Abstract
Nowadays the art of regulation demands going beyond the mere application of command-and-control systems that punish the unwanted behaviours and reward the desired ones. If certain social goals are to be achieved, rewards and punishments are not always effective or desirable. There is a big variety of regulatory instruments that range in coercive intensity: regulation by information, by persuasion, by positive incentives, regulation by directives, goal directives, result directives, specification directives, authorisations and licences, commercialisation of licences, etc. Each of these instruments offers certain advantages and has its own limitations. The art of legislating also entails mastering all these instruments and knowing their applicability to each specific scenario.
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Notes
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Moncloa Palace is the residence of the Spanish prime minister.
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The use of information therefore has its indications and contraindications. The use of this instrument may be indicated, for example, when (a) behaviour is determined fundamentally by social and psychological factors; (b) knowledge, attitudes and the general way of dealing with the problem is more important when modifying behaviour than the strict imposition of rules (use of condoms, treatment of different people, etc.); (c) it is impossible to establish precise rules for every conceivable harm or for every possible problem (driving with prudence); (d) opinion leaders can favour change and are willing to participate (fight against drug use); or (d) the media have an interest in the campaign and its objectives. However, recourse to this technique may be contraindicated when (a) behaviour is determined for economic reasons (truckers’ day); (b) those concerned prefer regulation (free-rider problems); (c) certain behaviour is absolutely necessary and may be required by law; and (d) resources are scarce for a good campaign.
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- 5.
Advocates of the use of incentive regulation believe that incentives address many of the shortcomings of traditional regulation. First, while the latter often gives rise to a complex and detailed set of centrally developed standards, economic incentives can operate on the basis of broader objectives, with reduced information and administrative costs for both regulators and regulated parties. Secondly, the greater freedom granted by economic incentives to companies encourages technological development. Thirdly, while the application of regulation by directives is subject to considerable uncertainty as regards detection of breaches, prosecution and level of sanctions, economic incentives are limited to the actual payment of specific sums. Fourthly, negative incentives generate revenue for the public purse that can be used to compensate victims for any externalities generated by such activity while the system of directives rarely makes it possible to compensate victims (see Ogus 1994, p. 246).
- 6.
See Gouvernement du Canada (1994, p. 27 ff). In general terms, the following advantages of acting or intervening through tax policy can be cited: (a) it has the potential to greatly reduce the overall economic costs of achieving a particular regulatory objective; (b) it may be less costly to administer, if it connects to existing tax systems; (c) it has the capacity to incentivise innovation and competition, reduce government administrative burdens, and allow for aggregate flexibility in policymaking; (d) it generates revenue for the government; (e) it can be more effective than regulation since it gives free rein to market processes by depending on them; (f) it is less annoying since it gives more freedom of choice than traditional command and control regulation; (g) it is more transparent: the cost of the benefits of regulation (e.g. cleaner air) is directly reflected in product prices; (h) it allows flexibility and adaptation of affected behaviours; (i) it makes it possible to avoid the problems of centralised discretionary decision-making; (j) it allows all efforts to be directed at the economic determinants of behaviour; and (k) it can compensate for the lack of resources needed to enable stakeholders to adopt the behaviour in question. With regard to the drawbacks of taxes, the following should be mentioned: (a) taxes may be a relatively sophisticated mechanism in an already complex system; (b) eventual beneficiaries of fiscal measures may not be aware of its existence; (c) regulations governing liability and admissibility may be complex and (d) tax-based interventions may be difficult to apply with precision and (e) may require stronger vigilance than traditional and detailed regulation; (f) it may be difficult to determine the extent of the tax or fiscal stimulus needed to change behaviour; (g) habitual beneficiaries of a fiscal stimulus may come to believe that they are entitled to it, making it difficult later to reduce or eliminate it; (h) an indirect method used to influence behaviour may not be considered correct by the public; (i) administration may be relatively costly depending on the number of the affected and the need to establish a new tax system; (j) if recipients have very different economic capacities, it may be unfair that the more wealthy recipients benefit from tax reductions, or that the less wealthy have to cope with the complexities of the tax system; and (k) it may distort the competitive position of firms within the market.
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These are licenses granted by the administration that holders can “sell” to third parties. Certain companies may be granted a “right” to emit a certain amount of pollution. If the holders of these “rights” do not exhaust the permitted quantity, they can “sell” this unused right to others. While respecting the objective of achieving a global reduction in emissions, this mechanism allows reductions to be made where they can be obtained in the most economic way and reduces the total economic cost of environmental protection. The same applies to airline slots, fishing quotas, milk quotas, taxi licenses , etc. This model also makes it possible to save the use of certain rights (“banking”) in order to use them at another time or place.
- 8.
See OECD 1994: GD (94)59, Improving the Quality of Laws and Regulations.
- 9.
According to Art. 51 of the Spanish Constitution, “public authorities shall guarantee the protection of consumers and users and shall, by means of effective measures, safeguard their safety, health and legitimate financial interests” (Art. 51.1); “public authorities shall make means available to inform and educate consumers and users, shall foster their organisations, and shall provide hearings for such organisations on all matters affecting their members” (Art. 51.2).
- 10.
According to Art. 18.2 of the Legislative Royal Decree 1/2007, approving the consolidated text of the General Act on the protection of consumers and users and other complementary legislation, “all goods and services made available to consumers and users must include (…) clear, comprehensible, truthful, effective and sufficient information on their essential characteristics, and in particular on (a) the name and address of the producer; (b) the nature, composition and purpose [of the product or service]; (c) the quality, quantity, category and common designation and, where applicable, commercial designation; (d) the date of production or supply and the lot and, where required by law, the expiration date or the recommended date of consumption; (e) the instructions or indications for its proper use or consumption, warnings and previsible risks.
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The European Union Treaty, signed in Maastricht on 7 February 1992, considers specifically as European Community action its “contribution to strengthening consumer protection” (Art. 3.5 of the EC Treaty), which is developed in Art. 129a, which reads as follows: “The Community shall contribute to the attainment of a high level of consumer protection through (a) measures adopted pursuant to Art. 100a in the context of the competition of the internal market and (b) specific action which supports and supplements the policy pursued by the Member States to protect the health, safety and economic interests of consumers and to provide adequate information to consumers”. Following the subsidiarity principle (EU action constitutes the lowest common denominator of protection), the Treaty does not prevent Member States “from maintaining or introducing more stringent protective measures”, provided that these are “compatible with this Treaty” and the European Commission is “notified of them” (Art. 129a.3). According to Art. 169 of the Treaty on the Functioning of the European Union (consolidated version), “(1) In order to promote the interests of consumers and to ensure a high level of consumer protection, the Union shall contribute to protecting the health, safety and economic interests of consumers, as well as to promoting their right to information, education and to organise themselves in order to safeguard their interests; (2) The Union shall contribute to the attainment of the objectives referred to in paragraph 1 through: (a) measures adopted (…) in the context of the completion of the internal market; (b) measures which support, supplement and monitor the policy pursued by the Member States; (3) The European Parliament and the Council (…) shall adopt the measures referred to in paragraph 2(b); (4) Measures adopted pursuant to paragraph 3 shall not prevent any Member State from maintaining or introducing more stringent protective measures. Such measures must be compatible with the Treaties. The Commission shall be notified of them”. With regard to the Spanish Constitution, it is worth recalling Art. 51, which refers to the protection of consumers and users.
- 12.
See Ogus (1994) for a detailed study on when and under what circumstances it is justified to impose such an information duty.
- 13.
- 14.
Art. 2 of the Royal Decree 1122/1988, of 23 September 1988.
- 15.
Art. 1 of the Royal Decree 1778/1994, of 5 August 1994, adapting the rules governing the procedures for granting, amending and terminating authorisations to the Act 30/1992 on Public Administrations and Common Administrative Procedure.
- 16.
See the 1992 Report of the Tribunal for Defence of Competition on the free exercise of professions (Informe sobre el libre ejercicio de las profesiones. Remedios politicos que pueden favorecer la libre competencia en los servicios públicos y atajar el daño causado por los monopolios); and the National Commission on Competition’s recommendations to the public administrations with regard to a more efficient and competition-fostering regulation (Recomendaciones a las Administraciones Públicas para una regulación de los mercados más eficiente y favorecedora de la competencia, 2008). Cf. also the Code of Conduct for the Members of the National Securities Market Commission (CNMV 2003) and the Good Governance Code for Securities Firms (CNMV 2015).
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Zapatero Gómez, V. (2019). The Art of Regulating. In: The Art of Legislating. Legisprudence Library, vol 6. Springer, Cham. https://doi.org/10.1007/978-3-030-23388-4_7
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