Responsive regulation (3): Examples

In the previous blog post on the evolution and success of the ideas underpinning Responsive Regulation, I have summed up responsive regulation as a set of heuristics and a set of strategies. Perhaps the best-known heuristic is the notion of escalation from less-intrusive to more-intrusive regulatory responses if non-compliance is found. Likewise, maybe the most renowned strategy is “tit-for-tat enforcement” illustrated with a series of regulatory pyramids.

That is not to say that every form of regulatory escalation or every use of tit-for-tat enforcement is an application of responsive regulation as conceptualised by Ayres and Braithwaite. This is important to keep in mind when assessing the performance of responsive regulation (which is the topic of the next blog post). So, what looks application of these authors’ ideas like in regulatory practice?

The Australian Taxation Office’s Compliance Model

One of the earliest “pure” applications of responsive regulation is the Australian Taxation Office’s (ATO) compliance model. In the late 1990s, it had become clear that in Australia there was “widespread acceptance in the community that not paying tax on cash income was acceptable and that there was no certainty in the community that the ATO could detect tax evasion”.[i] In 1997, the ATO appointed Valerie Braithwaite, an academic who has pioneered research on the motivational postures of targets of regulation, to support it with the revision of its regulatory enforcement strategy and the development of what became the Compliance Model.[ii]

The ATO’s Compliance Model effectively combines three regulatory pyramids. First is a set of options for dealing with non-compliance, ranging from persuading and educating at the base to prosecuting and incapacitating at the top. Second is a set of regulatory encounters or styles tax officers might engage in, ranging from self-regulation at the base to strict command-and-control at the top. Third is a set of motivational postures of taxpayers ranging from accommodation at the base, via capture and resistance to disengagement at the top. The assumption of the Compliance Model is that these sets of options, encounters, and postures align throughout the pyramid.[iii] For example, most targets of tax regulation will have an accommodative posture, and they will likely comply when exposed to persuasion or education on why paying taxes matters and can then be left to self-regulate. Or, only a small set of targets will be disengaged and will likely only comply when exposed to stringent enforcement and hefty fines that requires a traditional command-and-control approach.

The Compliance Model thus systematically links various factors that are considered necessary for compliance. The model is meant as a heuristic that can be (and has been) improved over time: “[it] requires staff to investigate these factors to gain insight into how they might engineer a more cooperative regulatory encounter”.[iv] In this manner, the Compliance Model helps to capture good practices, build partnerships with taxpayers, and identify areas and taxpayers with a high-risk profile. The ATO’s Compliance Model has inspired tax regulation reforms around the globe.

U.S. Environmental Protection Agency’s Audit Policy

The U.S. Environmental Protection Agency’s (EPA) Audit Policy provides targets of regulation with incentives to voluntarily discover violations with EPA regulation, disclose these violations to the EPA, correct the violations, and prevent recurrence of them. If they do, the EPA may significantly reduce civil penalties, stay away from criminal prosecution, and reduce its requests for audit reports. The EPA Audit Policy was introduced in 1995. It is one of several self-reporting programs introduced in the U.S. since the 1980s and is a typical example of the enforced self-regulation strategy described by Ayres and Braithwaite.[v]

The Audit Policy of 1995 builds on an older EPA Policy of 1986 that encouraged self-auditing by regulatory targets but did not provide incentives for reporting self-discovered violations to the EPA. In response to several high-profile cases (in which a target of regulation discovered a violation, but was severely penalised by public regulators) the EPA developed the Audit Policy building on, among others, dialogue with industry stakeholders, civil society, and policymakers. Put crudely, “the Audit Policy represents a bargain between the Agency and the businesses it regulates”.[vi] Put less crudely, it is a regulatory strategy, developed over decades, that seeks to give targets of regulation as much freedom as possible and acceptable and reduce the inspection burden of the EPA as much as possible.

Somewhat comparable to the ATO’s Compliance Model, the EPA’s Audit Policy was built (and has been amended) carefully over time. The original 1995 Policy formalised practices that were already in place in a number of states in the U.S. Later amendments (sometimes introducing significant changes) built on evaluations of the policy and seek to improve it based on lessons learnt. The Policy has, however, not seen much replication outside the U.S.[vii]

More examples

These are but two of the many examples of responsive regulation applied in practice. Other examples have been documented in Canada, China, Great Brittan, the Netherlands, New Zealand, Indonesia, South Africa, and elsewhere. They include consumer protection, finance, health and wellbeing, operational health and safety, philanthropy, and a range of other policy areas.[viii] That being said, it is not always clear from documented examples whether regulators have purposefully followed a responsive regulation heuristic or strategy (as per the two examples discussed before), or whether those documenting the examples have forced them into a responsive regulation mould—and some care is warranted when drawing lessons from such examples.

In addition, scholars have mapped examples of alternative applications of responsive regulation. For example, Jungmin Zhu and Marian Chertow observe that local regulators Jiangsu Province (China) set out to enforce newly introduced energy efficiency regulation in a formal and coercive manner before switching to a more accommodative manner.[ix] Doing so has made it clear to targets of regulation that these energy efficiency requirements are now in place and has reduced uncertainty about how compliance can be achieved. Once regulators had obtained knowledge about firms’ behaviours and attitudes, as well as information about their willingness to comply and their compliance plans, they became more flexible and cooperative in their enforcement practice. In sum, the “inversed” enforcement pyramid used by these regulators helped both the regulator and the targets of regulation to get used to the new energy efficiency requirements, and allowed for de-escalation of regulatory enforcement once it became clear how targets responded to it.

In sum, responsive regulation is much more than a theory. It is firmly based on and applied in regulatory practice.

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[i] Braithwaite, V. (2000). An evolving compliance model for tax enforcement. In N. Shover & J. P. Wright (Eds.), Crimes of privilege: Readings in white-collar crime (pp. 405-418). Oxford: Oxford University Press.

[ii] Braithwaite, V. (2009). Defiance in taxation and governance: Resisting and dismissing authority in a democracy. Cheltenham: Edward Elgar.

[iii] Braithwaite, J. (2003). Meta risk management and responsive regulation for tax system integrity. Law & Policy, 25(1), 1-16.

[iv] See note [i].

[v] Toffel, M. W., & Short, J. (2011). Coming clean and cleaning up: Does voluntary self-reporting indicate effective self-policing? Journal of Law and Economics, 54(4), 609-649.

[vi] Culleen, L., & Glazer, T. (2016). Let’s make deal: Twenty years of APA’s audit policy. Natural Resources & Environment, 30(3), 3-6.

[vii] Stafford, S. (2017). Voluntary self-policing and the us audit policy. In M. Faure (Ed.), Elgar encyclopedia of environmental law: Volume iv (pp. 21-32). Cheltenham: Edward Elgar.

[viii] See among others: Woods, C., Ivec, M., Job, J., & Braithwaite, V. (2010). Applications of responsive regulation theory in Australia and overseas. Regulatory institutions network occasional paper 15. Canberra: Regulatory Institutions Network; Ivec, M., Braithwaite, V., Woods, C., & Job, J. (2015). Applications of responsive regulation theory in Australia and overseas: Update. Regulatory institutions network occasional paper 23. Canberra: Regulatory Institutions Network; Braithwaite, J. (2016). Restorative justice and responsive regulation: The question of evidence. Regnet research papers 2016 no. 51. Canberra: RegNet Australian National University.

[ix] Zhu, J., & Chertow, M. R. (2019). Authoritarian but responsive: Local regulation of industrial energy efficiency in jiangsu, china. Regulation & Governance, 13(3), 384-404.