November 28, 2011

Regulatory Overload

A Behavioral Analysis of Regulatory Compliance
  • Mark Adams

  • David Borys

  • Andrew Hale

Key materials
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Evaluating whether the benefits of regulations outweigh the costs is difficult. It is hard to quantify the benefit from preserving a scenic view or to quantify the social and psychological costs of compliance or of witnessing a serious accident. It is also very difficult to establish the causal link between some regulatory requirement, such as mandating a formal safety management system, and its effect on accident rates. More importantly, efforts to quantify costs and benefits usually take a snapshot approach, looking at individual regulations in isolation rather than considering the cumulative effects of the regulatory system as a whole.

In this paper, we lay the groundwork for an alternative to the usual snapshot approach: one that explains how the overall size, complexity, and style of the regulatory system can change costs and benefits. The value of this approach arises from the fact that regulations can have a different effect when the entire system is viewed as a whole rather than as a collection of isolated pieces.  For example, a regulation mandating a warning label for some real but minor risk may, when viewed in isolation, provide benefits. However, that additional warning might distract consumers from more important warnings and thus, when taken as part of the whole system, increase risk. Studies inside large organizations have shown that the sheer volume of rules for complex technologies, such as nuclear and railways, make those rules less effective.