Publications

This paper provides a critique of broad aggregate proposals to reduce the regulatory burden. It argues that the public debate about regulatory reform and red tape is loose and general, with little regard for the complex ways in which regulation imposes costs and benefits on the economy. Although there are theoretical reasons to expect regulation to be in excess supply, there is little empirical analysis to link aggregate regulation with productivity and economic growth. Regulation is itself a public good, and many aspects of economic efficiency require regulation to address market failures. The main efficiency issues are better addressed through a disaggregated approach, focusing on when, where, and how to regulate, rather than on crude aggregate estimates of the total burden. The design of regulation needs to take account of regulatory capture, and it is argued that market-based instruments and independent regulatory bodies tend to reduce the scope for capture. The incentives and employment rules governing regulatory institutions are also discussed. In ignoring these disaggregated regulatory design problems, crude aggregate targets for the reduction of regulation, and rules such as ‘one in, one out’ may be counter-productive.

Most OECD countries have made policies to reduce administrative burdens – cutting red tape – a political priority. Red tape is particularly burdensome to smaller companies and may inhibit entrepreneurship. These effects are more costly in global markets, where competitiveness can be affected by the efficiency of the domestic regulatory and administrative environment. But citizens and large firms also complain about unnecessary reporting requirements. Results are wanted. What can governments do? Strategies include setting quantitative targets to reduce administrative burdens when new regulations are drafted and by reviewing older regulations; codification; better multi-level co-ordination; and rapid introduction of e-government services. Supported by taskforces and advisory committees, governments increasingly locate responsibility in a central administrative unit. This “whole-of-government” approach represents a major step in recent years, embedding administrative simplification in the overall regulatory quality system at the national level.

Regulatory Impact Analysis (RIA) has emerged on the European political agenda. It is an idea whose time has come. Both the member states and the institutions of the European Union (EU) are presently investing in programmes for ‘better regulation’ and ‘good regulatory governance’. RIA is the cornerstone of these programmes. This paper explains how RIA is being diffused in Europe. Is the introduction of RIA in Europe simply the diffusion of an idea, the content of which remains very different in the various national contexts? Or, alternatively, has the diffusion of ideas brought about convergence at the level of how RIA is performed? As shown by Hahn and Litan (2004), European impact assessments are often different from North-American RIAs. This paper shows that the adoption of a common RIA ‘bottle’ has not produced similar European ‘wines’. The language of RIA has produced a community of discourse for policy-makers and has stimulated the introduction of some instruments that are similarly labelled ‘impact assessment’. But RIA practice may exist only on paper, and in some cases the ‘RIA label’ may reveal basic assessments of administrative burdens. The paper explains how ideas can be diffused without convergence of results. The argument here is not the trivial one that ‘context matters’, but how it matters. Hence the paper breaks down ‘context’ into four dimensions, that is, institutions, models of the policy process, actors, and legitimacy. Institutional design, the capacity to deal with distributional problems, heterogeneity in multi-level governance systems, policy styles, and the ‘weights’ given to the preferences of different RIA actors explain the lack of convergence.

Economic theory suggests that, in most circumstances, market forces will ensure that standard form contracts contain terms that are not only socially efficient but also beneficial to non-drafting parties as a class compared to other possible combinations of price and terms. This analysis in turn suggests that courts should enforce all form terms or, at a minimum, all form terms that non-drafting parties read and understand. Relying on social science research on decisionmaking, this Article argues that non-drafting parties (usually buyers) are boundedly rational decisionmakers who will normally price only a limited number of product attributes as part of their purchase decision. When contract terms are not among these attributes, drafting parties will have a market incentive to include terms in their standard forms that favor themselves, whether or not such terms are efficient. Thus, there is no a priori reason to assume form contract terms will be efficient. The Article then argues that the proper policy response to this conclusion is greater use of mandatory contract terms and judicial modification of the unconscionability doctrine to better respond to the primary cause of contractual inefficiency.