# **<mark>Box 7. Alternative Regulatory approaches</mark>**

**<mark>Performance-Based Regulations—</mark>** <mark>specify required outcomes or objectives rather than the means by which they must be achieved.  Thus firms and individuals can choose processes that are more efficient and less costly, which promotes the use of new technology on a broader scale.  Such type of regulation is increasingly used in health, safety, consumer protection, and environmental regulation.  Drawbacks include measurement problems related to desired outcomes, higher administrative and monitoring costs, greater responsibilities for small companies to develop appropriate compliance strategies.  Most countries have resorted to the use of guidelines or “safe harbors” in conjunction with performance-based regulation.  Guidelines provide information on appropriate compliance strategies, while safe harbors allow the benefits of certainty of compliance associated with prescriptive regulation to be attained, while also allowing more innovative firms to take advantage of the benefits of such regulation.</mark>

**<mark>Process Based Regulations</mark>** <mark>—require businesses to develop processes that systematically control and minimize production risks. These processes are used in businesses with multiple and complex sources of risk, where ex post testing of the product is either ineffective or expensive.  Process based regulation is predominantly used in health, food safety, and environmental regulation.</mark>

**<mark>Co-regulation—</mark>** <mark>businesses take the lead in regulation through endorsement and adherence to codes of practice. This type of regulation is highly cost effective for the government.  Drawbacks include the possibility for encouraging anti-competitive activities by business or professional organizations.</mark>

**<mark>Economic Instruments -</mark>** <mark>taxes, subsidies, tradable permits, vouchers and the like.  Economic instruments allow businesses to achieve regulatory goals in the least costly manner and provide market incentives which reward the use of innovation and technical change.</mark>

**<mark>Information and Education—</mark>** <mark>most widely used approach to regulation in OECD member states; empower consumers to adopt actions or make informed choices to change their behavior.  Examples include campaigns aimed at reducing speeding when driving, anti-litter behaviors; reducing the use of drinking water; eco-labeling of products.</mark>

**<mark>Guidelines</mark>** <mark>—issued by regulatory authorities, setting out processing or providing interpretations to aid understanding of government objectives by businesses and citizens.  Guidelines may accompany existing regulations, but also are increasingly used as stand-alone documents.  Guidelines, for example, are widely used in the area of consumer protection in Denmark.</mark>

**<mark>Voluntary Approaches</mark>** <mark>—initiated by industries, sometimes formally sanctioned or endorsed by government. They include voluntary initiatives, voluntary codes, voluntary agreements, and self-regulation.  An example of a voluntary arrangement is the chemical industry’s Responsible Care Program, used in 40 countries, which promotes the adoption of rules for sound environmental management practice.</mark>

<mark>_____________</mark> _<mark>Source</mark>_ <mark>: OECD 2002.</mark> Removing legal constraints to the share of stakes that can be acquired by foreign investors in network companies (a practice followed by many EU and OECD countries) would eliminate the remaining barriers to FDI.

High barriers to entry in services are pervasive throughout the European Union, as the PMR survey indicates (although in some countries, such as the UK, the market for services is considerably more liberalized than the EU average). Like the infrastructure sectors, professional and other services provide supply inputs to a large number of firms in the economy. When the providers of these inputs are not subjected to competitive pressures (because the requirements for entry are highly onerous) this may result 27