«ABSTRACT Regulatory transparency—mandatory disclosure of information by private or public institutions with a regulatory intent—has become an ...»
In the second category, transparency is, by itself, insufficient to generate effective policy outcomes but can be designed to work in tandem with other government actions to embed information in action cycles that produce congruent behaviors by disclosers. Here, transparency requirements can generate relevant information but that information may not be easily embedded into the pre-existing cycles of user choice and discloser response. In mortgage-lending reporting, for example, bank transparency generated highly salient information that allowed community organizations to identify the ways in which local banks discriminated against certain groups of borrowers or against particular neighborhoods. Those organizations, however, may have lacked the power to successfully demand that such banks alter their behavior. An appropriate background of regulatory rules against discrimination by financial institutions, embodied in the CRA, however, altered the action cycle in ways that embedded information into the strategies of users and disclosers.
Similar synergistic regulatory provisions might improve the effectiveness of many other transparency systems.
For a third category of policy problems, even well-designed and supported transparency systems are unlikely to be effective. It may be difficult to embed policy-rel
evant information into users’ routines due to lack of choice or other insurmountable obstacles. The goals and actions of users may be incongruous with those of policy makers. Or it may be difficult to bring discloser actions in line with policy goals.
In the case of plant-closing disclosure, for example, the need to keep impending closure decisions confidential because of the negative business ramifications of early release of that information and the significant period of time many communities need to prepare for plant closings almost preclude finding an advance disclosure period compatible with the inherent needs of both disclosers and users. In product markets where consumers emphasize price or styling over health or safety concerns, transparency systems are likely to waste time and resources with little regulatory gain, at least without related educational efforts.
Even when transparency systems are promising, however, there are daunting challenges to making such policies effective. Policy makers and public managers can do much to meet these challenges through careful system design and maintenance. First of all, they can tailor transparency requirements to users’ and disclosers’ decision routines. Once transparency is chosen as the best regulatory “fit” to address a public policy problem, the next step is for system designers to understand as much as possible about how diverse groups of users and disclosers make decisions. Designers can then make informed judgments about what information users and disclosers have the interest and capacity to use and in what time, place, and format their use will be maximized.
Second, government officials can strengthen transparency systems by selecting accurate metrics and choosing a scope of disclosure that matches their regulatory goals. Corporate accounting standards, restaurant hygiene grades, and nutritional labeling endure in part because they feature appropriate metrics well matched to the policy objective. Disclosure of workplace hazards disclosure and toxic releases feature more problematic metrics and an overly narrow scope that weaken their use and skew incentives for behavior change.
Third, policy makers and managers can design for effective communication. If cognitive shortcuts lead users to ignore probabilities, over-estimate rare catastrophic risks, or tune out when confronted with information overload, policy makers can design transparency systems that build in probabilities, limit information search costs, and expressly counter other cognitive problems.
Finally, and perhaps most important, transparency systems need to be designed for improvement. Built-in analysis and feedback requirements can reduce the effects of initial shortcomings as well as disclosers’ discoveries of loopholes in disclosure rules. Such requirements can also keep systems up-to-date as science and technology, markets, and political priorities change.
DAVID WEIL is Associate Professor of Economics, Boston University School of Management and Co-Director, Transparency Policy Project, Taubman Center, Kennedy School of Government, Harvard University.
ARCHON FUNG is Associate Professor of Public Policy, John F. Kennedy School of Government, Harvard University, and Co-Director, Transparency Policy Project, Taubman Center, Kennedy School of Government, Harvard University.
MARY GRAHAM is Visiting Fellow, The Brookings Institution, and Co-Director, Transparency Policy Project, Taubman Center, Kennedy School of Government, Harvard University.
Journal of Policy Analysis and Management DOI: 10.1002/pam Published on behalf of the Association for Public Policy Analysis and Management The Effectiveness of Regulatory Disclosure Policies / 177 ELENA FAGOTTO is Senior Research Associate, Transparency Policy Project, Taubman Center, Kennedy School of Government, Harvard University.
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