HOW CONTEXT MATTERS
Wednesday, 28 July 2004
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re-election incentives, but they may also be driven by their own ideological
preferences (Kalt and Zupan 1984). Turning to agencies, in an analysis of
Environmental Protection Agency (EPA) decisions, Cropper et al. (1992) show that
regulators take into account both private interests and diffuse interests (such as the
general welfare of the community) when they set environmental standards.
Without an actor model that specifies the preferences of policy-makers (be they
politicians or civil servants) it is impossible to say what RIA should do. To continue
with this discussion: ‘quality’ means different things depending on whether one
makes the assumption that civil servants have a preference for regulatory expansion,
or are captured by powerful pressure groups, or regulate in the public interest.
Other questions arise from the firms’ models in regulatory policy. What do corporate
actors want from regulation? Do they seek efficiency or protection? Indeed, the
literature suggests very different approaches to the preferences of firms:
•
In the public interest theory of regulation, regulators provide rules for the common good and
therefore firms should not be necessarily hostile to regulation. One may expect that regulators
acting for the common good care about quality and that regulatory efficiency is a component
of this.
•
In private interest theory (or positive political economy), however, firms seek regulation as a
shelter from competition and new entrants. They try to capture regulators and secure
protectionist forms of regulation. The implication is that dominant companies in a sector
would prefer ‘low quality’, inefficient regulation. A classic paper by Buchanan and Tullock
(1975) shows that companies prefer inefficient direct regulation to cost-effective instruments
such as environmental taxes because quotas that restrict entry to a market originate scarcity
rents.
•
In some modern forms of regulatory theories, high levels of environmental and health and
safety protection can be a comparative advantage in open markets. Firms may form coalitions
with green groups and advocate for high levels of protection (Vogel 1995; Genschel and
Plümper 1997). Using different arguments, Porter (1990) argues that regulation can stimulate
innovation and produce competitiveness. One should therefore expect that competitive firms
support regulation, whereas marginal firms object to it.
•
Finally, another strand of regulatory analysis, this time more focused on empirical studies, has
reached the conclusion that regulation has no major influence on the competitiveness of a
country, and in any case the locational choices of companies are not systematically influenced
by the presence or absence of high labour and environmental standards (Jaffe et al. 1995).
This conclusion has been attacked by those who claim that ‘good regulatory governance
matters’ in terms of productivity, better regulatory environment, and ultimately growth
(Kaufmann et al. 2003).
The problem is compounded by the fact that firms differ in size, sector, and exposure
to international trade. Recent models of the firm in regulatory policy break down the
Convention