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

TLDR

Management‑based regulation directs regulated organizations to engage in a planning process aimed at achieving public goals, giving firms flexibility in how they do so. The study analyzes management‑based regulation and develops a framework to assess when it should be used versus technology‑ or performance‑based regulation, while also evaluating regulator design choices. The authors construct a framework that evaluates the conditions for employing management‑based regulation and the design choices regulators face. Case studies demonstrate that management‑based regulation is effective when entities are heterogeneous and outputs are hard to monitor, but it requires a more complex public‑private intertwining due to multi‑stage intervention and ambiguity about what constitutes good management.

Abstract

We analyze a little-studied regulatory approach that we call management-based regulation. Management-based regulation directs regulated organizations to engage in a planning process that aims toward the achievement of public goals, offering firms flexibility in how they achieve public goals. In this article, we develop a framework for assessing conditions for using management-based regulation as opposed to the more traditional technology-based or performance-based regulation. Drawing on case studies of management-based regulation in the areas of food safety, industrial safety, and environmental protection, we show how management-based regulation can be an effective strategy when regulated entities are heterogeneous and regulatory outputs are relatively difficult to monitor. In addition to analyzing conditions for the use of management-based regulation, we assess the range of choices regulators confront in designing management-based regulations. We conclude that management-based regulation requires a far more complex intertwining of the public and private sectors than is typical of other forms of regulation, owing to regulators’ need to intervene at multiple stages of the production process as well as to the degree of ambiguity over what constitutes “good management.”