«CHALLENGES FOR REGULATORY COMPLIANCE Organisation for Economic Co-operation and Development Copyright OECD, 2000. All rights reserved. FOREWORD The ...»
REDUCING THE RISK OF POLICY FAILURE:
CHALLENGES FOR REGULATORY COMPLIANCE
Organisation for Economic Co-operation and Development
Copyright OECD, 2000. All rights reserved.
The work of the Public Management Committee (PUMA) on regulatory reform -- built over
ten years -- has provided substantive input and other extensive support to the development, organisation, and policy direction of the regulatory reform programmes in OECD Member countries.
PUMA’s emphasis is on regulatory quality --- combining both good regulation where needed to protect health, safety, and the environment, and to enhance the functioning of markets, and deregulation where free markets work better. The concept of quality regulation was the primary basis for policy recommendations that gained the support of all Member countries in the 1997 OECD Report to Ministers on Regulatory Reform.
Regulatory reform is an innovative and fast-moving field. The PUMA work programme on regulation has focused on helping governments develop new capacities and identify best practices for improving the quality of their regulatory decisions. The intent is to establish a longer-term basis for efficient and responsive regulation by changing incentives, capacities, and cultures in public sector institutions, based on market, juridical, and public management principles.
The PUMA work on regulation is overseen by the Regulatory Management and Reform Group of the Public Management Committee. The Group is unique in the OECD in bringing together policy officials responsible for cross-cutting and horizontal regulatory reform policies, and hence has a key role in influencing the work of the Organisation in this area. The Group developed the 1995 OECD Recommendation on Improving the Quality of Government Regulation, which has been used by many countries as the basis for new disciplines on the use of regulation. The PUMA work responds directly to their needs and integrates their expertise into the OECD-wide programme.
The work on regulatory compliance is intended to assist Member countries in improving the effectiveness and efficiency of public policies carried out by regulation and alternative policy tools.
The OECD Working Party on Regulatory Management and Reform reviewed in June 1999 and in November 1999 a draft report, “The State of Regulatory Compliance: Issues, Trends and Challenges”.
In the report, the Public Management Service (PUMA) reviewed major issues with respect to regulatory compliance and catalogued innovative approaches to improve compliance. A number of Member countries submitted comments and cases for inclusion in the report. This is the final version of the report. It was prepared by Christine Parker, University of New South Wales at Sydney, under the direction of Kirsi Kuuttiniemi, PUMA, and finalised for publication by But Klaasen of the Dutch Ministry of Justice and Jefferson Hill of the US Office of Management and Budget. The Head of the Programme on Regulatory Reform is Scott H. Jacobs.
The papers in this series are published on the responsibility of the Secretary-General of the OECD. The views expressed in the papers are those of the authors, and neither commit nor necessarily reflect those of the governments of OECD Member countries.
REDUCING THE RISK OF POLICY FAILURE:CHALLENGES FOR REGULATORY COMPLIANCE
CHAPTER 1 INTRODUCTION
1. REGULATORY COMPLIANCE PROBLEMS: A CASE FOR REGULATORYREFORM
2. REGULATORY COMPLIANCE AND POLICY EFFECTIVENESS
CHAPTER 2 COMPLIANCE FAILURES
1. NON-COMPLIANCE RELATED TO LACK OF REGULATORYKNOWLEDGE OR COMPREHENSION BY THE TARGET GROUP
2. NON-COMPLIANCE RELATED TO THE WILLINGNESS OF THE TARGETGROUP TO COMPLY WITH THE RULES
3. NON-COMPLIANCE RELATED TO THE ABILITY OF THE TARGETGROUP TO COMPLY WITH THE RULES
CHAPTER 3 INNOVATIVE STRATEGIES TO IMPROVE COMPLIANCE ANDREGULATORY EFFECTIVENESS
1. INNOVATIONS IN THE DESIGN PHASE
1.1. Problem identification and the use of non-regulatory instruments
1.2. Government regulation that maximises voluntary compliance
2. INNOVATIONS IN THE IMPLEMENTATION AND ENFORCEMENT PHASE...... 34
2.1. Rewards and incentives for high/voluntary compliance
2.2. Nurture compliance capacity in business
2.3. Targeting for low compliance
2.4. Restorative justice when voluntary compliance fails
2.5. Responsive enforcement when restorative justice fails
CHAPTER 4 TOOLS FOR COMPLIANCE-ORIENTED REGULATION
1. TOOLS FOR EX ANTE EVALUATION: IMPACT ANALYSIS OF COMPLIANCE.. 45
2. TOOLS FOR EX POST EVALUATION: MONITORING COMPLIANCE TRENDS.. 49
3. RESULTS-ORIENTED ENFORCEMENT MANAGEMENT
CHAPTER 5 SUGGESTIONS FOR RESULTS-ORIENTED POLICY
1. RESULT-ORIENTED POLICY DESIGN
2. COMPLIANCE-ORIENTED REGULATORY DESIGN
3. EVALUATE REGULATORY EFFECTIVENESS
ANNEX: SUMMARY OF SCHOLARLY LITERATURE ON REGULATORYCOMPLIANCE
1. INTRODUCTION: TWO MEANINGS OF COMPLIANCE
1.2. Compliance 1: Description and explanation of obedience of target populations to regulation
1.3. Compliance 2: A co-operative, persuasive style of regulatory enforcement strategy
1.4. Outline of this review
2. REASONS FOR COMPLIANCE: DETERRENCE AND OTHER EXPLANATIONS. 68
2.1. The traditional deterrence approach
2.2. Problems with simple deterrence theory
2.3. Bounded rationality
2.4. The effects of negative publicity
2.5. Informal sanctions and shame
2.6. The significance of maintaining legitimacy
2.7. Co-operation and trust
2.8. Effective motivations for compliance vary among people and contexts................. 73
3. COMPLIANCE AND MIXES OF REGULATORY STRATEGIES
3.1. A more holistic, pragmatic and outcome-oriented approach to understanding compliance
3.2. Pyramids of regulatory strategies
3.3. Regulatory instrument mixes
4. CURRENT AND EMERGING THEMES
4.2. Regulatory pluralism and regulatory space
4.3. Internal corporate compliance systems
4.4. Incentives for compliance systems and compliance leadership
4.5. The role of third parties, civil society and markets in regulation
A key determinant of government effectiveness is how well regulatory systems achieve their policy objectives. Rapid increases in regulation and government formalities in most OECD countries since the 1970s have produced impressive gains in some areas of economic and social well-being, but too often the results of regulation have been disappointing. Dramatic regulatory failures tend to produce calls for more regulation, with little assessment of the underlying reasons for failure. Though there is little hard evidence, a growing body of anecdotes and studies from OECD countries suggests that inadequate compliance underlies many such failures. This is a common but little understood form of regulatory failure.
In recent years, governments have increased their efforts to examine how they can achieve policy objectives more cost-effectively through better regulation or different mixes of policy tools.
The OECD published in 1993 a report on “Improving Regulatory Compliance: Strategies and Practical Applications in OECD Countries,” that opened the OECD’s discussion of the issue.
− This new report is an overview of emerging issues for regulatory compliance, and focuses on assessing the level of compliance with regulations by target groups, and possible explanations for why compliance levels are low or high. Explanations for the
level of (non-) compliance fall into three categories:
Government actions to promote regulatory compliance must take each of these into consideration.
But even full compliance with a specific rule will not result in the achievement of regulatory objectives if the rule’s underlying design is flawed. Slavish adherence to regulatory details by the target group will not achieve the regulatory objectives if the policymaker did not choose appropriate policy instruments. The traditional regulatory approach of establishing standards of behaviour and legal enforcement mechanisms is not the sole means for governments to influence the behaviour of citizens and enterprises and may not be the most effective. In order to achieve regulatory objectives, regulatory policymakers need a clear understanding of the nature of different policy instruments, of the habits of the regulated target group, and of the regulatory context, to achieve regulatory objectives.
A common assumption is that the target group will be aware of, and understand how to comply with a rule when it is published. However, rapid increases in the complexity and volume of new regulations can make this basic assumption unrealistic. The responsibility of policymakers does not end with publication of the rule. New rules may need to be accompanied by information campaigns to ensure that they are brought to the notice of and made comprehensible to the target group. A focus on the feasibility of compliance is also needed. For small businesses in particular, the burden of assimilating and complying with many complex and technical rules can be unreasonable and undermine confidence in regulators and the regulatory structure. Governments have a clear long-term interest in maintaining positive attitudes toward the regulatory system among citizens and businesses, since these attitudes largely determine the level of “voluntary compliance”. Enforcement cannot substitute for low levels of voluntary compliance. In the longer-term, widespread non-compliance will undermine respect for the rule of law.
Work to support good compliance outcomes should begin at the regulatory design stage. To date, while many Member countries employ various kinds of risk and impact analysis methods, few conduct ex ante evaluation of compliance factors. This report discusses some promising methods developed in Member countries that can help improve the likely level of future compliance. These methods demonstrate that, by enhancing a range of contributing factors, policymakers are able to develop and implement more realistic and compliance-friendly regulatory designs.
Monitoring compliance trends should also be a key part of ex post evaluation programmes for existing regulations. Many countries collect data that can be used to calculate compliance rates in the taxation area and to assess the impact of regulatory interventions on compliance. However, most governments find it difficult to collect aggregate and systematic data on compliance trends in other policy areas where quantitative outcomes are more difficult to measure. Monitoring compliance is a relatively new activity in Member countries; there is little evidence at present that the results of compliance monitoring are used to modify ineffective policies and make enforcement more effective.
It is nevertheless encouraging that a growing number of inspection bodies acknowledge the importance of collecting reliable compliance data.
Using compliance data to improve the effectiveness of enforcement activities means that regulatory agencies need to shift away from traditional performance measures, such as their own level of activity (i.e. measuring inputs). Instead, regulatory agencies need to shift towards output measures, such as environmental results, health effects, declines in injury rates, and behavioural outcomes that impact more directly on social welfare.
The main conclusion of this report is that awareness of compliance problems is growing among Member countries, but that action to improve compliance is unco-ordinated and unsystematic.