Insights into Regulation

Lao Tzu’s advice and UK Post Office governance

The Tao Te Ching is an ancient classic of Chinese Daoism whose authorship is conventionally attributed to a certain Lao Tzu. It contains advice on how to be a Sage, a person with sagacity. Significant sections are clearly directed at leaders in governance.

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Letters and Notes

The slow-moving disaster of English land use rules

Prof. John Muellbauer has recently shown that the regulatory wedge in the UK between house prices and the construction cost of new homes is currently at the highest level of the period covered by his data, and the highest in the G7.

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Insights into Regulation

The merits of Merits Review

As set out in To ‘see’, or not to ‘see’: that is the question. Moving on from a half-brained system of economic governance – (rpiresearchgroup.org), the half-brained governance thesis (“H-BGT”) is suggestive of a wide range of relevancies to areas of public policy where development thinking seems to be struggling. One such is the question of whether regulatory and competition policy decisions by designated agencies should be subject to review on their merits, as administrative decisions, not just on their conformity with acceptable procedures.

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Essays in Regulation

To ‘see’, or not to ‘see’:  that is the question. Moving on from a half-brained system of economic governance

Why do similar mistakes appear to be repeated over and over again in the conduct of economic policy? Why does there appear to be so little error-learning/learning-from-experience in this domain of human activity? Why does knowledge and the application of knowledge in these matters appear not to progress cumulatively in the manner of the physical sciences?
In this major Essay in Regulation, Harold Hutchinson and George Yarrow seek to outline some answers, building on insights from brain science. The first picture in the Essay, from the clinical work of Dr Iain McGilchrist, suffices to signal a ‘now for something completely different’ moment.

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Insights into Regulation

Regulating net migration flows: the wisdom of Econ101? 

Net migration flows (about the regulation of which members of the RPI have been writing since 2017) are again a hot topic in political debate. In this latest blog, the Insights team briefly sketches out a potential, alternative way of looking at the issues: a different ‘gestalt’, based on a tradeable right to residency, which does not need to rely heavily on enforcement by coerced deportations (difficult in practice) or creating ‘hostile social environments’. Rather, it simultaneously seeks to make unlawful immigration more financially expensive and emigration of residents more financially rewarding, in each case relative to the status quo. Even in a bare bones form, it could give government three immediate ‘control variables’: the total number of rights available, the level of financial penalty for unlawful immigration, and the level of the bid-ask spread in the purchase or sale of the relevant right.

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Insights into Regulation

Technology Tussles: The Trilemma Strikes Back!

We have written before about the need for effortful and holistic thinking in the context of global decarbonisation, and about the perils of disconnecting local actions from global outcomes by retreat into a ‘net-zero in one country’ mindset. In this RPI Insights blog we highlight the dangers of partial thinking associated with indulgence of the false prophet of universal technology solution(s), blindness to potential ‘concentration risk’ and the resulting creation of systemic vulnerabilities, inadequate thinking around the physical resilience of energy infrastructure in the face of a changing climate, and reluctance to acknowledge either the regional realpolitik of the energy transition or the implicit policy tensions, uncertainties, and trade-offs around how it unfolds.

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Insights into Regulation

Policy myopia – open your eyes (plural) and see

In a recent blog, the Insight Team highlighted the dangers of poorly constructed policies in terms of the increased distractions imposed on managers at the expense of a focus on business investment and innovation. In this follow-up, we consider recent financial market turbulence as another example of policy gone wrong. We argue that help in assessing and learning from it might lie in an appreciation of both history and the present – from the work of Adam Smith to recent developments in modern neuroscience, in particular the insights of Iain McGilchrist.

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Insights into Regulation

The burdens (plural) of regulation

Policy debates about the burden of regulation have tended to focus on estimates of administrative costs imposed upon firms and have tended to rely on an assumption that simply eliminating some of the regulations (“cutting red tape”) will lead to significant reductions in the costs imposed. Here, the Insights Team take a different perspective, recalling both RPI empirical research on these issues for the UK Cabinet Office nearly 20 years ago and the earlier “Penrose Effect”, named after Professor Edith Penrose. They argue that much more substantive effects arise from poorly considered and conducted changes in regulations in consequence of their increased calls on limited senior management bandwidth available for addressing the challenges involved in investing, innovating and expanding a business.

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Insights into Regulation

The End of Net Zero

The first Insights blog of the new year continues to emphasise a central theme of earlier pieces: the dangers of taking an overly narrow view of policy challenges, whether that be the result of failure to recognise wider, salient features of a broader context, or of taking unduly narrow view of target outcomes in policy responses to the challenges. The same theme is to be found in earlier RPI critiques of ‘pixelation’ in regulatory assessment, grounded in an analogy with perceptions of a digital picture which are drawn to a relatively small bloc of pixels and focus disproportionately on it, to the neglect of all else. The blog contains a striking quotation from Keynes, who was ever unpixelated.

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Insights into Regulation

Markets versus regulation?  Drop the ‘versus’!

November’s pre-conference Insights blog is concerned with the meaning of the word ‘market’. The term appears often in economic and political discourse, usually accompanied by some other word: there are references to ‘free markets’, or to ‘oligopolistic markets’, or to ‘market failure’. But what is the nature of this thing that is ‘free’, or ‘oligopolistic’, or has ‘failed’, in the latter case usually claimed in the context of some call for a deus ex machina, in the form of a regulatory intervention, to ‘fix’ the problems.

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Insights into Regulation

Routine and its Limitations

Routine and its limitations’ completes a short cycle of three blogs with a common, thematic root: dysfunctions in the division of labour within governmental systems. The focus in this case is on a temporal pattern that can be observed in the evolution of some regulatory agencies or systems. It adopts Daniel Kahneman’s metaphor of System 1 and System 2 thinking, but uses it to characterise institutional and organisational, rather than individual, thinking.

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Insights into Regulation

Old spectacles for myopic governments: monasteries and speculae

The latest Insights blog is concerned with narrowness of vision in economic policy/regulation and the distraction that is a contributory cause of it. It is motivated by the question: how might better institutional design counteract distraction? Features of Monasteries, Plato’s Academy and Roman Watchtowers are cited as examples of ancient institutional innovations from which insights might be gleaned.

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Insights into Regulation

The Insolence of Office

The second in the new Insights into Regulation series of short blogs addresses the causes and effects of a highly dysfunctional ‘division of labour’ in government, with a focus on misdirection and distraction in the application of effort The title is taken from Hamlet’s soliloquy (“To be, or not to be …) and the notion of the insolence of officialdom was, at a later time, a repeated trope in the major works of Adam Smith.

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Insights into Regulation

Climate policy – ‘Tain’t what you do, it’s the way that you do it.

In a new series of short blogs under the thematic title ‘Insights into Regulation’, members of the Regulatory Policy Institute Research Group will highlight a particular insight, idea or perspective that is salient to some or other aspect of
regulatory policy.

Given the observed limitations of quantitative emissions reduction agreements, we explore the role of complementary science and technology approaches based on sharing of knowledge and know-how in mitigating relevant externalities.

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Documents

Covid-19: What have we learned about the importance of trustworthy statistics?

The Zeeman Lecture at the September 2021 Conference on ‘Rethinking Regulation’ was delivered by Ed Humpherson -Director General for Regulation, UK Statistics Authority. This is a transcript of that lecture.

A couple of years ago, back when it was possible to travel freely without worrying about masks, infections and tests, I was on a train journey south from Edinburgh.
As is the way with long train journeys in the UK, there was some horrendous disruption; and as is also the way, this disruption broke the invisible veil that holds British people back from talking to one another, and lots of conversations started – proceeding from the usual starting point of “bloody typical” to broader chats – where are you going, what do you do?

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Documents

Re-thinking climate change policies: A tale of two externalities

In this short paper, Gerard Fox and George Yarrow argue that, in the context of climate change policies, the nature and significance of any potentially problematic economic externalities are functions of strategic policy choices: that is, they vary according to the particular policy strategy chosen. The traditionally identified externality – that the benefits of carbon abatement efforts by any one country are mostly enjoyed by other countries – comes from strategies that are conceptualised in terms of determining quantities (of carbon emissions or abatement), an approach to economic policy that was adopted in Soviet-style central planning. By leading to external effects that then call for difficult-to-achieve correction, in effect the quantitative planning system establishes self-created obstacles to attaining that which is desired. Science and technology policy approaches based on sharing of knowledge and know- how are shown to have very different implications for the nature and significance of any associated externalities. The development of the Oxford/AstraZeneca Covid vaccine is given as an example of the possible, alternative, strategic approaches.

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Documents

A Commentary on the Opening Chapters of ‘An Inquiry into the Nature and Causes of the Wealth of Nations’

Adam Smith’s Wealth of Nations (“WoN”) is a foundational book in the social sciences and one of the classic works of human civilization, but like many classics it is rarely read. Its influence has been profound, but that influence has come largely via the work of Smith’s
successors who, in their own writings, have frequently cherry picked the text in ways that have
served their own, particular purposes in a range of different, later contexts. In consequence many of Smith’s own points have been lost or distorted…

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Documents

The challenge of removing a mistaken price cap

The UK Competition and Markets Authority in 2016 calculated a detriment of £1.4 billion–£2 billion in Great Britain’s retail energy market, attributed to weak customer response. The government in 2019 imposed a tariff cap until competition is effective. Stephen Littlechild argues that the cap was a mistake: there was no such detriment and there are valid reasons for customers not changing supplier. The market was not previously uncompetitive and inefficient as suggested. The cap has rendered the sector loss-making and led to supplier exit. The assessments of effective competition by the Office of Gas and Electricity Markets have been arbitrary and implausible. Some alternative ways ahead are noted, but latest government policy invokes behavioural economics to propose even greater intervention. A postscript discusses dramatic latest developments.

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Documents

Reform, Cohabitation, Intervention and Independent Regulation

This research project is focused on how well suited are regulatory models in adapting to dynamic change, a more interventionist state or exogenous shocks like covid or the financial crisis. Can the regulatory environment accommodate strategic policy initiative like decarbonisation, promotion of technological innovation or activist industrial policy without its function being impaired? This leads to questions concerning the nature of the regulator’s institutional ecology and will demonstrate the potential for truly effective reform. It would also provide an understanding of their organisational capacity to achieve its key objectives.

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Documents

Economic regulation of digital platforms: scoping the RPI’s research programme

Should we establish ex ante economic regulation of ‘digital platforms’, with or without ‘enhanced’ competition law – and what form should any regulatory structures take? This question is a pressing priority for policymakers and competition authorities in many jurisdictions, including the UK and across the EU. We can all see the extent to which services offered by digital platforms (large and small, generalised and highly specialised) now mediate most distanced interactions between people and/or organisations, whether it is economic, in civil society or in our private lives.

The aim of this work is to foster contributions to the policy debate concerning the economic regulation of digital platforms. The anticipated focus is on economic regulation specifically, meaning ex ante rules designed to rectify market failures or abuses rather than, for example, regulation of online content or political speech). However, it may be that some areas of research necessarily involve ‘cross-over’ questions between economic and non-economic regulatory issues.

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Documents

Public and Private Healthcare – Challenges for sustainability in the post-COVID era

The relationship between public and private healthcare has been a subject of regulatory scrutiny. Some aspects of private healthcare provision, including hospital providers and consultants, were the subject of a market investigation reference in the UK by the now Competition and Markets Authority (2012-2014). The outbreak of COVID-19 has raised further questions about sustainability and put these issues back on the regulatory reform agenda. It is important to take into account key aspects, including consumer choice, financial viability, quality, the role of insurance companies and interactions with the NHS. This paper outlines a proposed in-depth study which would review the current market and regulatory climate for the provision of healthcare in the UK, with a focus on the relationship between the public and private sectors. The aim is to sensitivity test potential future funding models that would tackle the range of issues, many of which have been given added imperative by the effect of the outbreak of COVID-19 on NHS waiting lists.

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Documents

The changing role of independent economic regulators in decision-making for major infrastructure projects in the UK

How decisions are, or should be, taken for major infrastructure projects is a recurring area of policy debate. Longstanding differences exist between those who see a prominent role for government in directing, and potentially funding, large-scale infrastructure projects, and those who advocate that government involvement should be limited to ensuring that an appropriate policy and regulatory framework is in place to facilitate such investments by the market where necessary.

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Documents

Rethinking Regulation

The purpose of this document is to seek support for, and encourage participation in, the future research programme of the Regulatory Policy Institute in the UK, in co-operation with its sister network, the Regulatory Policy Institute of Australia and New Zealand (RPI ANZ).

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Documents

Net zero by 2050 as a strategic objective

This note has a specific and limited purpose: to consider the appropriateness of a target of ‘net zero by 2050’ as the overarching strategic objective of a national policy to reduce carbon emissions.

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Documents

The Role of Regulation & Policy in facilitating the optimal lowest cost integration of Variable Renewable Energy

Variable Renewable Energy (VRE) from wind and solar is frequently cited as the solution to UK Electricity decarbonisation. Technology learning curves suggest that, depending on location, wind and solar, which accounted for ~8% of global electricity generation in 2019, are currently, or projected to become, the “cheapest” source of new generation in most countries by 2030.

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Documents

Institutional Innovation Initiative & the Energy Transition

The Energy Transition represents an unprecedented challenge for Policy Makers. The speed and magnitude of emissions abatement demanded by the 2008 Climate Change Act, whose 4th & 5th carbon budgets are currently off course, combined with the subsequent increased ambition signalled by the UK 2050 Net-zero commitment made in 2019, along with the recent course-correcting commitment to target a 68% fall in emissions by 2030 vs. the 1990 baseline, requires the rapid promotion and diffusion of clean energy innovation with action extending to the hard-to-abate sectors dominated by buildings, industry and transport.

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Miscellaneous Publications

Rethinking Regulation: Research

A document setting out some prospective, new thematic areas of policy research in cooperation with RPI ANZ, inviting support and participation. The current list is not exhaustive: more new areas are being identified.

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Documents

Economic Rents at Heathrow Airport

The Paper challenges the common supposition that (scarcity) rents at Heathrow airport accrue from airlines charging efficient clearing prices and instead suggests that because of oligopolistic practices, much of the rent at Heathrow is quasi-monopoly rent. It also suggests remedies that could be implemented in the short term before more runway capacity is added and that if Heathrow airlines matched the average load-factors of those at London’s other major airport, Gatwick, average fares might be as much as 5 per cent lower.

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Blog

On trust in markets

It was a great pleasure to spend two, sunny, late November days in Melbourne this year (2019) discussing the future of regulatory policy with Australian

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