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About this book

Regulation has become a central aspect of contemporary governance as a result of public management reforms over recent decades. Yet, for all its ubiquity, the ideas of regulation have become increasingly contested. Key failures in the regulation of areas such as financial markets, nuclear power and food safety have revealed limitations in strategies which were once praised as offering superior problem-solving solutions.

This major new text introduces the issues which affect the design and operation of regulatory regimes, and assesses the different regulatory strategies which can be used to deal with real-world challenges. In doing so, it examines the most important areas in regulatory policy and reform, including rule-making and enforcement, better regulation, infrastructure regulation, international regulation and risk regulation. Throughout the book, Martin Lodge and Kai Wegrich discuss a range of hypothetical and real-world examples to illustrate key issues, options and trade-offs, and to encourage readers to think critically and creatively about the regulatory options which are available. Drawing on the most up-to-date research, this text provides a clear and useful toolkit for thinking analytically about regulation.

Table of Contents

Introduction

Abstract
Many countries in the early 21st century are wrestling with regulation. Continuous calls for a ‘high quality regulation’ agenda fill political chat show programmes. Regulation is said to be out-dated, poorly framed, too punitive and too prescriptive. Environmental groups complain that regulatory approaches are too loose. Public transport has witnessed major difficulties, while the media have voiced disquiet over the rise of a new type of ‘monster dog’ and the quality of care home oversight. Business interests are complaining about the lack of social order in general and are urging their national governments to consider alternatives to regulation in order to cut ‘red tape’. Regulators have come under attack for being both too responsive to political demands and for acting too autonomously.
Martin Lodge, Kai Wegrich

Chapter 1. What is Regulation?

Abstract
Business associations in many countries complain that the ‘regulatory burden is too high’. Regulation is seen as an obstacle to economic growth, because regulation is a cost factor and because bureaucratic regulation impedes innovation. The Amnesian business association is seeking advice from consultancies to substantiate this claim.
What kind of examples from the world of regulation should these consultancies list to justify the claim that the ‘regulatory burden’ is too high?
Martin Lodge, Kai Wegrich

Chapter 2. Theories of Regulation

Abstract
Amnesia has not been able to avoid the financial crisis. The whole banking sector had to be nationalized after Amnesia’s banks ran into severe financing problems. On one occasion, riots broke out when savers sought to withdraw their savings from one bank. Amnesia’s regulatory institutions have been blamed for failing to spot the high-risk activities of its banks. Politicians are being blamed for their reluctance to intervene and allowing banks to expand so much that they became much larger than the rest of Amnesia’s economy. To deal with the political fallout of the financial crisis, Amnesia has established a ‘Truth Commission’ to investigate the sources of regulatory failure. Why did regulation ‘fail’ and what lessons might be drawn from this experience?
What theoretical explanations exist that account for the failure of regulation? What can be learnt from these theories to avoid future repeats of such crises of regulation?
Martin Lodge, Kai Wegrich

Chapter 3. Standard-Setting

Abstract
A series of dog attacks on humans, including fatal incidents involving the death of two children, has caught the attention of the Amnesian public. After particularly graphic pictures appeared on the evening television news, the minister has come under considerable pressure to ‘do something’. The Minister has therefore demanded an immediate tough and comprehensive’ regulatory response.
At the same time, as a result of these public concerns there has been a rise in the number of abandoned dogs, leading to overcrowding in animal shelters. Wider attention has shifted to the shortcomings in the treatment and living conditions of dogs in these establishments. Another task force is instituted to develop standards for these shelters.
As advisors to the Amnesian government, you are asked to respond to three demands: What is a good standard for the control of dogs that are considered dangerous to the wider public? And what kind of approach should be taken towards the regulation of animal shelters?
Martin Lodge, Kai Wegrich

Chapter 4. Enforcement

Abstract
‘Amnesia belly’ has entered the international tourist vocabulary. To combat this impression of poor food safety, the Amnesian government has called for a fundamental overhaul of food safety regulation. A particular emphasis has been placed on the enforcement of safety standards. The government has asked the Amnesian Food Enforcement Agency (AFEA) to disseminate information and to inspect restaurants and other food-sellers. Training and ‘capacity building’ for inspectors is to take place. Tourists are particularly attracted to the food sold by Amnesian street vendors. Recent studies have shown that 40 per cent of all food sold by these vendors poses a risk to human health. At the same time, larger restaurant chains have been complaining about the rude and seemingly inconsistent and unreasonable conduct of the officials tasked with enforcing food standards.
Consider alternative strategies to deal with the enforcement of safety standards for restaurants and street vendors, their implications in terms of costs and wider effects, and recommend enforcement strategies. This requires an assessment of what the underlying problem is, why voluntary compliance might not forthcoming, and what strategies are likely to make regulated parties do what we want them to do.
Martin Lodge, Kai Wegrich

Chapter 5. Alternatives to Classical Regulation

Abstract
There is growing concern about lemonade binge-drinking. People are getting so high on the sugar content of the drinks that they have started late-night rioting in cities, leading some newspapers to suggest that inner cities have become ‘no go’ areas. At the same time, there has been concern about the long-term health effect of lemonade drinking and complaints that lemonade has been marketed to young children in particular — and teenagers, especially girls, have been prominent in latenight rioting. Lemonade cafés are a particular feature of Amnesian society and appear prominently in tourist guides, although their economic significance has suffered since the introduction of anti-smoking legislation. Supermarket sales of lemonade have increased. Tax rates for lemonade are lower in Amnesia’s neighbour country, Dezertia.
Amnesia wishes to address the problem of lemonade binge-drinking. It also is committed to an approach that favours ‘alternatives’ to regulation over ‘classical regulation’ (defined as legal standards backed by sanctions). This follows an international trend in advocating ‘alternatives to regulation’ (BRTF 2000; OECD 2002, 2010a; Department of Treasury and Finance 2007). Alternatives include exemptions, market-based solutions, design-solutions and self-regulatory options, and also the ‘donothing’ option. So what would you advise? What do we know about the regulatory tools available and how they would deal with the problem of lemonade binge-drinking?
Martin Lodge, Kai Wegrich

Chapter 6. Regulation Inside Government

Abstract
The Amnesian public prison system is in crisis. After a series of escapes and reports about the widespread abuse of prisoners by staff, the Amnesian government is concerned about the way in which prison directors exercise their authority. Amnesia’s prisons are overcrowded, in addition, prison officers and prisoners have formed networks to supply televisions, cell phones and drugs to the wider prison population. At the same time, the finance minister complains about the considerable cost of rehabilitation programmes, especially as reoffending rates are high.
Amnesia’s government would like to know what kind of control strategy it should adopt regarding its prisons. What control strategies are available to assess a prison director’s management? Is the application of tighter and more intense controls on prison directors the only available strategy?
Martin Lodge, Kai Wegrich

Chapter 7. International Regulation

Abstract
Imported Akunam honey has become highly popular in Amnesia and other countries. It is valued for its nutritional health benefits, and it is also used for the treatment of skin diseases. Akunam honey can only be harvested in the few areas where the Akunam tree grows. Recently, some disturbing reports have emerged that point out the poor conditions in which bees and beekeepers are being treated by various producers. In addition, contaminated and fake Akunam honey has emerged on the Amnesian market. In response, demands have been made for a stricter regulation of Akunam honey, possibly at the international level. Retailers and non-governmental organizations are proposing to establish a certification scheme (using a bear called Hans as a mascot). Some producers have created a different self-certification scheme, called Bruno (also using a bear as a mascot). Critics suggest that these two schemes lack credibility in terms of enforcement and inspection. Consumers are said to be confused between the two schemes, especially given their similar-looking mascots.
What would you advise? What would be a rationale for having an international regulatory regime? How would such a regime be justified? What kind of regime(s) should be established? Should private regulatory regimes be encouraged? What kind of mechanisms should be put in place?
Martin Lodge, Kai Wegrich

Chapter 8. Regulating Infrastructure Industries

Abstract
Amnesia is widely criticized for its poor infrastructure. The water pipelines leak and the water quality does not comply with contemporary environmental standards. The railways — the vertically integrated national monopolist (publicly owned AmnesiaRail) — are loss-making. The sole profitable part of the railway network consists of commuter services to Amnesia’s capital, Frenezia, on which commuters rely to get to work. Elsewhere in Amnesia, most citizens prefer to use private transport. However, it is politically impossible to close down railway services. Amnesia’s government has committed itself to liberalization and competition, but also to maintaining railway services at the present level.
Advise Amnesia on how you would set up railways and the water domain in Amnesia and how you would regulate it. In particular, consider options for (a) the type of regulatory regime, and (b) the ownership and structure of the industry.
Martin Lodge, Kai Wegrich

Chapter 9. Concessions and Franchising

Abstract
Amnesia’s final decision was to opt for a franchise model for its passenger railway services. Particular problems have emerged with the local railway system in Amnesia’s capital, Frenezia. The incumbent was vested with a franchise for 15 years, and the franchising period comes to an end in seven years. The incumbent refuses to invest in rolling stock and makes any further investment dependent on an early renewal of its franchise. Faced with reduced services and deteriorating service quality, the mayor of Frenezia asks you to offer advice on how to improve the franchising system in order to prevent any repeat of this conflict.
Martin Lodge, Kai Wegrich

Chapter 10. Better Regulation

Abstract
In response to a drop in the World Bank’s ‘Doing Business’ ranking (http://​www.​doingbusiness.​org), Amnesian business associations have been calling for an immediate response to the diagnosed problems with ‘red tape’ and the overall quality of regulation. Consumer groups similarly are complaining about a lack of a ‘level playing field’ in regulation, where business interests are accused of enjoying privileged access. The Prime Minister has therefore appointed a Better Regulation Czar to develop an effective approach towards ‘better regulation’ that will be supported by business and civil society groups. The Czar needs to develop a strategy towards ‘better regulation’ by choosing from the international ‘high quality regulation’ agenda. The Czar will also be required to monitor how ministries and agencies apply the chosen better regulation strategy. Finally, there is also confusion as to where the Czar and staff should be located within the overall organization of the Amnesian government: in particular whether the Czar should be located within the prime ministerial office or the economics ministry, or whether a free-standing agency should be established.
As an adviser to the Amnesian government, you are asked to prepare to set up the Czar and in particular consider:
  • What are the key issues that impact on the quality of regulation?
  • Which ‘better regulation’ tools are the most promising for improving regulatory quality?
  • Within the overall structure of government, where should the Czar be located?
  • What are the challenges the Czar is likely to face in developing and implementing the programme — and how would you address these problems?
Martin Lodge, Kai Wegrich

Chapter 11. Risk and Regulation

Abstract
The Amnesian food safety authority is considering the licensing of a new type of food. The new food, called Vanessa (after its inventor), promises to be the next ’super food’ as it offers high nutritional value and low calories. However, should Vanessa be kept for too long beyond the ‘use by’ date, it develops into a form of broccoli without any health benefits. Furthermore, in 0.02 per cent of cases, the Vanessa-turned-broccoli has been found to cause severe food poisoning, in an even small number of cases, the transmuted broccoli has been proven to develop aggressive tendencies, jumping out of fridges and knocking unassuming individuals unconscious. Environmentalists are also concerned that introducing Vanessa to the normal food chain will affect ‘normal’ broccoli production. In addition, the final food production process requires careful handling in order to avoid water pollution, as otherwise fish in neighbouring rivers would be contaminated and killed.
What strategies should the Amnesian regulator adopt regarding Vanessa? First, what key risk regulation strategies exist to assess whether Vanessa should be licensed or not. Second, what risk regulation strategies would you recommend to encourage Vanessa’s safe production?
Martin Lodge, Kai Wegrich

Chapter 12. What is Good Regulation?

Abstract
The various regulatory debates confronting Amnesia have created considerable unhappiness with the state of regulation in the country. It is said that Amnesia’s regulatory state is in crisis. This general discontent has encouraged the Amnesian government to ask for one concluding meeting with you. It wants to know how to ensure ‘good regulation’ in the future. What key dimensions should underline ‘good regulation’? What strategies should be used to achieve ‘good regulation’? What are the key themes that will continue to influence the regulatory state in Amnesia (and elsewhere)?
Martin Lodge, Kai Wegrich
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