Voluntary or incentive regulation

Another form of indirect or ‘self-regulation’ has a more recent history than
delegated regulation and has been extended to many more areas of social and
economic life. This is typically a form found in market governance systems in
which, rather than establish an agency with the authority to unilaterally direct
targets to follow some course of action with the ability to sanction those actors
who fail to comply, instead a government tries to persuade targets to voluntarily
adopt or conform to government aims and objectives.

Although these efforts often exist ‘under the shadow of hierarchy’ (Heritier
and Lehmkuhl 2008) – that is, where a real threat of enhanced oversight exists
should voluntary means prove insufficient to motivate actors to alter their
behaviour in the desired fashion – they also exist in realms where hierarchies
don’t exist, such as the international realm when a strong treaty regime, for
example, cannot be agreed upon (Dimitrov 2002; 2005; 2007). A major advantage
often cited for the use of voluntary standard-setting is cost savings, since
governments do not have to pay for the creation, administration, enforcement
and renewal of such standards, as would be the case with traditional command and control regulation whether implemented by departments or independent
regulatory commissions. Such programmes can also be effective in international
settings, where establishment of effective legally based governmental regimes
can be especially difficult (Schlager 1999; Elliott and Schlaepfer 2001; Cashore
et al. 2003; Borraz 2007).

Moffet and Bregha set out the main types of voluntary regulation (see
Table 6.3) found in areas such as environmental protection.

These tools attempt such activities as inducing companies to exceed pollution
targets by excluding them from other regulations or enforcement actions;
establishing covenants in which companies agree to voluntarily abide by certain
standards; establishing labelling provisions or fair trade programmes; providing
favourable publicity and treatment for actors exceeding existing standards;
promoting co-operation over new innovations; and attempting to improve
standards attainment by targeted actors through better auditing and evaluation.
These are all forms of what Sappington (1994) has termed ‘incentive regulaton’.

The role played by governments in voluntary regulation is much less
explicit than in traditional regulation, but is nevertheless present. Unlike the
situation with command and control or delegated regulation, in these instances
governments allow non-governmental actors to regulate themselves without
creating specific oversight or monitoring bodies or agencies or empowering
legislation. As Gibson (1999: 3) defined it:

By definition voluntary initiatives are not driven by regulatory requirements.
They are voluntary in the sense that governments do not have to
order them to be undertaken . . . [but] governments play important roles
as initiators, signatories, or behind-the-scenes promoters.By definition voluntary initiatives are not driven by regulatory requirements.

While many standards are invoked by government command and control
regulation, others can be developed in the private sphere, such as occurs in
situations where manufacturing companies develop standards for products or
where independent certification firms or associations guarantee that certain
standards have been met in various kinds of private practices (Gunningham and Rees 1997; Andrews 1998; Iannuzzi 2001; Cashore 2002; Eden 2009;
Eden and Bear 2010).

These kinds of self-regulation, however, are often portrayed as being more
‘voluntary’ than is actually the case. That is, while non-governmental entities
may, in effect, regulate themselves, they typically do so, as Gibson notes, with
the implicit or explicit permission of governments, which consciously refrain
from regulating activities in a more directly coercive fashion (Gibson 1999;
Ronit 2001). As long as these private standards are not replaced by government
enforced ones, they represent the acquiescence of a government to the private
rules, a form of delegated regulation (Haufler 2000; 2001; Knill 2001; Heritier
and Eckert 2008; Heritier and Lehmkuhl 2008).

Types of voluntary regulation
1 Legislated compliance plans
2 Regulatory exemption programs
3 Government–industry negotiated agreements
4 Certification
5 Challenge programs
6 Design partnerships
7 Standards auditing and accounting
Source: Moffet, J., and F. Bregha. 1999. ‘Non-Regulatory Environmental Measures’. In Voluntary Initiatives: The New Politics of Corporate Greening, ed. R. B. Gibson. Peterborough: Broadview Press.

As a ‘public’ policy instrument, self-regulation still requires some level of
state action – either in supporting or encouraging development of private self-regulation or retaining the ‘iron fist’ or the threat of ‘real’ regulation if private
behaviour does not change (Cutler et al. 1999; Gibson 1999; Cashore 2002;
Porter and Ronit 2006). This is done both in order to ensure that self-regulation
meets public objectives and expectations (see for example, Hoek and King’s
(2008) analysis of the ineffective self-regulation practiced by TV advertisers in
New Zealand) and to control the kinds of ‘club’ status which self-regulation
can give to firms and organizations which agree to adhere to ‘voluntary’
standards (Potoski and Prakesh 2009). Certification schemes, for example, can
closely approximate cartel-like arrangements which allow premiums to accrue
to club members rather than to the public. As Delmas and Terlaak (2001)
noted, joining or participating in voluntary schemes entails both costs and
benefits to companies, which undertake detailed cost–benefit calculations
about whether or not to join voluntary associations. This is one of the ‘limits
of virtue’ which David Vogel (2005) noted in his studies of various corporate
social responsibility (CSR) schemes in the late 1990s and first decade of the
twenty-first century (see also Tallontire 2007 and Natural Resources Canada

It is also the case that any possible savings in administrative costs over
more direct forms of legal regulation must be balanced against additional costs
to society which might result from ineffective or inefficient administration of
voluntary standards, especially those related to non-compliance (Gibson 1999;
Karamanos 2001; Henriques and Sadorsky 2008).