Policy and regulatory design for developing countries: a mechanism design and transaction cost approach

The first-generation literature on policy design has made considerable contributions over the last 30 years to our understanding of the process, politics and implications of policy design and instrument choice. This literature, however, has generally treated institutions as a black box and has not developed a coherent set of frameworks, theories and models of how institutions matter to policy design. In this paper, I unpack the black box of institutions using transaction cost and mechanism design to show how regulations can be better designed in developing countries when institutions are weak, unaccountable, corrupted or not credible. Under these conditions, I show that efficient regulatory design has to minimize transaction costs, particularly agency problems, by having incentive compatible (self-enforcing) mechanisms. I conclude with a second-generation research agenda on regulatory design with implications for environmental, food and drug safety, healthcare and financial regulation in developing countries.     

Regulatory impact assessment and regulatory governance in developing countries

Regulatory impact assessment (RIA) offers the means to improve regulatory decision‐making and practice. RIA involves a systematic appraisal of the costs and benefits associated with a proposed new regulation and evaluation of the performance of existing regulations. So far, the adoption of RIA has been confined mainly to OECD countries. The purpose of this article is to assess the contribution that RIA can make to ‘better regulation’ in developing countries. Results from a survey of a small number of middle‐income countries suggest that a number of developing countries apply some form of regulatory assessment, but that the methods adopted are partial in their application and are certainly not systematically applied across government. The article discusses the capacity building requirements for the adoption of RIA in developing countries, in terms of regulatory assessment skills, including data collection methods and public consultation practices. The article also proposes a framework for RIA that can be applied in low and middle‐income countries to improve regulatory decision‐making and outcomes. Copyright © 2004 John Wiley & Sons, Ltd.     

The regulatory style of environmental governance in China: the case of EIA regulation in Shanghai*

The body of literature that examines how institutional contexts affect environmental governance in advanced industrial countries finds that style of environmental regulation is country‐specific. In the pluralist form of democracy like the United States, environmental policy formulation involves bargaining and compromises among interest groups and regulation enforcement through relatively formal and legalistic means. In the corporatist form of democracy like Sweden and Great Britain, in contrast, environmental policies are more accommodating to divergent societal interests and tend to be less formal in their enforcement. These variations in regulatory style have been attributed to differences in basic constitutional structures, regime types and cultures. How do institutional contexts affect the style of environmental regulation in China, which is both a non‐democratic and developing country? This article examines China's regulatory style by focusing on environmental impact assessment (EIA) regulation in Shanghai. The Shanghai EIA system is analyzed in terms of policy ideology, policy content, regulatory process, public participation and policy consequences. It is shown that China's being a single‐party regime with a ‘rule of persons’ tradition has heavily shaped its environmental governance. Based on Shanghai experience, China's style can be characterized as formal in requirement, agency‐dominated in the regulatory process, legalistic in enforcement, and informal politics as the substance of regulation. Copyright © 2000 John Wiley & Sons, Ltd.     

India,Brazil, and public health: Rule-making through south–south diffusion in the intellectual property rights regime?

This article analyzes the domestic drivers of regulatory state formation in India and Brazil and its consequences for the global rules governing pharmaceutical patents. We first analyze Indian and Brazilian politics of regulatory state formation; then, in light of the extent to which the two countries have built regulatory capacity and capability in the field of patent regulation, we explore whether and how they have been able to influence the existing intellectual property regime in health. We look into India's Section 3(d) and Brazil's prior consent requirement. Whereas India's Section 3(d) regulation has gained international regulatory influence by diffusing to other developing countries, the same cannot be said for Brazil's prior consent regulation, which has been caught by policy-reversals. The transition toward regulatory states in emerging countries is a bulky road and does not progress in linear ways. However, once regulatory capacity and capability have been solidified, domestic policy innovations can become internationally influential.     

Regulation‐by‐information in areas of limited statehood: Lessons from the Philippines' environmental regulation

This research examines conditions under which environmental regulatory disclosure is more versus less likely to work, with focus on the case of the Philippines. Two major findings arise out of a case study. First, we observe a mismatch between the nature of information and the main addressees of the disclosed information, which led the operation of the subject disclosure program to deviate from its targets. Second, this institutional deficiency has to do with the organizational culture and routine practice of the implementing agency. The second finding challenges a major justification of information‐based environmental regulation (IBER) administered in weak states and underscores the role that administrative capacity plays in making novel regulations come into effect. Contrary to the popular belief that IBER creates non‐governmental forces that offset a limited statehood, it may be less likely to work where state administrative capacity is weak.     

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.     

Chief executive officers and voluntary environmental performance: Costa Rica's certification for sustainable tourism

This study evaluates whether the education, environmental expertise, and nationality of firms' chief executive officers (CEOs) are associated with greater participation and environmental performance in a voluntary environmental program implemented in a developing nation. Specifically, we collected data from the Certification for Sustainable Tourism (CST) program, a voluntary initiative aimed at promoting beyond-compliance environmental performance by hotels operating in Costa Rica. Our findings suggest that CEOs' level of formal education and environmental expertise appear to be significantly associated with higher corporate participation in voluntary programs and also with higher beyond-compliance environmental performance ratings. Contrary to conventional expectations, CEOs from industrialized countries (as opposed to developing countries) do not appear to show a statistically significant association with participation in the CST program and with higher beyond-compliance environmental performance.     

Regulatory mobilization and service delivery at the edge of the regulatory state

Where there is weak state capacity to carry out regulatory, redistributional, and developmental functions characterizing much of the developing world, the role of governance and service delivery is also performed by a myriad of private actors. Institutional reform in the utility sector in developing countries has often failed to distinguish between social and economic regulation. I show how private actors like NGOs and local community groups undertake what I term “regulatory mobilization” to influence the new rules of the service delivery game, as well as to deliver much‐needed basic services to urban poor communities. Based on extensive fieldwork carried out in the Philippines, this article reveals and explains the politics of the informal sector at the edge of the regulatory state. More than a decade since the privatization of the Metropolitan Waterworks and Sewerage System in Metro Manila in 1997, water access for the urban poor remained limited as privatized water utilities faced difficulties in extending service provision. In the context of an unpredictable regulatory landscape and an oligarchic patrimonial state, unexpected collective action by organized urban poor communities and NGOs has taken place around water as a subsistence right. Combining hybrid mobilizations to obtain water as well as influencing the rules governing their provision, these forms of regulatory mobilization appear to be peripheral and episodic. However, depending on how local and sectoral politics are conflated, such regulatory mobilization may sometimes not only result in obtaining subsistence goods, but may also occasionally project countervailing power in the policy sector, and influence formal regulatory frameworks in surprising ways.     

Deregulation and Participation: An International Survey of Participation in Electricity Regulation

Amidst the wave of privatization and "deregulation" across the globe, a new set of regulatory structures is being created. The fact that deregulation actually involves "re-regulation" has been acknowledged in the recent literature, but the tension between regulation and public participation has been understudied in these new structures. While some private markets need effective regulation to reduce transactions costs and ensure stable market rules, consumers need regulation that is responsive to, and protective of, their interests. Consumer participation, therefore, is an important component of effective regulation. Effective regulation must also consider collective national or public interests, including the well-being of corporations. Therefore, regulatory agencies need to be both independent from, and responsive to corporate, consumer, and public interests. This article will briefly examine the tension among the competing goals of regulatory independence and responsiveness, and then conduct a broad survey of the status quo of public participation in national regulatory structures for electricity in the Americas. Our case studies demonstrate a wide variety of institutional mechanisms for participation, yet we find that no existing system seems to embrace direct participation by a wide set of consumers. The problems are even more acute in developing countries. We conclude by looking at recent experiments and proposals to improve the levels of participation in regulatory decision making.     

The “baby steps” in mainstreaming sustainable public procurement in Ghana: A “double‐agency” perspective

The emerging literature on public procurement policy suggests that public procurement may be leveraged to advance several public policy agenda. Hence, many countries have reformed their public procurement process towards social and environmental outcomes termed sustainable public procurement. These reforms have often been launched in response to international initiatives such as the global 10‐year framework for action on sustainable consumption and production by the Johannesburg implementation plan in 2002 and the Sustainable Development Goals. Yet, empirical evidence on the drivers and benefits of SPP in developing countries is still scarce. This gap is addressed with a qualitative case study of six public sector institutions in Ghana. On the basis of elite interviews, this paper highlights barriers to mainstreaming SPP in Ghana's public sector. We further advance the scanty principal–agency literature by establishing a double‐agency relationship in the context of SPP, which depicts limited agency cases where principals lack the capacity to defend their own interests.     

The economic effects of direct democracy—a first global assessment

This is the first study that assesses the economic effects of direct democratic institutions on a cross-country basis. We find that total spending as well as spending on welfare is lower in countries with mandatory referendums, consistent with the previous literature. But we also find that countries with national initiatives appear to spend more and be more corrupt. Finally, budget deficits, government effectiveness, productivity and “happiness” appear unrelated to direct democracy. Institutional detail thus matters a great deal. In general, the effects of direct-democratic institutions become stronger if the frequency of their actual use is taken into account. Effects are usually stronger in countries with weak democracies.     

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.     

Top‐Down Self‐Organization: State Logics,Substitutional Delegation,and Private Governance in Russia

This study investigates the counterintuitive emergence of self‐regulation in the Russian construction sector. Despite its proclivity for centralizing political authority, the government acted as the catalyst for the delegation of regulatory powers to private industry groups. The article argues that a factor little considered in extant literature—namely, a weak and corrupt bureaucracy—is key to explaining why the normally control‐oriented executive branch began to promote private governance despite industry's preference for continued state regulation. The article's signal contribution is to theoretically explain and empirically demonstrate how a government's prior inability to establish intrastate control over an ineffective and bribable public bureaucracy creates incentives for political authorities to search for alternative means for policy implementation outside of existing state agencies. These findings are important for understanding the impetus and logic behind particular regulatory shifts in countries where the state apparatus is both deficient and corrupt.     

It runs in the family: Meta-regulation and its siblings

Regulators in different countries and domains experiment with regulatory tools that allow organizations to adapt regulation to their individual circumstances, while holding them accountable for their self-regulation systems. Several labels have been coined for this type of regulation, including systems-based regulation, enforced self-regulation, management-based regulation, principles-based regulation, and meta-regulation. In this article, these forms of regulatory governance are classified as belonging to one family of “process-oriented regulation.” Based on a review of diverse empirical and theoretical research, it is suggested that the family of process-oriented regulation tends to have a positive, albeit varied, impact on organizations' performance, and the factors that shape this inconsistent effect are analyzed. Building on aspects of Parker's normative construct of “meta-regulation,” the article explores the extent to which her innovative notion of a learning-oriented approach to regulation might overcome some of the weaknesses of prevalent process-oriented approaches. It is proposed that under conditions of regulatory uncertainty or entrenched and prevalent non-compliance or both, meta-regulation is likely to have many advantages over other forms of process-oriented regulation. Yet realizing these advantages requires a rare combination of high regulatory capacity, a stable regulatory agenda, and a supportive political environment.     

Dynamics of Social Policy Change: A Korean Case Study from a Comparative Perspective

Most of the existing literature on dynamics of social policy change was developed against the background of the Western liberal democratic political regimes. This study examines the application of these existing studies to the experience of the East Asian newly industrialized countries. Special attention is paid to two social policy problems of South Korea—the problems of low wage levels and compensation for pollution victims. Because of authoritarian government and a strongly autonomous state, the Korean cases show a pattern of policy changes primarily driven by a particular set of interests—the state elites' perceived political survival needs and their reputation in international society, with environmental factors and policy legacies playing a supplementary role. Also, in spite of state elites' reluctance to adopt social policy measures, the Korean cases show a pattern of policy developments away from the residual towards the institutional model. The results of this study suggest that, despite some differences between the social policy systems of the East Asian countries, the existing literature on social policy change has considerable potential for application to those countries. At the same time, however, the literature has a limited capacity for fully accommodating the East Asian experience, which stimulates political scientists to develop generalizations in a wider international context.     

Corporate Environmentalism, Regulatory Reform, and Industry Self-Regulation: Toward Genuine Regulatory Reinvention in the United States

Increasingly, corporations are proactively managing environmental impacts in response to pressures from the consumer, business-to-business, financial, and government procurement markets. In many cases, these efforts have produced results well beyond what could be required under public regulations. Although the U.S. Environmental Protection Agency began a process of regulatory reinvention in the 1990s as a means of promoting such innovations, the results have been somewhat disappointing. This article examines the recent trends in corporate environmental management and regulatory reform. It concludes with a discussion of changes in regulatory design that could promote ongoing gains in corporate environmental performance through the creation of a hybrid system combining elements of public regulation, government-supervised corporate self-regulation, mandatory information disclosure, and green procurement.     

Do industry associations influence corporate environmentalism in developing countries? Evidence from Trinidad and Tobago

As environmental regulations increase, industry associations play a growing role in representing their respective members. This role has been documented in many industrialized countries but less so in emerging economies. In this study, we investigate the level of corporate environmentalism exhibited by member firms of two industry associations operating in Trinidad and Tobago. Using a two-stage Heckman regression that corrects for the endogeneity introduced by self-selection bias in the evaluation of voluntary choices, our findings indicate that firms that are members of the foreign-originated American Chamber of Commerce of Trinidad and Tobago appear to show stronger corporate environmentalism than those belonging to the locally formed Chamber of Commerce. Enhanced institutional pressures from these respective industry associations, peers and competitors within associations, access and exposure to best practices, networking opportunities and service bundling may explain these differences. These results suggest that environmental policy makers in emerging economies may be able to leverage foreign-originated industry associations to promote stronger corporate environmentalism. Policy makers may need to consider how to encourage local chambers to emulate the some of the institutional conditions of foreign-originated ones.     

Regulatory disempowerment: How enabling and controlling forms of power obstruct citizen-based regulation

Regulatory studies assume that citizens can act as regulators to complement or correct failing state and market forms of regulation. Yet, there is a growing literature that shows that in reality citizens may fail to be effective regulators. This paper systematically analyses how power inequalities obstruct citizens in their regulatory roles. It compares four case studies with highly different social and political contexts but with similar outcomes of citizens failing to regulate risk. The case studies are analyzed by operationalizing sociological and political science ideas about manifestations of enabling and controlling forms of power in order to understand the way power inequalities obstruct citizens in their regulatory roles across diverse contexts. The article shows how citizens, from farmers and manual workers in both authoritarian developing and democratic developed contexts to even highly trained medical professionals from the US, have limited agency and are disempowered to act as regulators. Our analysis reveals that five patterns of disempowerment play a crucial role in obstructing successful society-based regulation: (i) dependency, (ii) capacity, (iii) social hierarchy, (iv) discursive framing, and (v) perverse effects of legal rights.     

LONG TERM CARE REGULATION IN THE STATES: A SYSTEMIC PERSPECTIVE

In recent years there has been growing interest in differing state roles in the regulation of the health care industry. Most of this attention has stressed the impact of regulatory policy with only superficial attention directed towards understanding the extent to which states can be counted on to act effectively in the area of health care regulation. Using the regulation of nursing homes as a focus, this study evaluates a variety of sociocultural, political, and economic conditions for their impact on the development of various regulatory policies. The findings suggest that the development of certificate of need legislation and reimbursement controls were not related to significant changes ir, states' budgets for Medicaid services or in bed/population ratios. Instead, regulatory efforts were more closely linked to the sociopolitical environments surrounding the policy arena. While these factors provide some indication of the potential for strong state action in the regulatory arena, ultimately the use of state regulatory policies will depend quite centrally on the innovative tendencies of the state, its organizational capacity for addressing policy issues, and the nature and extent of interest group politics.