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)

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Trust triangle in regulation

Citizen

Organization

Trust?

- Client - Employee - Neighbour

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Trust triangle in regulation

Citizen

Organization

Regulatory supervisor

Trust?

Trust?

Supervision

- Client - Employee - Neighbour

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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)

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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)

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Trust, control and compliance in regulatory relations

Regulator trust

Self-determination

enhancing

regulator controls + +

+ +

+

Regulatee

compliance

Regulator

general propensity

to trust regulatees +

Regulatee

internalization

of regulator values

Source: Six, 2013

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)

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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

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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

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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

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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

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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)

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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

15 Source: interview director Human Environment and Transport Inspectorate (ILT) , 2012

Principled Context-sensitive Calculative

On purpose violation

Enforced risk control

Voluntary risk control

High trust Low distrust High distrust Influence inspector

Intentions, risk control and trust

Business behaviour

Inspector trust in business

Business intentions

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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 •….

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Regulatory costs

Compliance costs: to comply with regulation

Supervision costs: to show compliance to supervisory agency

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