Risk and Regulatory Policy

Improving the Governance of Risk

image of Risk and Regulatory Policy

We expect governments to protect citizens from the adverse consequences of hazardous events. At the same time it is not possible or necessarily in the best interest of citizens for all risks to be removed. A risk-based approach to the design and implementation of regulation can help to ensure that regulatory approaches are efficient, effective and account for risk/risk tradeoffs across policy objectives. Risk-based approaches to the design of regulation and compliance strategies can improve the welfare of citizens by providing better protection, more efficient government services and reduced costs for business. Across the OECD there is great potential to improve the operation of risk policy as few governments have taken steps to develop a coherent risk governance policy for managing regulation.  

This publication presents recent OECD research and analysis on risk and regulatory policy.  The chapters discuss core challenges today. They offer measures for developing, or improving, coherent risk governance policies. Topics include: challenges in designing regulatory policy frameworks to manage risks; different cultural and legal dimensions of risk regulatory concepts across OECD; analytical models and principles for decision making in uncertain situations; key elements of risk regulation and governance institutions; the use of management-based regulation to help firms make risk-related behavioural changes; an analysis of the risk-based frameworks of regulators in five OECD countries (Australia, Ireland, Netherlands, Portugal, United Kingdom) and across four sectors: environment, food safety, financial markets and health and safety; and the elements for designing formal guidelines for risk prioritisation, assessment, management and communication.



Management-based Regulation

Implications for Public Policy

A common set of challenges faced by regulators is to achieve public risk management objectives at lower cost, often by giving greater flexibility to the private sector without sacrificing public health and welfare. In addition to improving existing regulation, challenges increasingly arise from new kinds of risks that seem to evade resolution through traditional forms of regulation. A potentially promising regulatory solution – management-based regulation – may help regulators better address both existing risks and new ones. The underlying concept is to deploy regulatory authority in a way that leverages the private sector’s knowledge about its particular circumstances and engages firms in developing their own internal procedures and monitoring practices that respond to risks. This flexibility also raises the question of whether this regulatory strategy can actually deliver value to society. Empirical evidence indicates that management-based regulations can lead firms to make risk-related behavioural changes and induce positive behavioural change within industry. The purpose of this chapter is to explain where management-based regulation fits within government’s overall policy toolkit and examine the conditions under which management-based regulation is both a viable and superior policy strategy.


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