Economic Approaches to Regulation

Economics has been at the heart of regulatory reform beginning with the wave of deregulation and privatisations of the 1980s. This article focuses on economic theories of regulation, and the way economics has been used to design and evaluate regulation. As the title of this article suggests, there are a number of economic approaches. However, these all share the conviction that relatively simple economic theory can assist in understanding regulation, and providing practical tools for regulators to make regulation more effective and efficient. The subject matter of the economics of regulation covers at least four broad areas — economic regulation, social regulation, competition law, and the legal system. Here a broader view is taken encompassing competition and merger laws, and the field known as law-and-economics or the economics of law is illustrated which looks at the legal system.

Meta‐Regulation and Self‐Regulation

The conventional view of regulation emphasises two opposing conditions: freedom and control. Government can either leave businesses with complete discretion to act according to their own interests, or it can impose regulations taking that discretion away by threatening sanctions aimed at bringing firms' interests into alignment with those of society, as a whole. This article focuses specifically on two alternatives to traditional, so-called command-and-control regulation: namely, meta-regulation and self-regulation. It defines these alternatives and situates their use in an overall regulatory governance toolkit. Drawing on the existing body of social science research on regulatory alternatives, this article identifies some of the strengths and weaknesses of both meta-regulation and self-regulation, and considers how these strengths and weaknesses are affected by different policy conditions.

Regulatory Rationales Beyond the Economic: In Search of the Public Interest

This article contends that regulation in certain fields should incorporate and give emphasis to values beyond those of market economics. It is argued here that the frame of reference of the market is too narrow to encompass properly a range of social and political values which are established in liberal democracies and can be seen as constitutional in nature. Examples from fields such as environmental regulation and regulation of the media are used here to illustrate a range of non-economic values which have been, are, or should be reflected in regulatory theory and practice as a means of recognising and reflecting principles related to social justice. Such principles extend beyond, and may be antithetical to the practices, values, and outcomes of market-driven decision-making.

Regulation and Sustainable Energy Systems

This article discusses the extent to which regulation has a role to play in the development and operation of sustainable energy systems, in other words, the extent to which regulators' decisions should be shaped by broader policy goals on sustainability, and how regulators might devise frameworks to encourage the deployment of sustainable technologies and practices. Its basic premise is that the development of sustainable energy systems is vital in the public interest and that economic regulators can play a key role in delivering such systems. This article highlights that inherent conflicts between policy and regulatory objectives, especially in an area that seeks to incentivise investment, achieve goals in terms of climate change commitments and enhance efficiency. It points to the tensions that arise between levels of government as well as in terms of allocation of decision-making authority between government departments and supposedly independent regulatory agencies.

Regulation of Cyberspace

This article deals with the regulation of cyberspace and suggests that the challenges of regulation in this area are partly reminiscent of those in other regulatory domains and partly new ones. This newness is due to the opportunities that the new technologies provide to actors and which allow them to act in very different ways — as regulators or as regulatory targets. A significant point in this field is that the distinction between those who regulate and those who are regulated can become blurred because public regulators increasingly, and more so than in other regulatory domains, depend on the co-operation of regulatory intermediaries, if public intervention is to be effective. The continuing challenge in this field is liable to centre around the norms, rules, and regulations governing this complex and dynamic space and the ways in which these are influenced by a variety of factors, parties, interests, institutions, and forces.

On the Theory and Evidence on Regulation of Network Industries in Developing Countries

The corpus of research on developing countries of the last five to ten years shows that the design of regulatory systems has to address many goals under very tight institutional capacity constraints. These goals range from standard economic concerns such as efficiency, equity, or fiscal sustainability when the networks rely heavily on subsidies to more political concerns including notably the need to ensure more accountability of the providers of the services. This article provides a brief overview of the ownership structure and organisation of regulation in developing countries. It identifies the four key institutional limitations that are found in developing countries: capacity, commitment, accountability, and fiscal efficiency. Furthermore, this article discusses their implications and the regulatory policy options available to address them. It shows some of the trade-offs and inconsistencies due to conflicts in the optimal strategy to deal with different problems. Finally, it summarises the relevant empirical results.

The Role of Risk in Regulatory Processes

This article explores the role that risk plays in different parts of the regulatory process, in order to evaluate the extent to which risk has become an ‘organising principle’ of governance and its implications. This article focuses more specifically on the role that risk plays in constituting, framing, and structuring regulation and regulatory processes, and analyses some of the key themes of the broader risk literature in this context. It argues that risk currently plays four main roles in regulation: providing an object of regulation; justifying regulation; constituting and framing regulatory organisations and regulatory procedures; and framing accountability relationships. This article explores each of these roles. It suggests that in each case, the role of ‘risk’ serves to destabilise decision-making, leading governments and regulators to attempts to find stability through attempts to rationalise processes and procedures, attempts which are often unsuccessful due to the inherent nature of risk itself.

Regulatory Impact Assessment

Regulatory impact assessment (RIA) has spread throughout the globe. It is a systematic and mandatory appraisal of how proposed primary and/or secondary legislation will affect certain categories of stakeholders, economic sectors, and the environment. This article reviews the theoretical underpinnings of this ‘recent interest’ comparing the two sides of the Atlantic. It introduces the logic of RIA and the terms of the debate in the US and Europe. It proceeds by exploring different theoretical explanations. It draws on principal–agent models but also shows their limitations and considers alternative theories of regulation. Furthermore, it moves from theory to empirical evidence and reports on the main findings and their implications. Finally, it brings together theories and empirical evidence, and introduces a framework for research.

Alternatives to Regulation? Market Mechanisms and the Environment

This article identifies a number of ongoing challenges. It focuses on the means of environmental regulation — the techniques regulators use to reduce pollution. It discusses traditional regulation (often called command-and-control regulation), the economic theory undergirding market-based environmental regulation, and increased use of market mechanisms. This treatment of market mechanisms considers them in an institutional context, showing how a multilevel governance system implements market mechanisms. Market-based instruments have become increasingly important as neoliberalism has advanced. While these instruments provide a cost effective way of realising environmental improvements, they depend on government design and enforcement for their efficacy. A concern that is shared across contributions is that such instruments are increasingly deployed in a complex context of multilevel governance and challenges multiply where market mechanisms traverse national boundaries.

Standard‐Setting in Regulatory Regimes

Standards of one kind or another are central to all regulatory regimes. Conceived of in most general terms, standards are the norms, goals, objectives, or rules around which a regulatory regime is organised. The first part of this article elaborates further on the meaning of standards within regulatory regimes. The second part of this article is concerned with the variety of state and non-state actors who are involved in standard-setting and the processes through which standards are set and applied. The setting of standards is characterised by a diffusion of responsibility — national and supranational levels, state and non-state. The final substantive section of this article addresses the challenges of accountability associated with the emergence of a highly diffuse ‘industry’ for regulatory standard setting.