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Regulatory Choice for Alternative Modes of Regulation: How Context Matters

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The growing role of alternative modes of regulation (self- and co-regulation) gives rise to major questions about regulatory choice between available governance mechanisms. Strategic policy instruments such as regulatory impact assessment guidelines (RIA) typically suggest assessing the suitability of alternative modes of regulation but they hardly specify assessment criteria. This article identifies contextual factors that should be included in any effort to predict when alternative regulatory arrangements are likely to emerge and to be effective. To demonstrate the value of the approach, it is applied to an analysis of self-regulation in the domain of content-rating in the audiovisual industry.
Regulatory Choice for Alternative Modes of
Regulation: How Context Matters
FLORIAN SAURWEIN
The growing role of alternative modes of regulation (self- and co-regulation)
gives rise to major questions about regulatory choice between available gover-
nance mechanisms. Strategic policy instruments such as regulatory impact assess-
ment guidelines (RIA) typically suggest assessing the suitability of alternative
modes of regulation but they hardly specify assessment criteria. This article
identifies contextual factors that should be included in any effort to predict when
alternative regulatory arrangements are likely to emerge and to be effective. To
demonstrate the value of the approach, it is applied to an analysis of self-
regulation in the domain of content-rating in the audiovisual industry.
INTRODUCTION
The combination of globalization, liberalization, and technological change
has triggered intense debates about the options for regulatory reform,
including the growing role of alternative modes of regulation such as self-
and co-regulation. These alternatives to traditional statutory regulation are
marked by the involvement of nongovernmental actors in regulatory pro-
cesses. Both industry and policymakers consider alternative modes of
regulation to have great potential for solving contemporary regulatory
problems, although the general faith in market forces and industry self-
regulation seems to be declining in the wake of the recent crisis in the
financial market. Today, policymakers, industry, civil-society organiza-
tions, and academics are more than ever required to seriously assess the
potential and limitations of alternative modes of regulation to inform or
really improve regulatory systems.lapo_341 334..366
This article contributes to the development of analytical concepts for the
assessment of alternative modes of regulation. The first section describes
This article builds on a comparative research project on international co- and self-regulation in
communications markets commissioned by OFCOM. I wish to thank my collaborators Michael
Latzer, Stefaan G. Verhulst, and Monroe E. Price for their valuable contributions.
Address correspondence to Florian Saurwein, IPMZ–Institute of Mass Communication and
Media Research, Andreasstrasse 15, CH-8050 Zurich, Switzerland. Telephone: +41 (0)44 635
20 85; E-mail: f.saurwein@ipmz.uzh.ch.
LAW & POLICY, Vol. 33, No. 3, July 2011 ISSN 0265–8240
© 2011 The Author
Law & Policy © 2011 The University of Denver/Colorado Seminary
self- and co-regulation and links them to the general institutionalist debate
on governance in the regulatory state and to policy initiatives for regulatory
impact assessment. The second section proposes an analytical approach
to the assessment of alternative modes of regulation from a public policy
perspective. It shows how context matters by outlining the conditions that
facilitate or inhibit the formation and the performance of alternative regula-
tory institutions. It compiles assessment criteria for regulatory choice, focus-
ing on enabling contextual conditions for self- and co-regulation (market and
regulatory environments) and derives conclusions for the role of the state in
alternative regulatory arrangements. In the third section the criteria are
applied to a brief evaluation of potentials and limits of self-regulation in the
audiovisual industry. Finally, the article summarizes the conceptual pillars of
the proposed approach and concludes with recommendations on regulatory
choice for the governance of content-rating schemes.
GOVERNANCE IN THE REGULATORY STATE
Beginning in the 1970s, the fading belief in the hierarchical state as an
effective political steering centre of society gave rise to the search for alter-
native modes of guiding socio-economic development, resulting in major
changes in political steering and control, which are generally dealt with as
shifts from government to governance (Rhodes 1996; Rosenau and Czempiel
1992), from hierarchical to a cooperative form of government (Mayntz 2009,
2003), from an interventionist/positive state towards a regulatory state (Moran
2002; Majone 1999, 1996), and even a postregulatory state (Scott 2004).
Today, especially the governance approach (Schuppert 2006, 2005) assists
scholars of various disciplines in their efforts to analyze complex patterns of
steering and control in contemporary societies. The governance approach
emphasizes the institutional dimension of social coordination—that is, the
formal and informal rules, including their enforcement arrangements that
steer individual behaviour in a particular direction (Furubotn and Richter
1997). Institutions in this sense include informal values and formal norms/
rules as well as the organizations and organizational mechanisms for rule
making and enforcement (Mayntz 2008). Focusing on institutions, the
governance approach extends the traditional, rather narrow focus on the
state, national government, governmental organization, and hierarchical rule
enforcement. It recognizes varieties in institutional steering and control
arrangements—that is, the varieties in rules, organizations, and actors in
their respective roles as controllers and controlees, and the varieties in
control mechanisms (Scott 2004). The governance approach analytically inte-
grates components of control structures that lie beyond the sovereign nation
state and analyzes the interplay between the various institutions of steering
and control. It describes, for example, the horizontal and vertical extension
of national government and points to the changing division of regulatory
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responsibilities between public and private organizations and to changing
governing styles and instruments.
A growing body of literature analyzes the institutional changes in the
governance arrangement and provides evidence of emerging governance pat-
terns. European integration in particular has stimulated scholars to show the
formations of multilevel governance, the delegation of regulatory powers to
“non-majoritarian institutions” (Thatcher and Stone Sweet 2002, 1), and the
increase of new modes of governance (NMG). In a nutshell, the emergence of
the regulatory state is strongly associated with the rise of independent regu-
latory agencies (IRAs). Analyses of the regulatory state therefore focus on
the politics of delegation, the rise of independent regulatory agencies, the
state of de facto independence, and the trade-off between efficiency and
democratic accountability (Jacint, Levi-Faur, and Fernandez 2009; Gilardi
2008, 2007; Maggetti 2007; Thatcher and Stone Sweet 2002). The analysis of
new modes of governance transcends the narrow focus on IRAs. It contrasts
the old/traditional modes of governance with the new ones, which are char-
acterized by a more indirect approach towards achieving behavioural change
(Knill and Lenschow 2004). New modes of governance are typically not
based on binding legislation and not enforced by means of command-and-
control and legal sanction mechanisms. Instead, the new modes of gover-
nance rely on soft law and an open method of coordination (OMC), target
development and benchmarking, communicative instruments, and frame-
work regulations. At the implementation stage, they use nonhierarchical and
less formal modes of steering based on the creation of incentive structures,
mutual learning, arguing and persuasion, and nonlegal sanctioning methods
such as naming and shaming (see Treib, Bähr, and Falkner 2005; Héritier
2002). Many of the new modes of governance are exercised by state actors or
intergovernmental organizations. However, the new modes of governance
also include self-regulation of private actors and co-regulation of private and
public actors.
Definitions of self- and co-regulation vary widely in the literature, but
there is a common understanding that self- and co-regulation are alternatives
to pure state/governmental regulation. They are marked by the involvement
of nongovernmental actors in regulatory processes. From an institutional
perspective, regulation takes place on a continuum between pure state
regulation, on the one hand, and pure self-regulation, on the other, and can
generally be understood as a combination of state/public and societal/private
contributions, which are closely interlinked (Lehmkuhl 2008; Gunningham
and Rees 1997; Sinclair 1997). The relationships between the state and
private institutions, the hybrid regulatory constellations involving public and
private actors, and the role of law and the involvement of government in
alternative regulatory arrangements are therefore highlighted frequently in
the literature (Engel 2004; Black 2001, 1996; Ogus 2001; Baldwin and Cave
1999; Gunningham and Sinclair 1999; Doyle 1997; Cane 1987; Michael
1995). For instance, many analytical classifications suggest analysis of
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alternative regulatory arrangements according to varying modes and degree
of state involvement (Bartle and Vass 2007; Latzer, Just, Saurwein, and
Slominski 2006, 2002; Gunningham and Rees 1997). Alternative modes of
regulation are replacing or supplementing traditional forms of govern-
mental regulation. As compared to IRAs, they represent an even further step
away from traditional, politically dominated state institutions towards
indirect government, and their increasing importance in terms of numbers
of organizations and growing regulatory responsibilities serve as indicators
for the trends from government to governance and from the interventionist
to the (post)regulatory state.
Even though self-regulation and co-regulation are denoted as new modes
of governance in the literature, it has to be stressed that alternative modes of
regulation are by no means a new phenomenon. What is new is that they are
increasingly discovered by political actors as a strategic instrument to achieve
regulatory objectives and that they are increasingly recognized in analysis on
politics, law, and regulation, which traditionally focused on the state and
governmental organization, but they extend this focus by applying the gov-
ernance perspective. Compared to the huge body of literature on politics,
law, and governmental regulation, alternative modes of regulation still
appear to be relatively unexplored (Cook et al. 2004; Scott 2002). A closer
look at the literature, however, reveals a huge body of contributions from
academics of various disciplines and practitioners in a number of industries
and policy fields where alternative modes of regulation are of practical rel-
evance. These contributions underline that self- and co-regulation are not
new phenomena because they have been in use for a long time in a very wide
range of sectors such as banking, the stock exchange, insurance, environmen-
tal protection, and technical standardization.1There is also a long history of
self-regulation in the field of mass media in the form of press councils and
radio, television, and advertising codes. Recently, the application of self- and
co-regulation in the communications sector has been extended to areas such
as telephony, Internet-based services, and digital television. In the Internet
sector in particular, an increasing variety of regulatory goals are being
pursued by means of self- and co-regulation, ranging from consumer protec-
tion to the promotion of effective competition, Internet domain names
administration, and the protection of minors (Latzer, Just, Saurwein, and
Slominski 2002).2The communications sector (electronic media, telecommu-
nications, Internet, print) serves as an illustrative example of the analysis of
transformation processes because it displays many of the trends that are
observable in institutional governance arrangement in general. The transfor-
mation of statehood in the convergent mediamatics sector (Latzer 1997) is
reflected by the establishment of independent regulatory agencies, the trend
from state regulation to self- and co-regulation, and in a trend from central
regulation to decentralized, technology-based self-help by individual users,
who are taking over regulatory tasks (Latzer 2000). The latter is evident, for
example, in the case of media content regulation, where governmental youth
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protection is partly being replaced by individual self-restriction based on
content-rating systems and filters.
Industry and politics regard alternative modes of regulation as highly
promising tools in the face of the political control crisis.3However, the rise of
alternative regulatory institutions also gives rise to major questions about
their effects and impact and (rational) regulatory choice between available
governance mechanisms. For the communications sector, Cuilenburg and
McQuail (2003) note that the choice of policy instruments is one of numerous
dilemmas and unanswered questions for policymakers, but the difficulties of
governance choice are not unique to communications policy. In the last
decade public administrations increased efforts to structure regulatory choice
processes and policy evaluation by introducing regulatory impact assessment
(RIA). The spread of RIA in the context of good governance and better
regulation initiatives has been almost universal, although different practices
are found under the same label in different countries (Radaelli 2004). RIA
guidelines often contain provisions for the assessment of multiple regulatory
options, including the zero option of not intervening, market-friendly alter-
natives to regulation, soft law, voluntary agreements, and traditional
command-and-control regulation (Radaelli 2005). The European Commis-
sion uses impact assessment guidelines that comprise the consideration of self-
and co-regulation when it comes to the identification of the appropriate policy
instrument (European Commission 2009). The U.S. Office of Management
and Budget (2003) provides a circular on regulatory analysis that assists
regulatory agencies by standardizing the way benefits and costs of regulatory
actions are measured. The guidelines outline many regulatory alternatives
available for state authorities. Compared to the European Union, however,
these guidelines pay less attention to actual “alternatives to state regulation”
(O’Connor-Close and Mancini 2007, 15). In the United Kingdom, guidance
on evaluation in central government suggests identifying the full range of
instruments including regulatory (or deregulatory) solutions, self-regulation,
spending, or tax options (HM Treasury 2007). Alternatives to traditional
state regulation (for example, self-regulation or voluntary codes) need to be
properly considered from the outset. The UK Office of Communications
(Ofcom 2008) develops criteria for identifying appropriate regulatory solu-
tions considering the potential of alternative modes of regulation. Altogether,
the RIA initiatives aim at more informed, evidence-based policymaking and
to improve regulatory effectiveness and legitimacy. RIA guidelines typically
suggest the assessment of alternative modes of regulation such as self- and
co-regulation, but they have—with some exceptions—hardly specified the
criteria against which the suitability of alternative regulatory institutions can
be scrutinized in the early stages of the regulatory choice process (ex ante
evaluation) and in the course of performance review once alternative regula-
tory organizations have been established (ex post evaluation). This article
proposes such assessment criteria for regulatory choice and is thus intended to
contribute to assessment efforts.
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APPROACHES FOR ASSESSING ALTERNATIVE MODES OF REGULATION
Success and failure of self- and co-regulatory schemes in terms of adoption,
durability, and effectiveness are influenced by a multitude of intertwined
factors related to the macro, the meso, and the micro levels of alternative
regulatory schemes. Many efforts have been made to identify such influenc-
ing factors, but there is no single theory that allows for performance predic-
tions. There are numerous partly complementary, but also contradictory,
assessment approaches, and this heterogeneity provides a challenge for
scholars and for regulators who have to decide on regulatory arrange-
ments in practice. From a public policy perspective the central questions in
the context of regulatory choice are whether the adoption of an alternative
regulatory solution by private actors is feasible at all, and—if adopted—
whether the arrangement is durable and effective in meeting the public
interest. Economic, institutional/organizational, and macrosystemic concep-
tions are provided to approach the questions.
Economic approaches to alternative regulatory agreements examine the
micro level of individual decision making in favor of or against self-
regulation. The focus is on the (dis)incentives for joining and maintaining a
private arrangement. Explanations based on industrial organization theories,
for example, suggest that self-regulation is more likely when it contributes to
market growth, heightens barriers to entry, reduces the threat from substitute
products, or reduces the power of buyers and suppliers (Gupta and Lad
1983). Institutional economics stress the relevance of transaction costs and
take account of externalities and information asymmetries for the analysis of
alternative modes of regulation (Ogus 1995). Self-regulation is likely to occur
if it reduces costs associated with information, uncertainty, negotiation, con-
sensus seeking, and enforcement. Other concepts focus on power relations to
explain the emergence of alternative regulatory institutions and propose that
institutionalization is driven by expectations for some actors to exercise
power over others (Pattberg 2005). Influential and closely related concepts
such as the tragedy of the commons (Hardin 1968), game theory, and the
logic of collective action (Olson 1965) identify limitations on the adoption of
self-regulation by pointing at problems individuals and organizations face
when attempting to achieve collective benefits, most notably the free rider
problem.
Institutional/organizational approaches to alternative regulation empha-
size the meso level of alternative regulatory solutions—that is, their orga-
nizational dimension. Analyses compare organizational designs and
identify design principles to derive organizational success factors that
contribute to the durability and effectiveness of alternative regulatory
solutions. Analyses focus on the features that make self-regulation or com-
pliance management systems effective and offer practical strategies for
managers, stakeholders, and regulators to build successful self-regulation
management systems (Parker 2002). Ostrom (1990), for example, found
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that self-governance arrangements for common goods work effectively if
rules are generally known and understood, if communities maintain fre-
quent social interactions with each other, and if rule infractions are
monitored and subject to sanctions. The relevance of monitoring and
sanctioning is underscored by a huge body of literature on enforcement
strategies, which in part also considers the interplay between governments
and alternative regulatory bodies. Influential conceptions for enforcement
strategies range from the “enforcement pyramid” and the “tit for tat”
approach of Ayres and Braithwaite’s responsive regulation, through the
target-analytic approach of responding to an organization’s reasons for
noncompliance, to the relative newcomer of “risk based regulation” (for an
overview see Baldwin and Black 2007, 5f.).
Finally, the adoption of and increase in alternative modes of regulation
are also explained by macro level approaches, which emphasize general
economic, societal, and regulatory trends in the context of macrosystemic
transformations. Most notably, globalization but also liberalization and tech-
nological progress are referred to as the drivers for a new fabric of gover-
nance that changes policy preferences and bargaining powers, opens new
institutional options, and pushes institutional changes, of which private insti-
tutionalization of governance is one of the most significant (Kahler and Lake
2003; Haufler 2001). The adoption of alternative regulatory solutions may be
viewed in the light of macro level changes in ideas,values, and norms. The free
market paradigm and the better regulation agenda, for example, contribute
to the promotion of private alternatives to governmental regulation. The
reliance on nongovernmental solutions may, however, become pressurized by
self-regulatory failures, as happened during the course of the recent financial
crisis, for example.
This overview of approaches for analyses to alternative modes of regula-
tion highlights challenges for policymakers confronted with the question of
whether an alternative regulatory solution would be adequate to solve a given
regulatory problem. Single-factor approaches may be reasonable for in-depth
academic research, but they are unlikely to offer guidance to a regulator who
faces the challenge of regulatory choice in a multifactor environment. The
multitude of intertwined factors related to the macro, the meso, and the
micro levels of alternative regulatory schemes provides a significant burden
for systematic ex ante assessments. Moreover, many factors are hardly
assessable in advance, either because the crucial initial phases of institution-
alization are characterized by uncertainty regarding possible outcomes (e.g.,
contribution to market growth) or because assessment factors simply do not
exist before a particular solution is adopted (e.g., enforcement strategies).
These difficulties reveal the necessity of taking the analysis a step further, to
the identification of factors that can and should be included in any effort
to explain and predict when alternative regulatory arrangements are likely
to emerge and effectively contribute to the solution of regulatory pro-
blems and when they are more likely to fail (Ostrom 1990), and to derive
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conclusions for the relationship between the state and private actors (Bartle
and Vass 2007), and for the role of the state in alternative regulatory arrange-
ments, in particular.
CRITERIA FOR REGULATORY CHOICE
This article proposes an analytical approach to the assessment of alternative
modes of regulation from a public policy perspective. It starts from the
assumption that the performance of alternative regulatory schemes is
influenced by the specific organizational design of a regulatory entity
(institutional/organizational success factors) and by the particular market
and regulatory environment (enabling contextual factors). Institutional/
organizational success factors can be designed or modified at the organiza-
tional level of self- and co-regulation. They include, for example, the modes
of stakeholder involvement and adequate enforcement powers. The charac-
teristics of the industries involved and the characteristics of the regulatory
environment are summarized as enabling contextual factors. They include, for
example, the risks and potential impact in case of regulatory failure and
conflicts between public and private interests. These factors are related to
the market and policy context of regulatory institutions. In contrast to
institutional/organizational success factors, contextual factors cannot be
modified at the organizational level. If at all, they can be affected by reforms
to the regulatory environment. In combination, they can provide a more or
less enabling context for alternative regulatory institutions. They affect the
possibilities and probabilities of their adoption (e.g., incentives to cooperate)
as well as the performance of already established institutions (e.g., effective-
ness in reducing market failure).
The subsequent section sets out eleven enabling contextual factors (A–K),
which form a checklist for the assessment of alternative modes of regulation.
The factors are derived from a comprehensive review of the literature
drawing on theoretical and empirical analyses of advantages, disadvantages,
success factors, and contextual conditions for alternative regulatory modes as
well as case studies in a variety of policy fields.4To enhance the usefulness for
regulatory practice, selected indicators are provided for each factor to facili-
tate the empirical analysis. From a theoretical perspective, the approach is
based on the governance perspective, which provides a valuable framework
for analysis as it scratches available regulatory options from an institutional
perspective. However, the governance perspective and institutionalism share
the propensity to ignore interests and strategic action as drivers for change
(Mayntz 2008). The approach therefore also integrates and interlinks rele-
vant explanatory theoretical conceptions from different disciplines, points
to interrelations between the macro, meso, and micro levels of alternative
modes of regulation and derives conclusions regarding the role of the state
in alternative regulatory arrangements.
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A. ECONOMIC BENEFITS FOR THE INDUSTRY
The emergence of alternative regulatory solutions, in some cases, simply
results from enlightened self-interest of the industry. This is when direct
economic benefits outweigh the costs of self-regulation. In these cases self-
regulation may create win–win opportunities (Porter and van der Linde
1995) regarding private/industry and public/state interests, for example,
when improvements in environmental or social standards also enhance eco-
nomic performance. Various examples show that self-regulatory regimes
emerge in reaction to distinct problem structures that create industry demand
for a type of regulatory framework that cannot be provided by governmental
action, especially on the international level (Pattberg 2005). Gupta and Lad
(1983) refer to industry-wide standardization in the computer industry as a
case where agreement on technical compatibility was driven by the expecta-
tion of market growth. Padilla (2008) shows how self-interest and long-term
profit expectations provided the necessary incentives for the adult film indus-
try to self-regulate and to find mechanisms to minimize the risks of HIV
outbreaks resulting from the asymmetric information and network effects
that characterize the industry. Héritier and Eckert (2008) found that eco-
nomic incentives, provided by a thriving recycling market, facilitated the
implementation of voluntary agreements in the paper industry. Society as a
whole may benefit from these incentive mechanisms if private regulation
contributes to the achievement of public objectives. For public regulatory
authorities this reveals the relevance of clarifying the extent to which public
and private interests overlap (Ofcom 2008; see also factor F below) and
scrutinizing the potential benefits of alternative regulatory action by taking
into consideration incentives/disincentives for joining a collective arrange-
ment based on factors derived from economic approaches to regulation (e.g.,
contribution to market growth, reduction of transaction costs, etc.).
B. REPUTATIONAL SENSITIVITY OF THE INDUSTRY
The emergence of alternative modes of regulation may be driven by the
intention to increase public trust in companies and industries. The reputa-
tional sensitivity of the industry is considered a central factor in the feasibility
of the adoption of an alternative regulatory solution. The more the com-
panies’ success depends upon their own reputations and on the reputation of
their industry segment, the greater are the incentives to adopt measures in
order to avoid reputation losses. The “regulatory threat hypothesis” (Erfle,
McMillan, and Grofman 1990) deals with the intertwined influences of public
opinion and media attention on the credibility of regulatory threats and takes
account of reputation as an influencing factor. Companies that are vulner-
able to consumer campaigns via reputational risks or political pressure are
generally more proactive on social standards in order to avert public criti-
cism. These companies suffer when competitors manage to avoid complying
with these standards, and thus they have an interest in monitoring procedures
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for the sector as a whole (Hassel 2008; Fung, O’Rourke, and Sabel 2001;
Vogel 1995). According to Ronit and Schneider (1999), “[t]he translation of
an external threat to internal pressures operates according to the logic of
collective sanctions as described by Heckathorn (1990). Here a given reward
or punishment not only is directed to the deviant actor alone but also extends
to the actor’s whole group. In most cases this leads to high levels of compli-
ance because the groups’ internal monitoring capacities and sanctioning
resources are harnessed on behalf of external control” (264). None of these
measures, however, will deter fly-by-night firms, which do not care about
reputation but free ride on the benefits of a successfully introduced self-
regulatory regime.
In order to assess an industry’s reputational sensitivity, regulators may be
informed by considering the public awareness and public concern regarding
regulatory issues. De Neveres (2010), for example, argues that the ineffec-
tiveness of self-regulation by the private military and security industry regu-
lators results from the lack of public resonance and publicity, which
decreases regulatory incentives both on part of the industry and the state. In
the U.S. chemical industry, on the contrary, the Responsible Care Program
was created in 1989 in response to declining public opinion and public
confidence during the 1980s. King and Lenox (2000) did not find evidence
that members of the program did improve their performance better than
nonmembers, but they showed that larger firms, those with well-known
brands and firms that are more greatly influenced by the chemical industry’s
reputation, more frequently participated in the program. If reputation
matters, for regulators it is helpful to assess whether an industry faces strong
nongovernmental organizations (NGOs) with the associated danger of public
campaigns (fire-alarm oversight) and reputation losses. The existence or
absence of public NGO campaigns attacking a specific industry by threaten-
ing and launching boycotts and engaging in media campaigns has an impact
on the industry’s willingness to engage in self-regulation (Héritier and Eckert
2008; Volden and Wiseman 2008; Innes 2006; Baron 2003). Industry invest-
ment in the development of reputation and the probability of detection of
malpractice also serve as assessment criteria. In general, reputational sensi-
tivity is higher in markets with direct business-to-consumer (B-2-C) contacts
than in business-to-business (B-2-B) markets because a loss of public repu-
tation may lead to a drop in sales figures.
C. INTERVENTION CAPACITY OF GOVERNMENTAL ACTORS
In many cases, the emergence of self-regulation is not a direct function of
potential economic and reputational benefits to the industry. On the con-
trary, it is often argued that alternative modes of regulation take place “in
the shadow of hierarchy” (Héritier and Lehmkuhl 2008). The provision of
an alternative regulatory system becomes more attractive when there is
the threat of government intervention, statutory standards, or litigation
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(Newman and Bach 2004). Ayres and Braithwaite (1992) argued that state
“regulatory agencies are often best able to secure compliance when they are
benign ‘big guns’...the bigger and the more various are the sticks, the
greater the success regulators will achieve by speaking softly” (19). The
performance of alternative regulation is linked to the intervention capacity of
government, which may affect the industry’s willingness to adopt self-
regulatory solutions in order to preempt statutory regulation. A strong inter-
vention capacity allows governments to apply stick-and-carrot strategies or
to use the tactic of government by raised eyebrow (Krasnow and Longley
1973).
A range of examples, especially from the area of environmental protection
(Khanna 2001; Sinclair 1997) underpins the assumption that the threat of
government regulation induces companies to participate in self-regulatory
programs. In the communications sector, the World Wide Web Consortium
began to develop the Platform for Internet Content Selection (PICS) in the
mid-1990s in response to the Communications Decency Act (CDA) (1996)
and the threat of more strict regulatory action against illegal and harmful
material on the Internet. Similarly, the development of the U.S. TV parental
guidelines for rating and filtering of audiovisual media content was pushed
by the regulatory threat that arose with the implementation of the U.S.
Telecommunications Act (1996).
The capacity for governmental intervention mainly depends on the avail-
ability of adequate means to adopt and enforce statutory regulation (credible
threats). Intervention capacity is higher if there are legal remits for public
authorities and regulatory responsibilities in the respective regulatory field
and if they can resort to appropriate knowledge,resources, and instruments
available for the monitoring, enforcement, and the imposition of sanctions.
Intervention capacity is lower in policy areas with a high degree of techno-
logical complexity (Héritier and Lehmkuhl 2008) that involve the need for
high-level technological expertise. Intervention capacity is also lower if there
is little leeway for regulatory action at the national level but great demand for
transnational or cross-sectoral coordination, which involves a higher potential
for disagreement between multitudes of governmental actors.
D. IMPACT IN CASE OF REGULATORY FAILURE AND THE NEED FOR
UNIFORM AND BINDING MINIMUM STANDARDS
The impact in the case of regulatory failure and the need for uniform and
binding minimum standards determine the necessary level of governmental
intervention. The higher the potential negative impact of regulatory failure,
the greater is the need for minimum binding standards. High demand for
minimum binding standards decreases regulatory flexibility and the suitabil-
ity of alternative regulatory solutions (Sinclair 1997). Hence, alternative
modes of regulation are less suitable if the costs in the event of regulatory
failure are considerable and if a product supplied is essential to the welfare of
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individuals, for instance, in the case of a major public health and safety issue
or detrimental effects on public infrastructures. Problems of high risk and
irreversibility demand minimum binding standards and require universal
application/participation in order to assure the necessary level of goal achieve-
ment (Office of Regulation Review 1998). Lower negative impact in the case
of regulatory failure allows for more regulatory flexibility and increases
the leeway for alternative regulatory solutions. Regulators may employ
risk-based approaches to regulation for systematic assessments (Black and
Baldwin 2010; Organisation for Economic Co-operation and Development
2010; Black 2005; Hutter 2005). In general, this includes an assessment of
the hazard or adverse event and the likelihood of it occurring, for example,
considering the impact in a single case of noncompliance with regulatory
standards and the degree of reversibility (Sinclair 1997). Risks are low, for
instance, if a single television movie is classified inadequately, but they are
very high in the case of one accident in a nuclear power station. The dangers
of irreversibility and threshold effects are discussed and considered crucial
special features in the field of biodiversity (Gunningham and Young 1997)
and also for the economy in general. Here, it is not a single case of noncom-
pliance that endangers a whole system, but continued malpractice may lead
to a radical and maybe irreversible change of state of an ecosystem or an
economic system. Investor confidence in a financial system may disappear
overnight after years of mismanagement; once lost, a species or an ecosystem
is lost forever. Deriving design principles under contextual conditions of
irreversibility and threshold effects in the case of biodiversity, Gunningham
and Young (1997) argue for a mixed regulatory approach that uses the full
suite of instruments available.
E. INTENSITY OF REGULATORY INTERVENTION REQUIRED
The intensity of the required regulatory intervention depends on the charac-
teristics of the regulatory problem and the available means of intervention.
Some regulatory challenges may be solved by rather soft modes of interven-
tion, while others demand much stricter restrictions. From a democratic
point of view, the demand for governmental oversight increases with the
intensity of required regulatory intervention (Blinder 1997). The lower the
intensity of regulatory intervention, the better is the suitability of alternative
regulatory solutions. For a systematic analysis regulators may assess what is
being regulated (Levi-Faur 2010): entry, exit, behaviour, costs, content, pref-
erences, technology, or performance. The intensity of intervention may vary
for each aspect, but it can be assumed that it is greater if it restricts market
entry or enforces market exit, if regulation of costs/prices has a significant
impact on revenues, and if it constrains behaviour that is protected by
fundamental rights. The intensity of regulatory intervention is lower if it only
changes certain aspects of performance—for example, the quality of products
and servicesor if it provides additional information about goods and
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services to enhance transparency. Regulation of content is generally sensitive
with regard to freedom-of-speech concerns (censorship). Regulation of tech-
nology demands a sensitive assessment because it is characteristic as an
enabling and restricting structure or institution (Dolata and Werle 2007;
Lessig 1999) and involves the potential to affect other aspects of governance
such as market entry. For regulators, a central question in the course of
the assessment of the suitability of alternative regulatory arrangements is
whether there is scope for applying soft mechanisms of intervention without
compromising the public regulatory objectives.
F. CONFLICTS OF PUBLIC AND PRIVATE INTERESTS
The degree of conflict between public and private interests for any given
regulatory matter affects the feasibility and the suitability of alternative
regulatory solutions. If companies share a common interest in avoiding
market failure, their willingness to group together and to adopt alternative
regulatory solutions will be high (Freytag and Winkler 2004; Tasman Asia
Pacific 2000; see also factor A). Conversely, widely diverging interests
between companies will hamper the emergence of self-regulation. Héritier
and Lehmkuhl (2008) argue that sectoral governance appears to be less
successful in enacting regulatory solutions in the face of distributive conflicts.
Thus, an effective alternative regulatory arrangement for regulating compe-
tition (market power control) is unlikely to emerge and perform without
friction. The assumption is underpinned by Bartle and Vass’s (2007) analyses
of self-regulation within the regulatory state in Britain. Here, for regulatory
issues involving price-sensitive decisions for UK airports, the decision-
making process is regulator-led, and the industry’s contributions are limited
to information gathering and advice. But even if companies share a common
interest and agree on an alternative regulatory mechanism, there is no cer-
tainty that there will be no conflict between their private interests and the
general public interest. The lower the divergence between public and private
interests, the more suitable is an alternative regulatory solution. In general,
consumer protection and environmental protection are referred to as a policy
field with a wide divergence between public and corporate interests. A wide
divergence of interests involves a stronger demand for state oversight of
alternative regulatory institutions.
G. NUMBER OF PARTICIPANTS AND MARKET FRAGMENTATION
The level of adoption of alternative regulatory modes depends on the number
of market participants. Theoretical arguments (Gupta and Lad 1983) and
evidence suggest that self-regulation works less in fragmented markets with a
wide and diverse range of providers. The higher the number of actors
involved, the more difficult it is to arrive at a universally acceptable set
of standards. Fragmentation decreases the feasibility of adopting self-
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regulatory measures, and also “an effective sanctioning system seems more
manageable in small or federated organizations, where the visibility of each
member is high” (Ronit and Schneider 1999, 262). Mayo and Cullum (2006)
point to the fragmented British car servicing and repair sector, criticizing the
massive detriment to the consumer in the wake of eleven failed attempts to
establish effective self-regulation over the last thirty years. On the other hand,
an overseeable number of mobile communications operators and social
network providers introduced codes of conduct for protection of minors, an
initiative that was strongly stimulated by policy initiatives of the EU Com-
mission. Bennear (2006) acknowledges that financial regulatory systems that
functioned well when investors were primarily large institutions have proved
insufficient when small individual investors entered the market in larger
numbers. In the communications sector, globalization, liberalization, and
convergence increased the number of content providers (user-generated
content) and challenged traditional (self-)regulatory regimes established in
print and broadcasting markets, with a rather limited number of players.
Ostrom (1990) identifies a couple of exceptions to this overall assump-
tion, however, showing anomalous cases in which regulatory problems were
solved even under conditions of large numbers of appropriators. Successful
adoptions of large-scale organizational units showed the common feature
that these were built on previously organized smaller units, which incremen-
tally transformed into more complex institutional arrangements. Regulators
therefore need to consider not only the total number of actors, but also the
institutional structures from which alternative regulatory arrangements
might emerge, for example, the availability of organizations that can assume
regulatory tasks.
H. AVAILABILITY OF ORGANIZATIONS TO ASSUME REGULATORY TASKS
The feasibility of adopting alternative modes of regulation depends on the
existing industry environment. The practicability of adoption is higher if an
industry already has experience with alternative modes of regulation. Taking
over additional tasks is easier for an already established organization that can
provide the “bureaucratic capacity, resources, and ethos necessary to imple-
ment regulatory schemes” (Balleisen and Eisner 2009, 134), for example, an
already acknowledged industry association of high reputation and widespread
support in the industry (near universal participation), which is adequately
equipped (e.g., personnel) and able to reconcile diverging company interests
(Sinclair 1997). The maturity of a market is an influencing factor because the
establishment of umbrella organizations proceeds with the formation of a
market. Theoretical arguments suggest that industry regulation is more likely
when it requires coordination among firms on an intraindustry rather than on
an interindustry basis (Gupta and Lad 1983).
The availability of preexisting organizations is a facilitator of self-
regulation but not a necessary prerequisite for successful adoption. By
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focusing on the process of institutionalization, Ostrom (1990) shows how
small regulatory units incrementally transform into larger arrangements.
Hassel (2008) found a plethora of voluntary initiatives for global labour
standards that converged over time on a shared understanding. The core
labour standards of the International Labour Organisation (ILO) and the
UN Global Compact served as points of convergence by defining a core of
acceptable business strategies. Similar processes of convergence have been
observed for the heterogeneous regulatory regime of privacy protection in
electronic commerce (Bennett 2001).
One may also argue that the feasibility of adoption increases with the
number of alternative regulatory institutions dealing with the same issues,
because companies may choose between various organizations, for
example, in the case of e-commerce seals. Regulators, however, also need to
acknowledge potential drawbacks of regulatory fragmentation. The exist-
ence of many single-issue organizations may cause awareness problems and
transparency losses for consumers; it may lead to regulatory competition
(forum shopping) and even to decreasing standards (race to the bottom).
Analysis of the causes of the 2008 financial crises revealed—among other
factors—that rating shopping by issuers contributed to a gradual erosion of
rating standards among structured finance products. This negative effect
resulted from the right of issuers to suppress ratings that they considered
unwelcome, thereby exerting pressure on the agencies (Utzig 2010). Jamal,
Maier, and Sunder (2003) found little evidence that the competitive regime
for e-commerce seals induces a race to the bottom with respect to privacy
standards and disclosures. Some public institutional intervention may be
desirable to remedy problems associated with fragmentation. Regulatory
authorities may consider performance-based approaches to regulatory
oversight, for example, periodic review to avoid a race to the bottom. In
order to counter fragmentation, regulators can create standards that serve
as common points of reference to foster convergence in fragmented regu-
latory regimes.
I. INTENSITY OF COMPETITION
The degree of competition affects alternative modes of regulation, but the
literature regarding the effects of competition on the adoption and perfor-
mance of self-regulation is inconclusive. The basic argument suggests that
intensive competition decreases the willingness to accept any voluntary
regulatory burden beyond mandatory standards. As Haufler (2001) finds,
“in highly competitive markets any additional cost is harder for manage-
ment to justify in terms of bottom-line profits and market share. Self-
regulatory programs often entail significant costs and may undermine a
firm’s competitive position—especially if no other player major market
player adopts similar standards. When corporations can agree on setting
standards together, however, the competitive position of each is maintained.
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Consequently, oligopolistic markets might be the most candidates for col-
lective self-regulatory action” (24).
At the same time, it has to be considered that alternative regulatory insti-
tutions might entail or encourage anticompetitive behaviour. Depending on
the maturity and structure of the market, certain market players might try to
lock the market for their own convenience, closing it to newcomers (Freytag
and Winkler 2004). In particular, a low number of actors, high market
concentration, great differences in market power, and high market entry bar-
riers (sunk costs, for example) may encourage dysfunctional performance of
alternative regulation. In contrast to basic assumptions, it is therefore argued
by the Task Force on Industry Self-Regulation (2000), for example, that
self-regulation is more likely to be effective in a competitive market, as
competition will lessen the risk of regulation turning into an anticompetitive
structure. From the regulators’ perspective, governmental oversight may be
introduced to prevent cooperation in self-regulatory organizations from
anticompetitive behaviour.
Moreover, in contrast to basic assumptions, self-regulatory programs may
also increase a company’s competitive position. In competitive markets com-
panies may choose strategies of self-regulation to increase the company’s
reputation. This may result in alternative regulatory arrangements carried by
some market participants (front-runners) but not necessarily by all of them.
This provides a challenge for regulators in policy fields where the need for
near-universal application is high due to the serious negative impact of
regulatory failure.
J. THE EXTENT TO WHICH PUBLIC POLICY OBJECTIVES ARE SUPPORTED BY
THE EXISTING INDUSTRY CULTURE
The practicability of the adoption of alternative modes of regulation for a
new regulatory challenge depends on the extent to which public policy
objectives are supported by the existing industry culture. A preexisting sen-
sitivity to public interests and a tradition of cooperation between the private
sector and state authorities will support the adoption of alternative regula-
tory solutions. Mayntz (2003) argues that for effective governance to
emerge there must exist a minimal sense of identification with and respon-
sibility for the greater whole. Both public and private actors must cooperate
in policymaking instead of simply fighting each other. The intensity of com-
mitment to public objectives varies from industry to industry as well as
between individual corporations. Corporate social responsibility (CSR) is
one of the catchwords for demonstrating sensitivity to public interests at the
level of individual companies, and measures taken with CSR programs
point to other contextual factors such as the incentives and benefits for the
industry and its reputational sensitivity. Regarding the industry level, an
unweakened culture of social responsibility is more probable in the case of
cohesive industries with like-minded participants, motivated to achieve
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common goals (Office of Regulation Review 1998). Common norms, values,
principles and overall models (Leitbilder) such as the “honorable merchant”
(Klink 2008) promote the practicability of alternative modes of regulation.
The lack of cohesiveness and common values may be one reason why, for
example, the blogger scene failed to agree on a blogger’s code of conduct
proposed by O’Reilly in 2007.
The probability of the emergence and the form of alternative regulatory
arrangements may also differ depending on the paths and traditions of
relations between state authorities and private actors, that is, on the pre-
vailing model of politics and regulation. Variation in regulatory models is
expected to shape the character of alternative regulatory arrangements.
Based on the literature on varieties of capitalism and comparative systems
of regulation, Newman and Bach (2004), for instance, propose the distinc-
tion between “legalistic self-regulation” and “coordinated self-regulation”
to contrast and explain the emergence of distinct arrangements in the
United States and Europe (388). The U.S. public-sector capacity is institu-
tionally limited in its ability to proactively engage industry by offering
rewards, yet comparatively strong in threatening sanctions, which have
hitherto been used to force industry into self-regulatory arrangements. By
contrast, in Europe, approaches are more cooperative—public-sector repre-
sentatives meet with industry and agree on a joint course of action. While
most empirical research focuses on alternative regulation in Western
democracies, little is known about the political contextual conditions for
self-regulation outside the Western world. Case studies show how unlimited
governmental control restricts the leeway for the formation of alternative
modes of regulation. Saurwein and Latzer (2010), for example, argue that
in Malaysia the mandatory censorship system in the broadcasting sector
reduces the incentives for the industry to participate in a parallel voluntary
television-rating system. State coercion—as exerted in authoritarian
regimes, for instance—is used to force industry into mandatory systems of
self-restriction. These examples not only point to differences regarding the
traditions of relations between state authorities and private actors that
shape the character of alternative modes of regulation, but also raise the
question of the role and the modes of governmental involvement in
alternative regulatory arrangements.
K. INVOLVEMENT OF GOVERNMENTAL ACTORS
Successful alternative regulation depends on an adequate level of support
and involvement of governmental actors. In most cases, self-regulation is a
misnomer, because alternative regulatory institutions are not set up com-
pletely without governmental influence or government pressure, and in many
cases there are connections to governmental agencies during their ongoing
operation. The role of government in alternative regulatory arrangements is
therefore highlighted in many analytical classifications that suggest analysis
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of regulatory arrangements according to varying modes and degree of state
involvement. Latzer, Just, Saurwein, and Slominski (2002), for instance,
distinguish “state regulation” from “co-regulation” carried out by private
actors that operate on an explicit unilateral legal basis (most notably by an
act), which explicitly delegates regulatory powers from government to non-
governmental actors (43). Co-regulation may be distinguished from two
forms of self-regulation. There is “self-regulation in a narrow sense,” which
operates without any formal state involvement, and “self-regulation in the
wide sense,” which is characterized by other forms of state involvement in
self-regulatory institutions apart from a legal basis—for example, personnel,
financial, or contractual involvement of the state in a self-regulatory institu-
tion (ibid.). This classification focuses on formal state contributions in alter-
native regulatory arrangements, and it proves useful for the classification of
regulatory institutions, for identifying formal state involvement in alternative
regulatory arrangements, and for monitoring institutional changes. Addi-
tionally, it is important to take account of less formalized state action, which
is a more implicit but nevertheless crucial ingredient in the formation and
development of the regulatory scheme, as pointed out by Bartle and Vass
(2007), who propose a category called “tacitly supported self-regulation”
(894). Altogether, state authorities can draw on a range of instruments to
support alternative regulatory institutions, to make active use of them, and to
control them. These may be applied in a differentiated manner along differ-
ent stages of the policy cycle, from agenda-setting and problem identification
via organization building, rule making, implementation/enforcement, and
evaluation (Porter and Ronit 2006). Potential options are marked by varying
degrees of intensity of state involvement, with measures ranging from soft
forms of symbolic support to direct control in a co-regulatory framework
(Latzer and Saurwein 2008):
Encouragement of self-regulation by state authorities (carrot, inspiration);
Political appreciation of the scheme or its outcomes by governmental
agencies (symbolic support, endorsement);
Financial support (subsidy, providing positive incentives);
Involvement of government personnel (information);
Collaboration between governmental agencies and alternative regulatory
institutions (cooperation, facilitation);
Co-regulation within a legal framework (lending authority via formal
approval; direct control; accreditation of organizations and norms);
Periodic review of a scheme by state authorities (continuing performance
monitoring);
• Definition and enforcement of fall-back scenarios in the case of failure
(providing negative incentives: threat, stick, government intervention).
From a conceptual point of view, the modes of state involvement scrape the
borderline between contextual factors, on the one hand, and organizational
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success factors, on the other. State involvement may be directly displayed in
the organizational design of an alternative regulatory institution (financial
support, personnel involvement). But government involvement may also be
an external, contextual factor (e.g., government threat), which indirectly
affects adoption of and conduct in an alternative regulatory organization.
Assessing the mode of governmental involvement is a task for positive analy-
sis of regulatory arrangements as well as a crucial element in the course of
regulatory choice. A successful institutional design depends on an appropri-
ate mix of measures and an adequate intensity of state involvement. In order
to determine an appropriate mix, it is helpful to derive conclusions from the
assessment of other contextual factors. More intense modes of state involve-
ment are justified, for example, if there is a serious negative impact in the case
of regulatory failure or if there are major conflicts between public and private
interests. In any case of state involvement, a clear division of responsibilities
between private and state institutions contributes to the accountability of the
regulatory arrangement.
MEDIA CONTENT-RATING SCHEMES IN THE AUDIOVISUAL INDUSTRY
In order to demonstrate the potential and limits of the assessment approach,
selected factors are applied to study regulatory choice for content-rating
schemes in the audiovisual industry. The expected impact of audiovisual
media on social, democratic, and cultural developments often leads to regu-
latory intervention in audiovisual markets. A common rationale for such
intervention is potential market failure caused by information asymmetry
between producers and consumers of media content (Akerlof 1970). For
consumers, this results in difficulties in making rational choices regarding
content selection, most notably, considering its suitability for minors.
Content-rating schemes with reliable and consistent information are sup-
posed to increase transparency for consumers. So far, a wide range of differ-
ent schemes is applied to classify motion pictures, videos and DVDs,
television programs, electronic games, music videos, Internet content, and
mobile-content services. Development, application, and control of rating
schemes have emerged in complex regulatory arrangements with varying
degrees of state and industry involvement. The increasing amount of media
content, the decline in controllability, and the convergence of communica-
tions markets challenge existing governance arrangements and demand regu-
latory reaction to ensure an adequate level of transparency and consumer
protection. In the context of regulatory reform, (rational) political decision
making requires an assessment of the various options for effective media
content-rating, which includes an evaluation of the potential and limits of
alternative modes of regulation. Subsequent evaluation of selected contex-
tual factors scrutinizes preconditions in the market and regulatory environ-
ment for media content rating.5
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EVALUATION OF SELECTED CONTEXTUAL FACTORS
Potential economic benefits and reputational benefits for the industry are
considered to be drivers for the adoption of an alternative regulatory solu-
tion. However, the operation of a rating scheme is costly but does not provide
any direct economic benefits. The enlightened self-interest of the industry in
the case of content rating is not to be expected. The question of reputational
sensitivity of the industry does not have an across-the-board answer. There is
a high level of public awareness and concern regarding the regulatory issue
as it affects the protection of minors. In many countries, the audiovisual
industry finds itself vis-à-vis active NGOs such as parents’ organizations,
which fulfill watchdog functions. Moreover, the audiovisual sector is a B-2-C
market with direct consumer contact, where reputation losses may result in
changing consumer choices. Content suppliers, especially in the quality
segment and the producers of special programs for children, may have incen-
tives to establish accurate and reliable ratings to counter reputation losses.
Other content producers and suppliers (mainly the down-market segment),
however, do not regard reputation as a central value. There are incentives to
free ride on the benefits of an established and effective rating scheme. The
lack of direct economic benefits, differentiated levels of reputational sensi-
tivity, and the free rider problems involved are aspects that demand public
regulatory intervention to introduce a rating scheme, to achieve sufficient
participation and to counter free riding.
The intervention capacity of governmental actors affects the industry’s will-
ingness to adopt self-regulatory solutions in order to preempt statutory
regulation. The intervention capacity of the state in the area of media
content-rating is ambiguous, however. On the one hand, it is high, as there
are usually clearly defined legal remits for public authorities regarding pro-
tection of minors. Moreover, in the case of motion pictures and television
programs, there is little demand for international coordination of rating
systems even if international solutions would reduce transaction costs. The
demand for transnational coordination is higher for content rating on the
Internet. On the other hand, intervention capacity is low, because every state
intervention in media affairs is generally sensitive with regard to freedom-of-
speech concerns (censorship), even if the barriers to government intervention
vary between different types of media (motion pictures, television, Internet)
and between countries. In the United States, First Amendment concerns
provide a high hurdle for governmental intervention in any media content
(see Federal Trade Commission 2000) and, at least in Western democracies,
the industry’s self-regulatory solutions are generally preferred. Moreover,
intervention capacity is low because the estimated expenditure on enforce-
ment is high. The coding, rating, and classifying of an increasing amount of
audiovisual content involve very high costs of a do-it-yourself solution on the
part of the state. This is a powerful argument for a regulatory arrangement
with significant industry involvement in the rating practice. The state’s
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intervention capacity may, however, be used to implement modes of public
oversight to avoid the failure of an industry rating scheme.
The impact in the case of regulatory failure and the need for uniform and
binding minimum standards determine the necessary level of governmental
intervention. The higher the potential negative impact, the greater is the need
for minimum binding standards, and the lower is the suitability of an alter-
native regulatory solution. Regulatory failures may result from the absence
of a rating scheme or from a systematic failure in providing accurate, reliable,
and consistent information for consumers. The main impact of regulatory
failure is a lack of transparency and difficulties for consumers in making
rational choices when it comes to the selection of media content. The need for
uniform and binding minimum standards is generally considered to be low.
There is a desire for a high level of consistency in the rating practice, which
calls for a certain level of uniformity in the application of a rating scheme, but
the impact of a problem caused in a single case of noncompliance is low. The
effects of one unrated product or one wrongly rated product are compara-
tively innocuous. Failures in individual cases may hardly damage an other-
wise effective rating scheme and do not involve welfare losses to a community
on a dangerous scale. In summary, there is no need for uniform and binding
minimum standards, which is one argument in favor of alternative modes of
regulation. But there are potentially negative impacts of nonadoption, which
call for measures to closely monitor and if necessary stimulate the adoption
process.
The required intensity of regulatory intervention depends on characteristics
of the regulatory problem and the available means of intervention. The lower
the intensity of regulatory intervention, the greater is the suitability of alter-
native regulatory solutions. At first glance, the intensity of regulatory inter-
vention via content-rating schemes seems rather low. Rating mainly aims at
enhancing transparency by providing additional information about content,
but ratings do not change the media product as such. Ratings may, however,
have a major economic impact. Distribution of highly rated products is often
limited to certain air times (watershed regulations) involving considerable
effects on revenues. Certain ratings may restrict market access for providers,
and it has even been argued that rating constrains fundamental rights
(freedom of communication). In summary, potentially serious economic
impacts call for institutional dispositions to object to a given rating and to
guarantee fair practice.
The degree of conflict between public and private interests in a regulatory
question affects the suitability of alternative regulatory solutions. The lower
the divergence between public and private interests, the more suitable is an
alternative regulatory solution. In the case of rating schemes, conflicts are
considerable, because companies, consumers, and the wider community do
not share a common interest in reducing information asymmetries. Distribu-
tors have an immediate interest in the outcomes of the ratings. The better a
rating, the larger is the potential audience, which results in the incentive to
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consistently “underlabel” products (Hamilton 1998, 143). The audience, on
the other hand, expects accurate and reliable ratings and a high level of
protection. Due to the evident conflict between public and private interests,
content rating is not suitable for pure, unlimited industry self-regulation.
Some kind of public oversight seems indispensable.
The level of adoption of alternative regulatory modes depends on the level
of fragmentation in a market and the availability of organizations to assume
regulatory tasks. For a long time, the audiovisual industry displayed institu-
tional features that supported the establishment of self-regulation. The
number of players was overseeable; in many countries film producers and
distributors built up industry associations, some of which also took over
self-regulatory tasks, such as, for example, the Motion Picture Association of
America (MPAA) in the United States, and the Freiwillige Selbstkontrolle
der Filmwirtschaft (FSK) in Germany. Especially for the movie/cinema
sector, the amount of products for age classification was manageable by one
centralized single rating organization (third-party rating). The MPAA’s
rating board, for example, classifies around 900 films a year. Also, in the
television sector, although more strongly fragmented, the number of players
was not a barrier to building up industry associations and self-regulatory
schemes such as the TV Parental Guidelines for age classification in U.S.
television. For U.S. television, however, it is estimated that 2,000 TV
program hours a day have to be reviewed. This results in a more decentral-
ized organizational regulatory regime, where age classification is carried out
directly by employees of the many TV stations (self-rating). With the advent
of digital technology and the Internet, the costs for production and distribu-
tion of audiovisual material decrease, the number of content producers and
distributors increase (user-generated content), and the market becomes
highly fragmented. Protection of minors on the Internet has become one of
the more challenging tasks in the information society but none of the many
different efforts on access control, content rating, and content filtering on the
Internet was a striking success. Fragmentation may be one the central
reasons for current regulatory failure, accompanied by poor maturity of the
market, the need for interindustry coordination, the challenges of globaliza-
tion, and the lack of cohesiveness regarding common norms, values, and
interests. The contextual conditions for successful self-regulation are rather
difficult.
CONCLUSIONS
This article proposes criteria to assess the potential and limits of alternative
modes of regulation. From a conceptual perspective, the article contributes
to the development of an analytical framework for regulatory choice by
making a distinction between institutional/organizational success factors,
which can be designed or modified at the organizational level of self- and
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co-regulation, and enabling contextual factors, which comprise characteristics
of the industries involved and characteristics of the regulatory environment.
These contextual factors are related to the market and policy context of
regulatory institutions. They cannot be modified at the organizational level,
but only—if at all—by reforms to the regulatory environment. In combina-
tion they can provide a more or less enabling context for alternative modes of
regulation, because they affect the probabilities of the adoption as well as the
performance of alternative regulatory institutions.
The identification of enabling contextual factors forms the theoretical part
of the article. The analysis is intended to support regulatory choice by pro-
viding a framework in the form of a checklist of factors and respective
indicators for the empirical assessment of contextual conditions for alterna-
tive regulatory solutions. The approach can be applied to discuss the
appropriateness/suitability of alternative modes of regulation for the solution
of a regulatory problem. The factors can support the regulatory choice
process when new regulatory problems are encountered (ex ante evaluation)
and they may be helpful when it comes to comparing policy options in
the course of a regulatory impact assessment (RIA). Moreover, the factors
may also prove useful when examining causes of success and failure of
existing regulatory arrangements (ex post evaluation). The framework
employs a public policy perspective and addresses challenges confronting
policymakers and public regulatory authorities when considering self- and
co-regulatory solutions. However, the criteria may also be useful for industry
actors, civil-society organizations, and academics involved in evaluating gov-
ernance arrangements, even if their specific purposes for analysis may vary.
In general, the quality of analysis increases with the number of criteria and
factors studied. In practice, however, limited resources will require the selec-
tion of important criteria, depending on issues at stake, regulatory objectives,
and industry characteristics, and also taking into account the interplay of
different criteria, their degree of relevance in the respective case, and any
opposing implications. The list of factors is not to be understood as a tech-
nocratic formula that may be applied to different market and regulatory
circumstances regardless of context. Some criteria are closely related to the
industry and policy context in the respective country and have to be assessed
case by case. This underscores the necessity for contextual sensitivity, which
is considered crucial for RIA in general (see Radaelli 2004).
To demonstrate the value of the approach, it is applied to assess contextual
conditions for content-rating schemes in the audiovisual industry. Theoreti-
cal analysis suggests a regulatory arrangement with significant industry
involvement in the rating practice, combined with some degree of public
oversight. Freedom-of-speech concerns, high costs of rating content, and
little demand for uniform binding minimum standards support the suitability
of alternative modes of regulation. The lack of direct economic benefits for
the industry, sharp conflicts between public and private interests, incentives
for free riders, the potentially major economic impacts of a rating, and
356 LAW & POLICY July 2011
© 2011 The Author
Law & Policy © 2011 The University of Denver/Colorado Seminary
increasing fragmentation of the audiovisual market indicate that content
rating is not suitable for pure, unlimited industry self-regulation.
This leads to the empirical question of which modes of state involvement in
content-rating schemes are evident in practice, and if differences in perfor-
mance of rating systems may be explained by differences in intensity and
modes of state involvement. The findings of a comparative analysis (Latzer,
Price, Saurwein, and Verhulst 2007) of regulatory arrangements in the
domain of media content-rating schemes show that the performance of a
rating system is not a linear function of the intensity of governmental inter-
vention. Rating institutions with great governmental involvement perform
their roles as poorly as rating institutions with hardly any public oversight.
Empirical analysis of the content-rating scheme in the Netherlands shows
that the rating scheme has been well adopted by the industry, but the system
fails on the shop-floor level of cinemas, libraries, and media vendors when it
comes to preventing the sale, rental, and display of harmful media to unquali-
fied minors (Dorbeck-Jung et al. 2010). Findings suggest that enforcement
failures seem to be induced mainly by the wait-and-see attitude of the regu-
lators involved who do not take responsibility for monitoring and evaluating
the performance of regulatory activities (ibid.).
Altogether, evidence confirms that content rating is not suitable for pure,
unlimited industry self-regulation and that some kind of governmental
control seems appropriate. In particular, periodic review of performance on
the enforcement level may serve as an effective strategic instrument for
governmental actors. In the Netherlands, failures of enforcement have been
detected by means of a comprehensive assessment. In the United States,
the Federal Trade Commission (FTC) pays continuous attention to rating
systems by periodic assessments of self-regulation and industry practices in
the motion picture, music recording, and electronic games industries (Federal
Trade Commission 2009). Periodic review and critique of the system has
contributed to further enhancements, because frequent external assessment
increases the pressure on the industry to improve compliance with regulatory
requirements and stimulates the dialogue between state and industry
representatives.
NOTES
1. For examples from the field of environmental protection see, among many others,
Hysing (2009). Faber (2001); Haufler (2001); Khanna (2001); Carraro and Lévêque
(1999); see Hoeren (1995); Pirrong (1995); Page (1986) for applications in the
banking, stock exchange and insurance sectors.
2. For analyses of alternative modes of regulation in the communications sector
see also, for example, Tambini, Leonardi, and Marsden (2008); Latzer, Price,
Saurwein, and Verhulst (2007); Lievens et al. (2006); Christou and Simpson
(2006); Hans-Bredow-Institut and Institute of European Media Law (2006);
Moloney Figliola (2005); Programme in Comparative Media Law and Policy
Saurwein HOW CONTEXT MATTERS 357
© 2011 The Author
Law & Policy © 2011 The University of Denver/Colorado Seminary
(2004a, 2004b); Olsberg/SPI et al. (2003); Hemphill (2002); Latzer, Just, Saurwein,
and Slominski (2002); Price and Verhulst (2002, 2000); Schulz and Held (2002);
Office of Telecommunications (2001); Campbell (1999); Nordenstreng (1999);
McDowell and Maitland (1998); Price (1998); Jacobs (1996).
3. The European Union for example promotes self- and co-regulation in a number a
policy fields in the communications sector. See, for example, Recital 48 of Direc-
tive 2002/22/EC for co-regulation in the domain of universal service in telecom-
munications; Recommendation 98/560/EC of the Council and Decision 276/
1999/EC of the European Parliament and the Council regarding alternative modes
of regulation for the protection of minors; Article 27 of Directive 95/46/EC regard-
ing alternative modes of regulation for data protection; Articles 16 and 17 of
Directive 2000/31/EC regarding alternative modes of regulation for e-commerce;
COM (2005) 425 regarding self-regulation for the promotion of digital inclusion
and barrier-free access to services of the information society; Recital 36 and Article
3 of Directive 2007/65/EC for self- and co-regulation regarding advertising and
protection of minors in the area of audiovisual media services. Recently, the EU
Commission additionally stimulated the establishment of alternative modes of
regulation by initiating the introduction of codes of conduct for protection of
minors in mobile communications and social networks (http://ec.europa.eu/
information_society/activities/sip/self_reg/index_en.htm). The European Union’s
policy initiatives regarding self- and co-regulation in a particular policy field are
usually accompanied by consultations and scientific studies. See for example Euro-
pean Commission/Madelin Report (2006); Hans-Bredow-Institut and Institute of
European Media Law (2006); PCMLP (2004a, 2004b); Olsberg/SPI et al. (2003);
Keller and Verhulst (2000).
4. Latzer, Just, Saurwein, and Slominski (2002) presented a set of factors in the form
of a “regulatory check list” (152ff.), which was further developed by Latzer, Price,
Saurwein, and Verhulst (2007) to a template for regulatory choice with numerous
indicators for the empirical evaluation. For a systematic application of these
factors to analyze regulatory challenges (interconnection, market transparency for
e-commerce, spam, media content-rating schemes, and Internet service providers
code of conduct), see Latzer, Price, Saurwein, and Verhulst (2007); Just, Latzer,
Saurwein (2007); Latzer, Just, Saurwein, and Slominski (2002).
5. Analysis is focused on criteria related to the more general characteristics of indus-
tries, products and regulatory demands in order to provide an overview of the
general conditions. Other criteria are closely related to the industry and policy
context in the respective country and have to be assessed case by case.
florian saurwein is research and teaching associate in the Division on Media Change
& Innovation at IPMZ–Institute of Mass Communication and Media Research of the
University of Zurich, Switzerland. His research interests include media change and
democracy, the formation of a European public sphere, and alternative modes of gover-
nance in communications.
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