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Trust in regulation


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Presentation by Frédérique Six at the OECD Workshop on “Joint Learning for an OECD Trust Strategy” on 14 October 2013. Mr. Six discusses effective regulation, the trust triangle, compliance and a trust regime.

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Trust in regulation

  1. 1. Trust in regulation Frédérique Six VU University Amsterdam OECD, October 14, 2013
  2. 2. Effective regulation • Is perceived by regulatee as legitimate and procedurally just • Is responsive: – distinguish trustworthy from “distrustworthy” • Strengthens regulatee’s self-determination and intrinsic motivation • (Makes use of whole network of actors around regulatee to strengthen willingness and ability to attend to public interests) 2
  3. 3. Trust triangle in regulation - Client - Employee - Neighbour Citizen Trust? Organization 3
  4. 4. Trust triangle in regulation - Client - Employee - Neighbour Citizen Trust? Trust? Regulatory supervisor Supervision Organization 4
  5. 5. Trust has positive effect on compliance • The more directors perceive inspectors trust them, the higher their compliance at next inspection (Braithwaite & Makkai, 1994) • The more tax payers trust the tax inspector, the higher their intention to comply (Murphy, 2004; Murphy et al, 2009) • When mining inspectors were ‘ordered’ to distrust mining firms instead of a more cooperative approach, both parties agreed that over time mining safety had declined (Gunningham & Sinclair, 2009) 5
  6. 6. Procedural justice and process more important than outcome • Why people obey the law (Tyler, 1990; 2006) – People’s motivation to cooperate with legal authorities rooted in social relationships and ethical judgments – Legitimacy key and procedural justice as basis for legitimacy (see also Murphy et al, 2009) • Perceptions of procedural justice more effect on regulatees’ trust than outcome (Murphy, 2004) • Process (fairness, equity) large effect on citizen trust in civil servants, often larger than outcomes (Van Ryzin, 2011) 6
  7. 7. Trust, control and compliance in regulatory relations Self-determination enhancing regulator controls + Regulator general propensity to trust regulatees Source: Six, 2013 Regulatee internalization + of regulator values + Regulator trust + + + Regulatee compliance
  8. 8. Much research into citizens’ trust but not government’s trust • Dutch National Ombudsman: “Government distrusts citizens”. • Officials’ trust is relevant for citizen participation (Yang, 2005) • “Distrust unless otherwise proved” = rationalistic bureaucratic value (Yang, 2005) • 47% of inspectors showed a general propensity to distrust regulatees, while only 31% showed a general propensity to trust (Mascini & van Wijk, 2009) 8
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  10. 10. Conceptual confusions 1. Trust is doing nothing  Trust is hard work 2. Trust and control are substitutes  Control and trust may be complementary 3. Trust and distrust are two ends of one continuum  Trust and distrust are separate constructs 10
  11. 11. Willingness to comply generally high • Tax office: appr 85% willing to submit acceptable tax return; appr 65% actually do. Difference due to competence • Most food entrepreneurs support working safely and hygienically with food (van Wijk & Six, forthcoming) • Ministry of Social Affairs: compliance to social benefits rules 91-99%; most violations not intentional 11
  12. 12. Principles for trust approach • Focus on controlling relevant risks • A business is trustworthy when it is willing and able to structurally control the risks it imposes on society • Distinguishing trustworthy business from the rest • Different regimes 12
  13. 13. Trust regime • More principle-based norms (i.o. rule-based) • More requirements to only report (i.o. asking permission before and control after) • Inspections aimed at management system to control risks (i.o. purely on output or input) • Fewer inspections on output • Obligation of business to voluntary report violations, together with measures taken to correct and prevent in future 13
  14. 14. Trust regime: sanctions • It is inevitable that occasional violations will occur in complex processes • Regulatory justice principles (Macrory 2006) – Damage to third parties needs to be compensated, irrespective of cause of violation – (Unintended) gains from violation need to be creamed off, irrespective of cause of violation (level playing field + to reduce temptation) – Only if after this extra sanction is warranted, this will be applied (e.g. because of intention to violate, or severe negligence, or repetition of violation) 14
  15. 15. Potential for trust approach Varies by sector, for example • Dutch international shipping fleet: 80-95% compliance & most may qualify • Dutch fishing fleet: 40-50% compliance & none may qualify at present Source: interview director Human Environment and Transport Inspectorate (ILT) , 2012 15
  16. 16. Intentions, risk control and trust Business intentions Principled Context-sensitive Business behaviour Voluntary risk control Inspector trust in business High trust Calculative Enforced risk control Influence inspector Low distrust On purpose violation High distrust 16
  17. 17. Dynamic categorisation possible triggers for move • New management w good intentions • Implementation required measures • Appoint competent staff • Improved financial situation • …. • New management w/o good intentions or lacking competence • Deteriorated financial position • (Severe) violations •…. 17
  18. 18. Regulatory costs Supervision costs: to show compliance to supervisory agency Compliance costs: to comply with regulation 18