The four types of regulation

Regulation is a fact of life in any civilization. But despite all our grumbles of "red tape", regulations are often necessary to make our systems work better. It's worth examining the four types of regulation that exist and the advantages and disadvantages of each:

  • Arbitrary regulations are standards or rules mandating the use of one out of several equally valid options. The classic example is the choice to drive on the left or right hand side of the road. Although it makes no practical difference which side is chosen, it is important that all people adhere to the common choice. The one problem with arbitrary regulation is that it is very different to merge systems that have adopted a different arbitrary standard (since there is no incentive to switch). Over time, normally the most widely used option will win out.
  • Good faith regulations are those which establish a baseline of behaviour in a certain area. For example, health regulations for restaurants exist to protect consumers and minimise risks of things like food poisoning. In these scenarios, no responsible party would object to the stated goals of the regulations, but arguments may arise over the complexity of regulations and the difficulty of compliance. Good faith regulations also provide a benchmark that can be used to prove bona fide intent to other parties.
  • Goal conflict regulations are those which recognise an intrinsic conflict between two goals -- typically the goal of an individual versus the goals of society -- and regulate for the greater good of society. These types of regulations are particularly odious to those of a libertarian bent and are often deemed "paternalistic". However, particularly when the end goal of the regulation is easily demonstrated to be laudable and there is a clear evidentiary link between the regulation and the goal, these also work well. Good examples of goal conflict regulation are mandating the wearing of seatbelts and limits on alcohol consumption when driving a car.
  • Lastly, process regulations dictate how a task should be accomplished, not just outcomes that are either prescribed or proscribed. This is the riskiest type of regulation since it inevitably sacrifices innovation and agility for ensuring less variability in process delivery. Process regulations are rare in government but very common in the private sector due to an often misguided drive for the adoption of "best practices". Call centre scripts are a common example of process regulations.

The other critical part of regulations is the nature of the regulator, ie the entity responsible for enforcing the regulations. Regulations can be self-policed by a community ("peer regulation"), unilaterally enforced by those with the power to do so ("fiat regulation"), or delegated to an independent third-party authority ("statutory regulation").

Each will generate different norms for managing compliance and non-compliance with regulations ... by themselves a complex enough topic for another post.

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