First, it is less costly to the economy. Command and control rules are for obvious reasons unsuited to the rapid changes of technology in the innovation age. From the standpoint of participants in markets, either industry or consumers, self-regulation might arise as a natural outgrowth of consumer demand . Kosher food labels are a good example, offering consumers a choice of many different standards. In response to the incredible diversity in consumer demand, the market offers many competing forms of self-regulation, not just a single standard.
Bad service is checked by competition.
The question of when human beings will need to reveal information to gain trust, will be willing to offer trust without information, and will need to respect confidentiality to gain trust is a bafflingly complex question. It depends largely on individual preferences and needs. In an innovative market, goals are evolving, varied, and diverse. True self-regulation means choice, variety, and experimentation. For example, self-regulation in the privacy context threatens to evolve into a system where government makes vague rhetorical demands with no clear content or deadlines.