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Trust in regulation
Frédérique Six
VU University Amsterdam
OECD, October 14, 2013
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
Trust triangle in regulation
- Client
- Employee
- Neighbour

Citizen

Trust?

Organization
3
Trust triangle in regulation
- Client
- Employee
- Neighbour

Citizen
Trust?

Trust?

Regulatory
supervisor
Supervision

Organization
4
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
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
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
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
9
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
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
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
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
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
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
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
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
Regulatory costs

Supervision costs: to show compliance
to supervisory agency

Compliance costs: to comply with regulation

18

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Trust in regulation

  • 1. Trust in regulation Frédérique Six VU University Amsterdam OECD, October 14, 2013
  • 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. Trust triangle in regulation - Client - Employee - Neighbour Citizen Trust? Organization 3
  • 4. Trust triangle in regulation - Client - Employee - Neighbour Citizen Trust? Trust? Regulatory supervisor Supervision Organization 4
  • 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. 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. 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. 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
  • 9. 9
  • 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. 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. 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. 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. 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. 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. 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. 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. Regulatory costs Supervision costs: to show compliance to supervisory agency Compliance costs: to comply with regulation 18