Management-Based Regulation: Prescribing Private Management to Achieve Public Goals

We analyze a little-studied regulatory approach that we call management-based regulation. Management-based regulation directs regulated organizations to engage in a planning process that aims toward the achievement of public goals, offering firms flexibility in how they achieve public goals. In this article, we develop a framework for assessing conditions for using management-based regulation as opposed to the more traditional technology-based or performance-based regulation. Drawing on case studies of management-based regulation in the areas of food safety, industrial safety, and environmental protection, we show how management-based regulation can be an effective strategy when regulated entities are heterogeneous and regulatory outputs are relatively difficult to monitor. In addition to analyzing conditions for the use of management-based regulation, we assess the range of choices regulators confront in designing management-based regulations. We conclude that management-based regulation requires a far more complex intertwining of the public and private sectors than is typical of other forms of regulation, owing to regulators' need to intervene at multiple stages of the production process as well as to the degree of ambiguity over what constitutes "good management. " The problem of regulatory instrument choice has typically been framed as a choice between technology-based or performance-based regulation (Breyer 1982; Viscusi 1983). Regulators can craft rules that either mandate specific technologies or behaviors (technology-based regulation) or require that certain outcomes will be achieved or avoided (performance-based regulation). Even market-based regulatory instruments, around which an important literature has emerged (Ackerman & Stewart 1985; Hahn & Hester 1989; Stavins 2002), are still linked either to technologies or, more frequently, to the outcomes of firm behavior. Market-based instruments do provide distinctive incentives to firms, but nevertheless regulators enforcing market-based regulation still measure firms' performance for the purpose of either assessing taxes or determining if firms possess an adequate number of tradeable permits. The treatment of both conventional and market-based instruments in the academic literature has revealed important lessons about the effectiveness of different regulatory standards in advancing social goals. Yet missing from the traditional emphasis on technology-based and performance-based regulation has been much systematic attention to a third type of regulatory instrument that we call "management-based regulation. "1 Management-based regulation does not specify the technologies to be used to achieve socially desirable behavior, nor does it require specific outputs in terms of social goals. Rather, a management-based approach requires firms to engage in their own planning and internal rule-making efforts that are supposed to aim toward the achievement of specific public goals (Bardach & Kagan 1982:224). Although attention to management-based approaches has been sparse relative to the literature on other kinds of regulatory instruments, management-based strategies have been used in a variety of regulatory contexts around the world, including in Australian occupational safety and health regulation (Gunningham 1996), U.S. mine safety regulation (Ayres & Braithwaite 1992), and British railway regulation (Hutter 2001). The use of management-based regulation in these and other regulatory settings, including on issues such as food safety and environmental protection, appear to have arisen independently of each other, with comparatively little analysis of management-based regulation as a general regulatory strategy. While several scholars have noted a few applications of these strategies, as well as some of their advantages and disadvantages (Ayres & Braithwaite 1992; Gunningham & Johnstone 1999; Coglianese & Nash 2001), little attention has been paid to the conditions under which management-based regulation is an effective, if not preferred, regulatory strategy. …