Rewards and Regulation
| Date | 01 March 2002 |
| DOI | http://doi.org/10.1111/1467-6478.00209 |
| Author | John Braithwaite |
| Published date | 01 March 2002 |
JOURNAL OF LAW AND SOCIETY
VOLUME 29, NUMBER 1, MARCH 2002
ISSN: 0263-323X, pp. 12–26
Rewards and Regulation
John Braithwaite*
Rewards are less useful in regulation than they are in markets. Firms
respond to market incentives because most markets are contestable. In
markets that are not oligopolies it makes more sense to adopt a
competitor mentality than a fixer mentality. Regulatory power in
contrast is mostly not contestable. Firms are therefore more likely to
adopt a fixer or game-playing mentality. Reactance to regulatory
control through rewards is likely to be greater than reactance to
market discipline. If a responsive regulatory pyramid is a good
strategy for optimizing compliance, then punishment is more useful in
regulation than reward. Reward at the middle of a regulatory pyramid
brings about a moral hazard problem. Under certain limited conditions
reward can be useful at the base of a regulatory pyramid. These
conditions are transparent, easy measurement of the performance to be
rewarded, an imbalance of power such that the regulatee is weak in
comparison to the regulator, and an absence of weapons of the weak
for subverting a regulatory system to which the weak are subject.
Absent these conditions, and we cannot expect the undoubted efficiency
advantages of a market where regulatory outcomes can be traded so
that they are secured where the cost of doing so is least. While, in
general, punishments are more useful to regulators than monetary
rewards, informal rewards (praise, letters of recognition) are rather
consistently useful in securing compliance.
Psychologists and economists do not agree on much about how to motivate
human behaviour. One major point of convergence, however, is on the view
that rewards are more useful than punishments in motivating human
behaviour. For the economists, rewards for achieving, say, an environmental
outcome have the further advantage that the efficiency of a market for
environmental improvement might be accomplished – trading in a market for
environmental rewards will secure the greatest reductions in environmental
impact where it is cheapest to produce them. But these important efficiency
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*Regulatory Institutions Network, Australian National University, Canberra,
ACT 0200, Australia
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