Network relationships and standard adoption: Diffusion effects in transnational regulatory networks
| Published date | 01 September 2020 |
| Author | Machiel Heijden,Jelmer Schalk |
| Date | 01 September 2020 |
| DOI | http://doi.org/10.1111/padm.12627 |
ORIGINAL ARTICLE
Network relationships and standard adoption:
Diffusion effects in transnational regulatory
networks
Machiel van der Heijden
1
|Jelmer Schalk
2
1
School of Governance (USG), Utrecht
University, The Netherlands
2
Institute of Public Administration, Leiden
University, The Netherlands
Correspondence
Machiel van der Heijden, School of
Governance (USG), Utrecht University,
Bijlhouwerstraat 6, 3511 ZC, Utrecht, The
Netherlands.,
Email: m.j.a.vanderheijden@uu.nl
Abstract
The soft law measures that transnational regulatory networks
produce have become increasingly important in regulating
cross-border market activity. However, domestic agencies
vary considerably in terms of the rate by which these soft law
measures are adopted, and the ways in which they spread
across jurisdictions are not well understood. This article argues
that existing theoretical explanations referring to socialization
or power dynamics have a specific network-structural pattern
associated with them, and that longitudinal network analysis
canbeusedtotesttheirhypothesized effects. In particular,
we study the widespread adoption of the International Orga-
nization of Securities Commissions’(IOSCO) Multilateral
Memorandum of Understanding (MMoU). Based on a longitu-
dinal dataset (2002–15) of the inter-agency relationships
between securities regulators (n= 109), we use Stochastic
Actor-Oriented Models (SAOM) to predict the rate at which
transnational standards are adopted by domestic agencies.
The results indicate that standard adoption is contagious in
the network of securities regulators.
1|INTRODUCTION
In recent decades, scholars have noted the emergence and importance of transnational regulatory networks in which
domestic regulators directly interact with their foreign counterparts, often outside the scope of direct political
Received: 14 November 2018Revised: 23 August 2019Accepted: 20 September 2019
DOI: 10.1111/padm.12627
This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and
reproduction in any medium, provided the original work is properly cited.
© 2019 The Author. Public Administration published by John Wiley & Sons Ltd.
768 Public Admin. 2020;98:768–784.wileyonlinelibrary.com/journal/padm
supervision (Slaughter 2004; Mathieu 2016). For instance, within the Basel Committee on Banking Supervision
(BCBS), regulators negotiate about standards on the minimum capital requirements for banks. Similarly, in the Inter-
national Competition Network (ICN), domestic competition authorities discuss topics of common interest and formu-
late collective rules and standards on competition policy.
Given the absence of formal e nforcement authority at the global level, the s oft law measures that these trans-
national networks produce have become increasingly important in regulating cross-border market activity. How-
ever, the adoption of principles of ‘best practice’, standards, and guidelines is typically voluntary, leading some
scholars to question the effectiveness of these networks to attain regulatory convergence (Verdier 2009). In any
case, countries and th eir representing agencies vary consi derably in terms of the rate by which thesesoft law mea-
sures are adopted, and the ways in which these measures spread across jurisdictions are not well understood
(Bach et al. 2016).
Overall, two main narratives exist about the way in which transnational networks potentially foster regulatory
convergence (Raustiala 2002). On the one hand, scholars note the socialization potential of transnational networks,
in which peer influences and concerns about status or reputation create pressures for agencies to conform to the
norm of adoption (Slaughter 2004; Freyburg 2015). On the other hand, scholars argue that power dynamics are more
important: weaker and newer jurisdictions will follow the standards set by more powerful actors (Drezner 2008;
Bach and Newman 2010). Although both narratives have accumulated supportive qualitative evidence, it has been
hard to differentiate between them empirically. In this article we argue that both types of explanation have a specific
network-structural pattern associated with them, and that longitudinal network analysis can be used to test the
hypothesized effects of these patterns on standard adoption. By doing so, we contribute to the standing literature in
several ways.
First, most studies on transnational networks use the network concept metaphorically, that is, as a way to
describe a general sense of horizontal interdependence between actors (Freyburg 2015; Legrand 2015). When theo-
rizing about network effects, this metaphorical usage potentially leads to ‘too much loose analogizing’(Isett et al.
2011, p. i168), in which explanations are hard to falsify and become too general to account for the specific patterns
by which the harmonization or adoption of regulatory rules and standards occur. A network-analytical perspective
helps us move beyond these general explanations, by providing more specific explanations of the variation in terms
of the rate at which regulators from different countries adopt standards over time and the degree to which network
relationships make a difference.
Second, for scholars who have looked more broadly at processes of diffusion (Simmons and Elkins 2004; Shipan
and Volden 2012), we note that these studies vary greatly in the way they conceptualize and measure diffusion
mechanisms and the role that network interactions play therein (Maggetti and Gilardi 2016). The network modelling
approach of this article provides a straightforward way to conceptualize and operationalize such network effects by
linking mechanisms to specific network empirical patterns. In this way it becomes clearer what role these network
interactions are likely to play in standard adoption, besides domestic factors such as market size (Lenschow et al.
2005), or sectoral factors such as general levels of policy interdependence (Van Boetzelaer and Princen 2012).
The empirical data to test our hypotheses are drawn from the widespread adoption of the International Organi-
zation of Securities Commissions’(IOSCO) Multilateral Memorandum of Understanding (MMoU). The MMoU is a
‘soft law’measure on enforcement cooperation, also standardizing several secrecy and blocking laws (Austin 2012).
In terms of network explanations of standard adoption, the MMoU is somewhat of a most-likely case, given that
adoption is perhaps not as stringent as other transnational standards in terms of adjustments and likely conse-
quences for domestic markets (e.g., capital requirements; see Howarth and Quaglia 2013). However, as it is a case of
widespread adoption, the data gathered do allow us to meaningfully analyse variation in such adoption and differen-
tiate the network mechanisms playing a role therein. In that sense, the chosen case provides an important plausibility
probe for network explanations of standard adoption, particularly when considering that ‘soft law’measures like the
MMoU are becoming increasingly important in other regulatory sectors as well (see Newman and Zaring 2013; Efrat
and Newman 2018).
VAN DER HEIJDEN AND SCHALK 769
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