Regulatory Enforcement

Regulatory systems comprise three components: standard setting, supervision, and enforcement. Enforcement refers to actions undertaken by regulators to penalize or modify behaviors that deviate from the standard set by the system. For example, enforcement tools may be applied by an environmental regulatory agency in response to a firm's disposal of toxic waste, which infringes environmental regulations.

Enforcement is usually discussed with regard to state agencies' actions and business compliance with laws. However, in the age of governance, enforcement further applies to regulation of informal norms by nonstate actors.

The implementation of enforcement varies in the extent to which regulators are inclined toward deterrence or compliance styles. Deterrence style is rule bound and reliant upon formal punitive measures, such as criminal prosecution and civil fines. Compliance [Page 819]style is disposed toward persuasion, education, negotiation, and flexible interpretation of regulatory requirements. Regulators that exercise a deterrence strategy presume that individuals and corporations would not abide by the law unless threatened to do so. In contrast, those preferring a compliance approach assume that most people would voluntarily comply with regulations if they understood their requirements and logic.

The previously mentioned difference in enforcement styles has been explained in both rational choice and sociocultural rationales. From a rational choice perspective, it is arguable that regulators are more likely to manifest a compliance style when they are reliant on their regulated industry for information, technical expertise, and personnel—exchanging lenient regulation for resources. Applying a sociocultural perspective, the difference in regulatory styles is explained as a function of public trust in government and corporations. It is claimed that societies characterized by a high level of mistrust in governments and corporations tend to prefer a rule-bound deterrence style, which allows regulators little discretion. Another sociocultural explanation views the difference in regulatory style as a function of the sociological affinity between regulators and their regulated industries: that is, the scope, frequency, and length of their interaction. It is argued that greater sociological affinity will be associated with a compliance approach.

Going beyond the deterrence and compliance dichotomy, it is recognized that in order to be effective, regulators should vary their enforcement strategies and match the gravity of their enforcement tools to firms' relative resistance to comply. Research has shown that this is how most regulators behave in practice. Accordingly, regulatory agencies a priori prefer communication and persuasion to punishment and employ severe punishment only after less-severe means of attaining compliance have been exhausted. Thus, the difference between the deterrence and compliance styles regards the rate of escalation from persuasion to punishment tools, rather than two extremes.