Dynamics of reciprocal regulation

Abstract

Reciprocity pervades regulation more than meets the eye. This thesis examined how regulators’ forbearance gives regulatees a chance to reciprocate with reforms or compliance. Compliance with laws or regulations is a reciprocal response to legitimate regulation. Compliance can also be a response to the observed compliance of fellow citizens. This is one aspect of indirect reciprocity, a concept that was developed theoretically as a key to successful regulation in this thesis. Reciprocity is also indirectly exercised when stakeholders in a wide regulatory space impose costly sanctions on irresponsible corporations after observing their histories of defiance. How reciprocity emerges in regulation remains largely unexamined in the literature. Past analyses of the limits of reciprocity in regulation and responsive regulation have been flawed as they failed to consider a broad range of types of reciprocity. This thesis explored ways in which diverse types of reciprocity are harnessed in regulatory space and the effects they have on regulatory outcomes. As a theory-building project, this thesis sought to answer: How diverse are the types of reciprocity observed across a broad regulatory landscape? What are the dynamics by which reciprocity renders regulators as well as corporate and individual agents responsible? What systematic tools can redress the drawbacks immanent in some reciprocal relationships? Theoretically, I explored ancient as well as contemporary thinking on the value of reciprocity in promoting responsible behavior. Classical republicans such as Aristotle and Cicero understood reciprocity as a measure of good governance. They valued the claim that reciprocity sustains solidarity among citizens and bonds between the ruler and the ruled. Contemporary scholars have suggested that diverse types of reciprocity exist. Reciprocity sometimes conveys substantive principles or involves a strong intention to trigger costly sanctions. Reciprocity also takes place in dispersed populations or in an indirect fashion. This means that we can arrange regulation to promote responsiveness and responsibility not only from regulatory agencies but also from regulated agents and social stakeholders. Based on this theoretical underpinning, I elaborated on six reciprocal strategies that can be intentionally harnessed by agents involved in regulation to achieve their goals. Empirical case studies of Australian and South Korean prudential regulation illustrated how those strategies are deployed. Data were acquired primarily through interviews with frontline supervisors of Australian and Korean prudential regulators. Regulators actively harnessed different types of reciprocity in encounters with regulated agents. Regulators indirectly signaled responsiveness to regulated agents they had never encountered before; they passed on information regarding compliance attitudes to other colleagues highlighting their responsibility for their regulatory tasks. At their best, institutions maintained transparent inter-organizational structures so as to minimize arbitrariness at the regulatory frontline. Non-intrusive ways of nudging regulatee’s performance became a possibility. Two reciprocal strategies that were not fully supported in the data were projected in a discussion of recent Korean childcare regulatory reforms. The thesis mapped dynamics of reciprocal regulation in which agents directly and indirectly engaged with one another to engender the possibility of responsible regulatory governance. Overall, this thesis revealed that in the Internet age of networked governance, responsible and responsive regulation is more possible than critics believed when they worried about scarce state resources for face-to-face regulatory inspection. On the other hand, reciprocal regulation has the power to be a cause of domination as well as a remedy for it. Resources for a principled responsible and responsive regulation were found in Philip Selznick’s and Philip Pettit’s work. Show more