Autonomy

The tools in this category share a common concern to increase self-determined decision-making. The conviction behind these tools is that the greater degree of autonomy will allow for more nibble, flexible and creative responses within the larger context of an established regulatory framework. While most of these tools concern themselves with the autonomy of the regulated, the first listed below addresses the autonomy of the regulator.

Agency Discretion

Agency discretion is a regulatory approach advocated as a means to correct current dysfunction in regulatory practices. In allowing regulatory agencies greater latitude in identifying and implementing substantive regulative requirements, it is believed, the necessary flexibility will be achieved to enable regulators to effectively respond to the ever-changing technical, economic and political conditions within which they operate. Thus regulators will be freed from the rigidities inherent in conventional command-and-control regimes, which result in the wooden application of rules, and encourages judicial challenge. Increased agency discretion promotes regulatory innovation, while elevating the morale of the regulator’s human resources.

However, under these circumstances, accountability becomes even more pressing. Agency discretion raises the of whether too great a degree of discretion could allow agencies both to effectively set policy themselves, and, ironically, to circumstantially circumvent their own ad hoc policy-making, not to mention circumventing existing legislated policy. In such a case, the agency becomes a power unto itself, but with the potential to go completely out of control. Furthermore, under such increased discretion, the danger of agencies being captured either by the regulated or narrow-interest groups is considerably heightened. A productive but responsible balance between discretion and accountability is the challenge.

Seidenfeld, Mark, "Bending the rules: Flexible regulation and constraints on agency discretion," Administrative Law Review, 51(2) Spring 1999, 429-495

The author evaluates the widely held position that the problems confronting regulatory regimes at the time might best be remedied by providing regulators with greater discretion in the exercise of their responsibilities. Those who promote this increased discretion argue that it would provide regulators the flexibility necessary to avoid such ills as the wooden application of rules, which can even undermine the rule’s intent; the holding of agencies to resource-wasting standards of exactitude by the courts; and the resulting consequence of agencies feeling forced to compromise fundamental mandates. Seidenfeld considers the pitfalls of discretion. Too great a degree of discretion could allow agencies both to effectively set policy themselves, and, ironically, to circumstantially circumvent their own ad hoc policy-making, not to mention circumventing existing legislation. He therefore discusses the operational apparatus that might be used to constrain discretion, while maintaining the desired degree of administrative flexibility.

Kim , Junseok, and Brian Gerber, "Bureaucratic leverage over policy choice: Explaining the dynamics of state-level reforms in telecommunications regulation," Policy Studies Journal, 33(4) November 2005

While state governments in the U.S. have enjoyed greater control over regulating local telephone service providers since 1984, movement toward efficiency-based policy reform (e.g., adoption of competitive markets) has proceeded slowly. The authors investigate this pattern by addressing how the degree of policy discretion held by state public utility commissions (PUCs) affects reform of local telephone exchange regulation. Using measures of both PUC discretion and state policy changes over time, they find that states with “stronger” PUCs (more policymaking authority) are significantly more likely to move toward efficiency-based policy regimes and away from traditional rate-of-return regimes. Greater PUC discretion systematically related to state adoption of efficiency-based reforms over time suggest that regulators are using updated information about policy impacts to inform their policymaking activities. Their findings contradict a common presumption that regulatory bureaucracies are simply motivated by a desire to increase their control over policymaking. Instead, state PUCs are a key source of telecommunications policy reform in the states.

Auctions (blind)

This technique is used to achieve the maximum benefit from owner-implemented pollution reduction measures. The regulator designates a specific, undisclosed, sum of money available for such amelioration projects and accepts blind bids from owners looking to improve their resources and minimize potential future regulatory impacts. Usually a maximum of two or three "items" -- particular projects -- are accepted from each bidder.

Often mutiple rounds of bidding occur, during which owners are informed which of their items will be considered over into the next round of bidding and which have been disqualified in the last round. At no time does a bidder know the sum being made available. The multiple rounds allow bidders to concentrate on their stronger items in subsequent rounds, providing incentives to explore more efficient innovations for delivering the amelioration project, allowing them to lower the cost of the item and strengthen their subsequent bids.

At the end of the auction, the successful seller(s)/bidder(s) receive the offer price for the specified project. The bids need to be evaluated for their feasibility at the bidded price as well as the economy of the offer. While developed for pollution reduction, this technique is clearly applicable in other regulatory contexts.

Cason, Timothy N., et al. "A laboratory study of auctions for reducing non-point source pollution", Journal of Environmental Economics and Management,46 2003, 446-471

Permits: Intertemporal Emission Banking (IEPB) and Tradable Goods

Used primarily in environmental regulatory regimes, IEPB refers to marketable emission permits systems that allow for “banking” and “borrowing” of emissions over time. A firm with unexpectedly low emissions in one particular period may bank its permits, borrowing upon them later, should future emissions exceed allowance expectations. Likewise, the converse, a failure to meet initial expectations provides the opportunity to take out a loan, and borrow against future emission allowances, which would then have to be compensated for in the future. Such a system is considered particularly effective under conditions where pollution is stochastic, and it is costly to impose regulatory sanctions on firms that exceed emission allowances.

Another variation on this tool is to allow firms to sell their banked emission reductions to other firms who are underachieving. This though would prevent such firms from borrowing against their own early success, should problems in achieving designated standards arise later. They are able, though, in such an event, to buy permits from other firms that are achieving desired levels at that time. In either scenario, the regulated gains greater autonomy in charting its own path to meeting regulatory objectives.

An interesting development in the use of tradable permits has been the banding together of environmental and citizen groups to buy up permits and retire them so that they're no longer available as pollution-space for aspiring pollutors or permit traders.

Smith, Stefani C., and Andrew J. Yates, "Optimal pollution permit endowments in markets with endogenous emissions," Journal of Environmental Economics and Management, 46(2003) 0, 425-445

The authors present static and dynamic models of pollution permit markets with endogenous emissions. They find that the optimal permit endowments are characterized when the regulator faces uncertainty about damages and uncertainty about the severity of the citizens’ collective action problem. Due to the possibility of learning over time, the regulatory issues a larger number of permits in the first period of the dynamic model than in the static model.

Innes, Robert, "Stochastic pollution, costly sanctions and optimality of emission permit banking," Journal of Environmental Economics and Management, 45(3) May 2003, 546-568

The author considers the merits in regulatory schemes that allow potential polluters to bank or borrow emission permits over time. Given the high cost of regulatory sanctions against non-compliant firms, he finds that such a system provides a cost effective incentive for firms to conscientiously pursue pollution abatement without the need for costly government enforcement actions that would otherwise be required. He explains both the economic gains and the preferable systems design, for such an inter-temporal tradable emission permit approach.

Bruneau, Joel F., "A note on permits, standards, and technological innovation," Journal of Environmental Economics and Management, 48(3) November 2004, 1192-99

The authr argues that performance standards will generate greater incentives to innovate than market-based instruments in perfectly competitive markets. However, when marginal costs are increasing, the benefit of additional output is tempered and market-based instruments look more favourable.

Parry, Ian W. H., "Are emissions permits regressive?," Journal of Environmental Economics and Management, 47(2) March 2004, 364-387

Grand fathered emissions permits redistribute income to wealthy households by creating firm rents that ultimately accrue to shareholders. Consequently, they can be highly regressive, even if the poor do not have large budget shares for polluting goods. Using an analytical model, the author estimates the burden of emissions permits borne by different income groups under control of power plant emissions of carbon, SO2, and NOx. He also compares the burden borne by poor households under permits with that under emissions taxes, performance standards, technology mandates, and input taxes. And he shows how the social costs of policies differ from efficiency costs when society has aversion to inequality.

Self-Regulation

Self-regulation is a regulatory tool employed by an established body of the regulated under conditions determined by the regulator. Self-regulation is cost-efficient for the regulator since routine monitoring and inspection need only be exercised at the level of the body’s self-regulating process, rather than having to act as overseer of the many individual members of the regulated body. For the regulated, self-regulation preserves professional autonomy while creating important conditions of public legitimacy through the establishment and enforcement of appropriate professional standards.

Gilmour, Joan M., et al. "Opening the door to complementary and alternative medicine: Self-regulation in Ontario," Law and Policy, 24(2) April 2002, 149-174

The authors look at the steps taken by three “complementary and alternative medicine” groups to achieve statutory self-regulation in the province of Ontario. They compare and contrast the different initiatives of the three groups, and consider the limitations imposed by the province of Ontario’s regulatory regime on these groups’ efforts to fit into the regime’s dominant paradigm of health care.

Welsh, Sandy , et al. "Moving forward? Complementary and alternative practitioners seeking self-regulation," Sociology of Health and Illness, 26(2) 2004, 216-41

The authors present interview data from leaders of several key CAM groups in Ontario that demonstrate four strategies to achieve the self-regulation of formal professionalization: improved educational standards; improved practice standards; peer-reviewed research and group cohesion. They also highlight internal conflicts over the infusion of medical science into these efforts to establishing qualification and legitimacy.

Reflective Codes

This tool identifies the ethical standards by which the self-regulated determine and evaluate appropriate behaviour. The gold standard of such codes may be regarded as the medical physician’s Hippocratic Oath. Reflective Codes establish and articulate the ethical standards by which the regulated will be judged in the monitoring, inspection and enforcement practices of their self-regulating body.

Brown, James S., "Towards a professional ethos: From regulatory to reflective codes", International Review of Administrative Studies,66(4) December 2000 0, 673-687