Regulatory Unreasonableness

Consequences and Sources

Regulatory unreasonableness makes regulatory compliance more inefficient and costly than it needs to be. Because it is experienced as irrational and unjust, regulatory unreasonableness often alienates regulated enterprises and can discourage business-government cooperation. That is troublesome because site-level cooperation typically is crucial for identifying and reducing the risks that regulation is intended to address. At worst, regulatory unreasonableness can foster an antiregulation political backlash.

Among the sources of rule-level unreasonableness are the following:

• 1.
  Political pressures for economic advantage or protectionism, in which established enterprises in an industry push their government to promulgate regulations that, in the name of protecting the public from harm, impose high compliance costs, time-consuming procedural requirements, or design limitations on innovative lower-cost competitors.
• 2.
  Overreaction to highly publicized catastrophes, in which legislatures or agencies, vowing that such events should never happen again, require all firms in an industry to adopt precautions that the offending firm had not put in place but which in many other contexts would be redundant.
• 3.
  Conservative use of the “precautionary principle,” in which regulations restrict use of an ostensibly efficiency-increasing product or process because of the possibility that it would result in harm, when in fact, the product or process is harmless or controllable through much less expensive precautions.

Site-level regulatory unreasonableness arises from the overinclusiveness of prescriptive-legal rules. For example, many regulations are based on a theory of how a particular kind of injustice, environmental harm, or accident is likely to occur. Thus, they mandate a uniformly applicable regulatory solution, such as a specific kind of antipollution technology or a minimum patientstaff ratio for nursing homes. However, those requirements will prove cumbersome, costly, or ineffective in contexts that diverge from the risk-and-control scenario envisaged by the rule maker. In modern economies, with many kinds of business firms and management styles, such mismatches are virtually inevitable. Therefore, compliance with highly prescriptive regulations often does not correlate closely with prevention of harm.

Site-specific unreasonableness also occurs because procedural regulatory requirements—such as mandatory warnings about risks or rights or mandatory record keeping, monitoring, and reporting routines—rarely are the first line of defense against harm. A violation of such a rule, therefore, often does not substantially increase the risk of harm, and legal punishment for such a violation may incur resentment.

Mismatches between a general (but prescriptive) regulatory rule and site-specific risks would not produce regulatory unreasonableness if enforcement officials could grant exceptions or accept alternative methods of reducing the risk in question. Site-level unreasonableness, therefore, arises from legalistic enforcement, that is, citing and punishing violations without regard to the seriousness of the regulated firm's noncompliance. The ultimate roots of regulatory unreasonableness, therefore, lie in the political dynamics that lead to legalistic enforcement styles.

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