Options for and Effectiveness of Internet Self- and Co-Regulation

Fourth Steering Committee Meeting

21st January 2008

Jonathan Cave, Chris Marsden, Steve Simmons

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AgendaAgenda

1. Introduction

2. Revised Case Study Report

3. Presentation of Final Report

– Organisation and ‘storyline’

– Findings and conclusions

– Emphasis: implications for Impact Assessment

4. Discussion

5. Agreement on final presentation of study results

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Main line of argumentMain line of argument

1. Self- and co-regulation (XRO) is already a fact of life in many areas.

2. XRO has high-level endorsement, with the EU taking a lead role.

3. Regulatory impact assessment has also advanced to a central policy role but with some weak spots:

– Consideration of realistic XRO ‘alternatives to regulation’

– Identification and consistent quantification of a full range of costs and benefits

– Attention to compliance, agenda alignment and evolution (scope, participation)

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Main line of argument 2Main line of argument 2

1. XROs in the wild behave very differently:

– history; government and stakeholder support and engagement; policy domain and area; resources; competition, etc.

– one size does not fit all

2. Case, peer-reviewed and policy evidence identify key dimensions, mechanisms and issues that should be incorporated into regulatory impact assessments

– Transposition of standard principles of good regulation (including Better Regulation)

– Option specifics – XRO features, government engagement, instruments (e.g. Codes, standards, etc.)

– Specific impacts – competition, compliance

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Main Line of Argument 3Main Line of Argument 3

This has concrete implications for:

– Specifying XRO alternatives to regulation (which, what details, etc.);

– Assessment/evaluation of these alternatives (especially identifying and quantifying costs and benefits);

– Incorporating XRO considerations into the 'do nothing' and 'normal regulation' options; and

– Ongoing collection and refinement of necessary evidence., analytical development

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Document OutlineDocument Outline

1. Introduction - policy context, definitions, EU role, roadmap

2. Sources of evidence – description; frameworks for different types; contributions to overall objective

3. Case studies – classification, summary; gap analysis; matrix of constituent parts vs. evaluation criteria

4. Analysis – drivers of XROs; analytic models of key mechanisms; implications for intervention logic; SWOT; evaluation issues

5. XRO option specification and assessment – pre-screening conditions, option specification, evaluation-relevant issues, generic options

6. IA strategy – logframe construction, specifics evaluations, levels of self-regulation, [possibly – suggestions as to who does what]

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Specific questions addressedSpecific questions addressed

1. What kinds of XRO exist vis-à-vis, innovation, extent (perspectives, sector, issue, geography)?

2. What kind of public policies exist in relation to XROs and how can they:

– Enhance effectiveness;

– Reduce costs and other distortions (and thus improve regulatory effectiveness, efficiency and equity);

– Help regulation keep pace with market and other changes; and

– Optimise regulatory contributions to overarching socioeconomic objectives?

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Specific questions addressed 2Specific questions addressed 2

How can (European level) public bodies assess XRO policy outcomes to support effective policy design and build necessary consensus/trust/engagement by:

– Collecting appropriate evidence;

– Assessing this within a suitable assessment framework; and

– Taking into account the rapid pace, imperfect measurability and limited control available to policy in respect of future developments?

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Addressing the questionsAddressing the questions

Kinds of XRO Case studies (Ch 3, Annex: Phase 2)

Range of policy options

Empirical: case studies (Ch 3), policy evidence (Ch 4)

Potential: analytical evidence (Ch 4), option specification (Ch 5)

Policy intervention logic forEfficiency, effectiveness, burdens, flexibility overall objectives, etc.

Empirical: detailed cases (Phase 2)

Analytical: mechanisms (Ch 4)

Practical: framing conditions (Ch 5)

Assessment of “XRO options”Specification and criteria (Ch 5)

Procedures and schema (Ch 6)

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A further specific objectiveA further specific objective

“… The study shall identify the conditions in which co- or self-regulation (initiated or mediated by the EC) could best enable innovation in Europe while upholding safety, security and fundamental rights.”

1. Technical, economic and societal innovation within the domains covered by XROs is addressed within the main issue table: XRO coverage, alternatives and ‘or equivalent’ performance, market impacts, etc.

2. Regulatory innovation is considered explicitly within the case studies and in option specification

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Specific Objective: innovation while upholding Specific Objective: innovation while upholding human rightshuman rights

Protection of fundamental rights is considered:

• in cases (e.g. INHOPE, IWF),

• in analysis (advantages, disadvantages and risks) and

• in general criteria and principles in Chapter 5 e.g.

– Multistakeholder participation as protection

– Liability

– Co-regulatory public intervention where failure perceived

– Monitoring and oversight

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Background, context and purposeBackground, context and purpose

1. Policy contexts– Better Regulation agenda, EC/MS initiatives– Enhanced role of Integrated Impact Assessment– Lisbon Agenda and associated initiatives

2. Definitions and key concepts– Co-regulation, self-regulation and points in between– Limitations (key rights, uniformity), processes

3. EU role– Competence in specific policy areas– Established lead role in Better Regulation– Inherently cross-border or even trans-European issues, players– Need for harmonising guidance in implementing Directives

4. Perspectives– contribution of Better Regulation and Impact Assessment activities to Single Market

efficiency, flexibility, innovativeness and competitiveness (esp. competition impacts)– position of European firms in the global economy– Global extension of European perspectives and progress

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Evidence base and assessment frameworkEvidence base and assessment framework

• Case studies provide– Arrangements that appear to work more or less well in different

circumstances– Description of XROs in terms of evaluative or normative

characteristics– Description of XRO processes of formation, membership, rule-

making, monitoring, enforcement, sanction and evaluation – Basis for correlation of characteristics with policy areas,

industry characteristics, geographic scope and extent, etc

• Peer-reviewed (empirical and theoretical) literature

• Policy (green/white papers, RIA guidance, evaluation)

• Frameworks for different types of evidence

• Joint contributions to overall objective

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Evidence base and assessment frameworkEvidence base and assessment framework

• Case studies

• Peer-reviewed (empirical and theoretical) literature provide

– Classification schemes and conceptual arguments as to welfare effects

– Mechanisms (strategies and how they interact) by which XROs produce economic effects

– Operational aspects to consider in evaluations: context, competition in market and among XROs, supporting or inhibiting government roles, key activities (membership, rulemaking, monitoring, enforcement sanctions, dispute resolution, evaluation) and performance measures

– Predicted impact of strategic activities on welfare, compliance – hence policy objectives.

• Policy (green/white papers, RIA guidance, evaluation)

• Frameworks for different types of evidence

• Contributions to overall objective

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Evidence base and assessment frameworkEvidence base and assessment framework

• Case studies

• Peer-reviewed (empirical and theoretical) literature

• Policy (green/white papers, RIA guidance, evaluation) provide– Conditions under which specific XRO options are likely to be relevant (guiding option

choice, specification) – Criteria for judging XROs:

- Applying general Good Regulation criteria;- Specific criteria for different instruments (e.g. standards, Codes of Conduct, certification, notification, etc.);

- General advantages, disadvantages and risks attached to XROs per se;- Documentation of difficulties and good practice guidance for obtaining and analysing solid evidence for evaluation;

- Identification of relevant spillover and unintended effects;- Lists of costs and benefits to (in principle) quantify;- Advice on how to organise evaluations;- Procedures for conducting specific types of evaluation (e.g. competition effects); and- Sources of specific evaluation criteria or questions

• Frameworks for different types of evidence

• Contributions to overall objective

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Evidence base and assessment frameworkEvidence base and assessment framework

• Case studies

• Peer-reviewed (empirical and theoretical) literature

• Policy (green/white papers, RIA guidance, evaluation)

• Frameworks for different types of evidence– Various classification schemes for case studies – already described– Literature – (tends to use assumptions from specific sectors or institutions): sector characteristics and

assumptions; activities; solution mechanism; performance/outcomes studied.– Policy – document type, political context, state of implementation, etc.

• Contributions to overall objective– Illustrate channels through which XROs affect relevant criteria – Support indicator construction (outputs, outcomes, impacts, sustainability) – Basis for testing

–assumptions built into intervention logic(s) –likelihood and extent of relevant effects 'outside' direct policy sphere (continuing operation of XROs not directly engaged and consequences for directly engaged XROs of non-governmental stakeholder participation)

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Existing self- and co-regulatory arrangementsExisting self- and co-regulatory arrangements

1. Case study classification

2. Summary of findings

3. Gap analysis

4. Matrix of constituent parts vs. evaluation criteria

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Analytic Overview: formation, dynamics and interventionAnalytic Overview: formation, dynamics and intervention

• Drivers of XROs

– Incentives (from customers, rivals, government relations, other XROs)

– Triggers (events, pressures)

– Consensus (need to act, necessary action)

– Iterative refinement of consensus, activity (includes institutionalisation and ‘creep’)

• Analytic models of key mechanisms

• Implications for intervention logic

• SWOT

• Evaluation issues

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Implications Implications for IAfor IA

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Models of key mechanisms, 1Models of key mechanisms, 1

• Alignment of XRO member incentives with each other and with public objectives:– General public objective directly linked to participants’ economic interests (e.g.

environmental standards compliance)– General public interest which the industry participants are best placed to

advance (e.g. content filtration, privacy)– Specific interest threatened by informational or strategic market failure (e.g.

anti-fraud or quality-of-service).

• Basic elements: who is bound, has standing; what instruments; what enforcement, etc. strategy;

• Perfect information: what is most cost-effective?

• Imperfect information – hidden information (selection), hidden actions (incentives)– Tradeoffs among regulatory burden, stringency, compliance– What is ‘best’ when stakeholders disagree?– Engagement of all those affected (pros and cons)– Public goods (reputation effects, trust, voluntarism, etc.)

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Models of key mechanisms, 2Models of key mechanisms, 2

• Comparison of self- and formal regulation with perfect information:– Possibly lower costs (probably lower for government)– Different patterns of market distortion– Different risks of capture and forclosure.

• XRO only optimal even if firms better informed if government values profits sufficiently highly (alignment) and/or if XRO scope to pursue rents is limited.

• Entry decisions (to XRO) – depend on downstream competition, ability of members to change rules – may be too loose or too tight from social point of view.

• Competition among XROs – in general, too weak and can lead to confusion, conflicting standards. However, threat of competition by government or XROs is often beneficial.

• Compliance – range of results on level of compliance, efficacy of ‘downward’ enforcement, consumers/government as ‘backstop’ – key elements are: how much compliance matters to customers, strength of firm vs. industry reputation, allocation of costs

• Contingent co-regulation – taxonomy of situations depending on industry characteristics and government stance, leading to different levels of compliance

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Implications for intervention logicImplications for intervention logic

• Analytic results suggest a framework for describing XRO options and choosing evaluation questions and indicators

– Membership – XRO Competition– How rules are chosen - key point public sector regulators are bound by strict conditions of neutrality and

responsibility that may be difficult to discharge. Evaluative question: how XRO balancing of interests differs from or interacts with public regulator’s

– Relation with government – Which rules are chosen – differences in stringency– Flexibility – how easily, how fast and in which direction will rules, etc. change?– Costs – impact on level and distribution of administrative, compliance, distortion and rule-making costs– Compliance – what can/will XRO do to ensure compliance and with what effect? What are the policy and

economic consequences of non-compliance?– Monitoring and enforcement – what information is collected, how is it used and with whom is it shared?

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Implications for intervention logic 2Implications for intervention logic 2

• Mechanisms:

– Coordinating: XRO as a platform for exchange and coordination;

– Direct: XRO rule design and enforcement

– Competitive: XRO actions affect market entry, shares, overall demand (via reputation), profit, investment and location of economic activity, etc.

– Dynamic: XRO attracts other parties and policy issues

– Includes ‘policy creep’ and XRO bloat if wide or diverse membership reduces efficiency or effectiveness.

–Can internalise policy and other externalities, strengthen joined-up governance and lead to faster and more comprehensive XRO improvement

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Advantages, disadvantages and risks Advantages, disadvantages and risks

• Advantages (by mechanism)– Enhanced buy-in– Strengthened compliance– Reduced cost/burden– Enhanced flexibility– Incorporation of specific expertise– Sustainability

• Disadvantages (by mechanism)– Danger to competition– Inability to ensure efficient rules, compliance– Lack of clarity– Adherence to principles of good regulation

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RisksRisks

Statutory objectives

Demonstrably effective performance

Effective systems and processes of transparency and public accountability

“Regulatory creep" as government increases its involvement in schemes that start out as XRO

“Agenda creep” as XRO members begin to use it in ways that may adversely affect public interest

Use of XRO option simply to shift compliance costs from to industry or government (for co-regulation)

Capture – XRO may co-opt government support to tilt effective regulation, restrain competition or impose market discipline.

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Policy alternatives and strategiesPolicy alternatives and strategies

1. Framework conditions favouring or militating against self- and co-regulation

2. General Principles of Regulation applicable to XROs

3. Option formulation

a)Scenarios of EU engagement

b)Specific XRO arrangements and support options

4. General criteria for choosing options

5. Self- and co-regulatory risk assessment

6. Four generic ‘benchmark’ options

7. A checklist of issues for use in choosing and assessing XROs

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Recommendations and criteria for IA strategyRecommendations and criteria for IA strategy

1. Towards an XRO-aware IA strategy

2. Implementing the logical framework

3. Horses for courses – a ‘form book’ of situations and levels of self- and co-regulatory organisation

4. Conclusions: answers to the questions posed

5. Further recommendations

a)Relating to self- and co-regulation in connection with the Information Society and Lisbon Agenda

b)Relating to ex ante impact assessment

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Backup/additional after this slideBackup/additional after this slide

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The economic analysis of self-regulationThe economic analysis of self-regulation

1. There have been various approaches in the literature,

– stemming from specific industries

- (financial services, environmental, accounting, law) or

– Governance concerns

- Corporate Social Responsibility

2. They vary in the formalisation of X-regulation

– esp. whether the state initiates, backs or threatens; and the ‘order of moves’

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This analysis covers:This analysis covers:

1. Structure of CROs, SROs, etc.

2. Positive analysis: incentives and selection

– A range of SRO strategies - formation of organisations, rules; Competition among SROs; Compliance

– A range of Government strategies - initiation, delegation, coordination, pre-emption, …

– Impact on downstream market structure, conduct and performance

3. Normative analysis: optimality

– Costs and benefits of alternative regimes (incidence)

– Criteria for judging them

– The optimal amount of X-regulation

4. Constructive analysis: mechanism design for credible X-regulation

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Structural issuesStructural issues

1. Who is bound by the regime and who has voice?

– Formal – determined by jurisdiction, regulatory relationships (e.g. SMP), discretionary choice (on both sides)

– Co-regulated (including regulated self-regulation) – determined by negotiation or by default

– Self-regulation – determined by nature of industry, issue(s), extant regulation; inclusion may be determined by individual firm (voluntary compliance), extant membership (certification); defaults for binding (all-in, inclusion, exclusion, “or equivalent”)

2. What constraints on firms, government, etc. does the XRO choose?

3. What monitoring, reporting and enforcement strategy?

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Incentives and selectionIncentives and selection

1. Four ‘stakeholder perspectives’

– Individual firms

– Industry (constituency of XRO)

– Government

– Society at large

2. Important ‘variations’

– Protecting the interests of third parties (not customers)

– Vertical power

– Preventing formal regulation

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Analysis of SelectionAnalysis of Selection

1. Simplest analysis based on complete information; key is efficient alignment of power to act, incentives, minimising total cost

2. Information aspects

– Different players know different things: how does the XRO mechanism invite their participation and induce them to reveal what they know?

– Actions cannot be perfectly or costlessly observed: what levels of compliance can the XRO deliver and how can they be improved; what side-effects (e.g. collusion, predation, entry deterrence, reputation abuse)

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Normative aspectsNormative aspects

1. Simplest setting: what are available tradeoffs of regulatory cost, stringency of rules, levels of compliance?

2. Information failures: what is ‘best’ when parties disagree?

3. Externalities: who is affected by XRO operations? (members, customers, suppliers and government, others)

4. Public goods: benefits of XRO regime may accrue more broadly

– Different/better feedback from value chain to SRO and thence to government

– Reputation effects (of firm compliance for industry, etc.)

– Voluntary provision of public goods (esp. those not tradable)

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The relevant literaturesThe relevant literatures

1. Connection with ‘liberal tradition’ (Baggot 1989, Lévêque 1996, Scarpa 1999)

2. Public administration (Wotruba 1997, Newman and bach 2004)

3. Law (van Cise 1966, Rosenberg 1976, Blumrosen 1983, Cane 1987, Page 1986, Ogus 1994, Zittrain 2006a,b, Mayer-Schonberger 2003, Borzel 2000)

4. Economics (Telser, Shaked and Suton 1981, Pirrong 1998, Nunez 2001 and 2004, Ashby et. al. 2004, DeMarezo et. al. 2005, Posner 1971, Noll and Owen 1983, Joskow and Noll 1999, Skidmore et. al. 2003, Williamson 1999, Gehrig and Jost 1995,…)

5. Business (Garvin 1983, Gupta and Ladd 1983, Maitland 1985, Hoffman 1999)

6. Environmental Management (too many to list)

7. Financial services (again, numerous and expanding rapidly)

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Some key issues and insightsSome key issues and insights

1. Do SROs face enough competition to induce efficient self-regulation? (membership and stringency of rules)

- Analogous to regulatory competition, regulatory entrepreneurialism approaches – but with added ‘bonus’ of market power

- Evidence shows that direct competition is usually too weak, potential external pressure is efficacious and threat of pre-emption can strengthen approach

2. How do SROs exercise market power?

- If members have ‘voice’ or if membership gives privileged market access, entry to SRO will be too restrictive

- If all members are bound and membership does not affect choice of rules, entry to SRO may be too broad

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Self-regulation for quality standardsSelf-regulation for quality standards

1. Incentives to form self-regulatory organizations are inversely related to:

– ex-ante monitoring costs

– number of members

2. Without informational asymmetries between market participants and the government officials, self-regulatory outcomes can always be replicated by statutory regulation

– Possibly at higher cost

– Potentially different market distortions and dynamic effects

– Different (lower?) capture possibility

3. Even with asymmetric information, self regulation is socially optimal only if regulator values firm's profits sufficiently highly

– Has strong implications for regulation of domestic and foreign firms

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Compliance: The issueCompliance: The issue

1. Most SROs lack statutory enforcement power – why would members comply?

– Note separable payoffs to passing a rule and enforcing it– This analysis concentrates on compliance (e.g. for delegated

enforcement or as ‘final stage’ game)– Questions: how likely is SRO to investigate, what penalties or

reporting, will SRO choice agree with preferences of government, customers, etc.?

2. Simple model: – SRO chooses rule and enforcement policy (probability of

investigation, contingent penalty)– Members compete with each other taking SRO policy as given– SRO takes this competition into account when choosing

policy to optimise member’s welfare

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Compliance: ResultsCompliance: Results

1. SRO mitigates downstream competition (enforcement too lax for external stakeholders) – in fact, a risk neutral SRO will behave as a monopolist.

2. In particular, investigations are ‘too rare’

3. Intuition: compliance can be induced by ‘carrot’ (gainsharing with customers) and ‘stick’ (investigation, etc.), and members prefer the carrot. A lax policy induces external stakeholders to offer more carrot.

4. Falling investigation costs can induce less enforcement

5. Enforcement becomes more aggressive as alternatives to SRO improve.

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Compliance: extend to government ‘oversight’Compliance: extend to government ‘oversight’

1. Discretionary public enforcement if SRO ‘fails’

2. Chosen to maximise external stakeholders’ welfare

3. This induces more aggressive enforcement by SRO (limited by agency cost) – just enough to pre-empt (or restrain) government power

4. This can be offset in cases of capture, or where differences among members make government ‘mediation’ attractive

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Further extension: competing/overlapping SROsFurther extension: competing/overlapping SROs

• External stakeholders get to bundle (implicitly) the choice of SRO with choice of provider, market, etc. regimes

• If regimes mediated by different SROs are not perfect substitutes:

• enforcement and external stakeholder power increase with the number of SROs

• Competition ‘downstream’ (in the ‘end market’) needs to be complemented

• by competition ‘upstream’ (in the SRO layer)

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Vertical SROsVertical SROsLax enforcement enhances the market power (rents) of agents who

might gain by non-compliance

– Agents already possessing SMP are thus less likely to form SROs, unless this SMP brings regulatory scrutiny

– If violations occur ‘further down’

- the SRO may direct enforcement to other layers - (example: ISPs content controls, insurance industry fraud regulation)

– If the industry is competitive:

– downstream players would not (collectively) benefit from lax enforcement and would not try to loosen

- hence ‘downward’ enforcement may be more efficient than ‘horizontal’

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Additional aspects: DynamicsAdditional aspects: Dynamics

Individual firms may comply to:

Build reputation with key stakeholders

Realise operating cost, interoperability, efficiency savings

Collective benefits to industry:

Reputation of industry as a whole

Pre-empt or reduce burdens of formal regulation (including those falling on individual firms)

‘Customised’ (more appropriate) guidelines

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This suggests free-riding issueThis suggests free-riding issue

Individual firms benefit from others’ compliance for some types of issue (or suffer from their non-compliance – Assurance Game)

In other cases, individual firms suffer from others compliance (Prisoners’ Dilemma compliance race)

Choice of rules also part of the game – compliance costs differ with firm size, prominence, location, etc.

Is this a barrier to self-regulation or to successful self-regulation?

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Key aspect is formation and updating of beliefsKey aspect is formation and updating of beliefs

Is enforcement action bad news (there was non-compliance) or good news (the rules are being enforced)? Depends on other sources of information – e.g. competing XROs

Is a change of standards or rules good or bad news?

What are the signalling effects of ‘regulatory withdrawal’ and ‘delegation of authority’?

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More refinementsMore refinements

1. Most compliance literature concentrates on monetised incentives

– If external stakeholders monitor compliance and SRO investigation costs are high, it is optimal for the SRO to do no enforcement

– If investigation costs are low and the SRO withdraws certification, they (the SRO) will choose a policy that pre-empts outside stakeholders’ incentives to monitor

– Here, mandatory membership in SRO can benefit firms:

- In a static model, no-one would do business with a non-SRO firm

- In a dynamic setting, non-SRO firms would get business on the strength of their reputations; mandatory membership would eliminate this and thus preserve rents under the SRO ‘umbrella’

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A typology of situationsA typology of situations

Government stanceGovernment stance

Industry characteristicsIndustry characteristics Industry characteristicsIndustry characteristics

Comply Defect C D C D C D C D

Comply 1, 1 -1,0 C -1, -1 -2, 0 C 2, 2 1, 3 C 1, 1 -1, 2 C -1, -1 -2, 1

Defect 0,-1 0,0 D 0, -2 0, 0 D 3, 1 0, 0 D 2, -1 0, 0 D 1, -2 0, 0

(1) (2) (3) (4) (5)

Strict:Strict:only tolerate full complianceonly tolerate full compliance

Permissive:Permissive:tolerate ‘enough’ compliancetolerate ‘enough’ compliance

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Descriptive analysisDescriptive analysis

1. Outcomes determined by government tolerance, relative benefits to the SRO members and SRO administrative costs (pro rata)

• Strict regime - firms are indifferent between unilateral and multilateral defection; unilateral compliance is worst

1) Firms prefer compliance - this is the ‘Assurance Game’ of Maitland and has 2 equilibria (e.g. advertising standards)

2) Compliance costs are too high

• Tolerant regime - partial compliance sustains self-regulation3) Unilateral and multilateral compliance are preferred to complete

breakdown (game of ‘Chicken’) – multiple equilibria and partial compliance (strong individual reputation effect, weaker industry effect – e.g. ISP content regulation)

4) Costs of unilateral compliance lie between benefits of full compliance and benefits of individual compliance (industry reputation effect) –gives the Prisoners’ Dilemma collective action problem (e.g. economists’ net neutrality)

5) Neither individual nor industry benefits are insufficient to sustain compliance

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The evolutionary storyThe evolutionary story

1. XRO regimes form, change membership, change rules and compete over time

– This evolution is driven by innovation, selection and continuation – here, innovation refers to innovation of organisational forms, procedures, etc.

– The incentives to innovate, copy, continue and so on come from market and non-market returns – there is thus a ‘forward’ impact on innovation in the market and on investment

2. Overlapping XROs compete with one another – the costs and benefits of the alternatives are driven by overlapping formal jurisdictions and traditions/experience with XRO in various countries, particularly for globalised/ mobile industries

3. Overlapping XROs in turn ‘patch together’ jurisdictional partitions, facilitating joined-up regulation

4. Key information flows include learning about industry circumstances and ‘natural experiments’ in policy: when XROs learn from each other, and when functions migrate among XROs (e.g. delegation, withdrawal)

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The mechanism design perspectiveThe mechanism design perspective

1. Taking above into account, what characterises the ‘ideal’ XRO regime?

– Costs, efficacy, accountability, flexibility

– Allocational efficiency (competitive spillovers)

– Dynamic (innovation) efficiency – the learning XRO

2. How can optimality be encouraged?

– Government initiative

– Screening potential XROs for acceptance

3. Specific role for the EC – a network hub for XROs

– Analogy with European Competition Network

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How to choose among XROsHow to choose among XROs

1. What options are available?

– Approval

– Signalling forward (e.g. forbearance, tolerance)

– Specific design

2. Criteria

– Efficiency (effectiveness in remedying market failure)

– Equity

– Accountability and participation

– Tractability – especially for agenda change, prevention of creep

– Spillovers – especially for competition

– Sustainability – of effects, rather than institutions per se

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Regulation in the face of uncertaintyRegulation in the face of uncertainty

1. Difficult issues already arise from purely economic regulation

2. Possibly (!) more difficult when technical and societal regulation are included

3. Comparison of a set of options with a set of criteria

4. Complexity and emergence

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Lessons from other sectorsLessons from other sectors

1. Financial services– Risk and information-based regulation

2. Professional services– accounting, medicine, etc.

3. Emergent technologies– nuclear power, biotechnology, nanotechnology

4. Science and public policy (HFEA, FSA) – relevance of risk information, – incentives to collect and interpret information (SNURs), – acceptance and market responses

5. Rapidly-developing industries– pharmaceuticals (treatment to disease management to health

promotion, health diplomacy, IPR transfer)

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Multi-stakeholder GovernanceMulti-stakeholder Governance

1. Different corporate governance arrangements exist even within layers:

– standards bodies are heterogenerous (IETF v. W3C)

– as are classification schema, hotline etc.

2. Caution is needed in recommending ‘one size fits all’ solution on regulatory basis

3. Best practices identified and available (e.g. ICANN)

4. Corporate social responsibility best fit –

– fits Better Regulation principles regarding SMEs

– as well as transparency and representation

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Draft Recommendations and Responsiveness to Draft Recommendations and Responsiveness to i2010 and Competitiveness Goalsi2010 and Competitiveness Goals

1.How to introduce greater transparency and dialogue between consumer groups and other civil society stakeholders and standards experts;

2.How to ensure the benefits of rapid standards-making are maintained even with the additional scrutiny suggested in increasing multi-stakeholder arrangements.

We bear in mind the EU Better Regulation policy objective:

– reduction of administrative burden, particularly for SMEs,

– while still fulfilling the requirements of a fully functioning regulatory environment.

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Conclusion: Impact Assessment in Internet Conclusion: Impact Assessment in Internet SROsSROs

1. Analysis shows that IA needs to be:

– International comparative: examining best European and global practice

– Multidisciplinary: economic, human rights, network and software engineering, all have vital skill-sets to contribute

– Focussed on inter-relationships between SROs and layers in the technical protocol stack and economic value chain

2. Rigorous investigation via IA will prove critical for Internet policy because in this field security, content creation, child safety, technical and human rights agendas all claim primacy – none can ‘trump’ the others

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Conclusion: disciplined policy making Conclusion: disciplined policy making

1. The ultimate goal of this approach will be to achieve a broad and deep use of the technologies and services of the Information Society in order to help achieve i2010 goals while ensuring respect for human dignity, security and social cohesion.

2. Policy making that takes account of the Impact Assessment factors we detail factors has a much higher chance of success.

3. We caution that this involves

– Planning IA much earlier in the process:

– To account for self- and co-regulatory structures

– That pre-exist before any European policy intervention

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The study has 8 specific methodological tasks:The study has 8 specific methodological tasks:

1. Map current regimes of co- and self-regulatory regimes on a global, European and Member State level, and seminal examples from 3rd countries (Phase 1)

2. Assess the effectiveness, efficiency and sustainability of these regimes. The study shall also include cases where these systems have been challenged or where they fail (Phase 2)

3. Identify areas where statutory regulation and established self-regulatory initiatives can be conflicting. Assess in which cases law undermines and in which cases it enhances non-legal forms of regulation (Phase 2)

4. Assess what regimes in the above cases could contribute to and spur innovation in a specifically European context (Phase 2)

5. Assess if and in how current technological development (e.g.IPv6, automatic content analysis or RFID) could render statutory regulation less effective (Phase 2)

6. Identify problems of market failure on the internet; map and select key conditions and issues for possible self-regulation (Gap Analysis)

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Final report further considers these 2 tasks:Final report further considers these 2 tasks:

1. Find patterns, common characteristics of co-and self-regulatory measures

– that work effectively, efficiently and in a sustainable way and of those that do not, and

– elaborate on determinants of this (assess contextual, cultural, institutional design and financing questions).

2. Outline how these hypothetical self-regulatory systems

– could be designed in order to be effective, efficient and sustainable. (Consider competition issues as well).

– Identify issues in which the EU could co-regulate in a way enhancing the effectiveness of the hypothetical proposed self-regulatory regimes.