freedom. We further demonstrate that suppliers perform better when they serve buyers located in countries where consumers are wealthy and socially conscious. These findings suggest the importance of overlapping state, civil society, and market governance regimes to meaningful transnational regulation.     

Salt,high blood pressure,and performance‐based regulation

Performance‐based regulation is a new approach to public health promotion. The aim of this article is to explain how this idea might be applied to the public health goal of reducing salt consumption as a way of reducing high blood pressure and thereby saving lives. Performance‐based regulation is compared with competing regulatory strategies.