Trust-based regulation
Regulatory Relief
Regulatory relief programs (compliance incentives) involve regulators offering regulatees incentives for regulatory compliance, including flexibility in the means of meeting regulatory objectives; technical assistance; and some times forgiving violations – eschewing punishments and sanctions – in reciprocation the regulated are expected to strive for superior compliance. In the U.S., both the EPA and some state authorities (25) have instituted such programs. Some of the states have even granted attorney-client privileges to information uncovered during self-audits, hoping this will encourage self-policing. (As of fall 2004, the EPA did not endorse or approve of this latter development.)
The aspiration in regulatory relief is to create a less rigid, deterrence-based approach, nurturing a compliance culture. This approach however is criticized by many who see such developments as a license to pollute, and dismiss voluntary regulation codes as “green washes” that simply conceal pollution records. Profit-seeking firms, it is argued, have a structurally-biased motivation to find any loophole possible to avoid regulatory costs.
Parker, Christine, "Compliance professionalism and regulatory community: The Australian Trades Practice Regime," Journal of Law and Society, 26(2) June 1999, 215-239
The author provides an overview of the vicissitudes of a regulatory authority’s endeavour to encourage the corporate culture necessary for the success of self-regulation. She focuses on the role played by corporate compliance advisors in constructing corporate citizenship from the inside. She argues that encouraging internal corporate compliance requires regulators to move beyond compliance-oriented enforcement strategies, and persuasion techniques. Basing herself on an examination of the Australian trade practices regime, Parker concludes that regulators will produce only a feeble corporate commitment to compliance unless they make two key changes in orientation. First, they must build the capacity for corporations to deliberate internally about, and implement, compliance programs by nurturing compliance professionalism. Second, they must increase corporate accountability by concentrating financial and intellectual resources on the “meta-evaluation” of corporate compliance efforts. These prescriptions, she concludes, will help constitute the required compliance community to make self-regulation meaningful, and in which effective corporate citizenship becomes a viable possibility.
Potoski, Matthew, and Aseem Prakash, "The regulation dilemma: Cooperation and conflict in environmental governance," Public Administration Review, 64(2) March/April 2004, 152-161
This is an overview of the crux of the dilemma posed by contemporary efforts at regulatory innovation. The authors examine the regulatory dilemma inherent in the aspiration to create more flexible, adaptive and ultimately effective regulatory governance: moving from conflict to cooperation. While cooperation provides optimal conditions for regulator and regulatee, both have powerful short-term motives to choose conflict instead. A government must choose between flexible compliance and rigid enforcement; firms must choose between evasion and self-policing. Self-policing makes the regulator’s job easier and less expensive; regulatory relief incentives reduce the cost and ease of regulation to the regulator. The dilemma is that regulatees can exploit regulatory relief, taking advantage of lax monitoring and enforcement; regulators could take advantage of voluntary self-disclosure by expansive application of sanctions. Regulators fear they’ll be accused of laxness; regulatees fear they’ll expose themselves to counter-competitive market conditions by increased regulatory burden. As in the traditional prisoner’s dilemma, the only optimal resolution of the regulation dilemma lies in trust on the part of each party that the other will not follow the logic of its easiest and safest route to success. The authors argue that this trust can be cultivated either through a history of past behaviour – indicating a refusal to be opportunistic – or through an institutional pledge to so refuse in future behaviour, especially when this is buttressed by the use of third-party verification. They acknowledge, though, that the recent spate of Enron-type regulatory failures show that third-party verification is not a panacea.
Steinzor, Rena I., "Pragmatic regulation in dangerous times," Yale Journal of Regulation, 20(2) summer 2003, 407-429
In the form of a book review, the author argues – in contrast to the “conservative,” “economist,” deregulationist dismissal of command and control as too costly – that U.S. lawmakers’ regulative approach of the 70s and 80s was consistent with the highest standards of the American pragmatist tradition. As such, she claims, that legislation has delivered the most efficient, effective, democratic regulation, respecting all competing perspectives, as was possible under the available deliberative process.
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