PerezUBC_LRevaspublished

8/3/2019 PerezUBC_LRevaspublished

http://slidepdf.com/reader/full/perezubclrevaspublished 1/36

RESPONSIVE REGULATION AND SECOND-ORDER REFLEXIVITY: ON THE LIMITS OF REGULATORY

INTERVENTION

OREN PEREZ†

Shoyoroku—Case 57: Gon’yo’s One “Thing”

Venerable Gon’yo asked Joshu, “How is it when a person does not have a sin-gle thing?”

Joshu said, “Throw it away.”

Gon’yo said, “I say I don’t have a single thing. What could I ever throwaway?”

Joshu said, “If so, carry it around with you.”

I. INTRODUCTION

Following an inquiry into the Securities and Exchange Commission’s (SEC) voluntary supervision program for large Wall Street investment banks, focus-ing on the ill-famed Bear Stearns bank, Christopher Cox, Chairman of theSEC, said: “The last six months have made it abundantly clear that voluntaryregulation does not work.”1 This statement was a formal recognition of therole played by the voluntary supervision program in the financial crisis of 2008.2 For Cox the lesson was clear: the culprit was “the lack of explicit statu-tory authority for the Commission,” which would have allowed it to impose

† Bar-Ilan University, Faculty of Law, Israel.

1 US Securities and Exchange Commission (SEC), Press Release, 2008-230, Chairman Cox

Announces End of Consolidated Supervised Entities Program (26 September 2008).

2 Stephen Labaton, “S.E.C. Concedes Oversight Flaws Fueled Collapse”, The New York

Times (27 September 2008) A1, online: <http://www.nytimes.com>.



744 UBC LAW REVIEW VOL. 44:3

concrete, non-negotiable obligations on supervised banks.3 According to

Cox, the key to preventing another financial catastrophe lay in closing thegaps in SEC regulatory authority and invigorating its powers of interven-tion.4 The catastrophic oil spill in the Gulf of Mexico in 2010, produced byan explosion at the BP DeepWater Horizon drilling rig southeast of the Lou-isiana coast,5 produced similar skepticism with respect to self-regulation. Forexample, the New York Times accused the Minerals Management Service,the Interior Department agency charged with regulating the oil industry, that

from 2001 to 2007, there were 1,443 serious drilling accidents in offshoreoperations, leading to 41 deaths, 302 injuries, and 356 oil spills. Yet the fed-eral agency continues to allow the industry largely to police itself, saying thatthe best technical experts work for industry, not for the government.6

Although skepticism about self-regulation has gained substantial momen-tum following the financial crisis,7 it is ill-founded to the extent it is based onan unconditional belief in conventional regulatory structures—such ascommand and control and market based instruments—to accomplish their

3 SEC, supra note 1 (requiring “these investment bank holding companies to report their

capital, maintain liquidity, or submit to leverage requirements”).

4 Ibid.

5 See Timothy R Kelley, “Environmental Health Insights into the 2010 Deepwater Hori-zon (BP) Oil Blowout” (2010) 4 Environ Health Insights 61, online: <http://www.ncbi.nlm.nih.gov> ; Richard Kerr, Eli Kintisch & Erik Stokstad, “Will Deepwater Hori-zon Set a New Standard for Catastrophe?” (2010) 328: 5979 Science 674.

6

Eric Lipton & John M Broder, “Regulators’ Warnings Weren’t Acted On”, New YorkTimes (8 May 2010) A12. For similar voices across the Atlantic see Cynthia O’Murchu,

“BP failures heighten fears at North Sea risk”, Financial Times (14 September 2010),

online: <http://www.ft.com>. For a historical examination of oil-fields regulation seeHugh S Gorman, “Efficiency, Environmental Quality, and Oil Field Brines: The Successand Failure of Pollution Control by Self-Regulation” (1999) 73:4 The Business HistoryReview 601.

7 See e.g. Emilios Avgouleas, “The Global Financial Crisis, Behavioural Finance and Finan-

cial Regulation: In Search of a New Orthodoxy” (2009) 9:1 Journal of Corporate Law

Studies 23 and Eric Helleiner & Stefano Pagliari, “

The End of Self-Regulation? HedgeFunds and Derivatives in Global Financial Governance” in Eric Helleiner, Stefano Pagliari& Hubert Zimmermann, eds, Global Finance in Crisis: The Politics of International Regu-

latory Change (London: Routledge 2009) 74.



2011 SECOND-ORDER REFLEXIVITY 745

designated objectives. Such belief has no foundation in the history of mod-

ern regulation, which is replete with stories of regulatory failures in manyareas and over various periods. Nevertheless, Cox’s skepticism does expose ablind spot present in all the various nuances of the self-regulatory approach.

The present paper explores this blind spot, which characterizes not justthe self-regulation approach but also other non-conventional regulatoryforms, such as reflexive regulation and responsive regulation. Together thesemodels form what I will call the “reflexive regulation project”. Despite theirdifferent theoretical constructions, these regulatory models are based on sev-eral common insights: first, sensitivity to the limits of state regulation, drivenby a deep recognition of the problems of social complexity, normative multi-

plicity and epistemic scarcity; second, these models explore and develop cir-cumlocutory forms of regulatory intervention, which are less demanding from an epistemic perspective in comparison to conventional regulatoryformats. Finally, drawing on the notion of reflexivity, they emphasize the im-

portance of learning, achieved through a continuous process of self-

observation and self-critique. Effective learning processes are conceived as acritical component of effective regulation both in view of the epistemic chal-lenge underlying the regulatory project and as a measure against dogmaticthinking.

From a perspective that takes the normative and epistemic challenges un-derlying the regulatory project seriously, the shift to more reflexive and cir-cumlocutory forms of regulatory control seems highly attractive. Closer in-spection reveals, however, that these models suffer from deep internal para-

dox. There is a tension between the general epistemic modesty that underliesmultifaceted theoretical constructions of reflexive regulation and the de-manding epistemic requirements involved in its implementation. This epis-temic paradox reflects a more general tension between the non-optimizationapproach of reflexive regulation on one hand and its claim to offer workableand welfare enhancing alternatives to the failing methods of conventionalregulation on the other. The current article seeks to develop a deeper under-standing of this paradox, drawing on the ideas of second-order reflexivity and

meta-order inquiry. It argues that responsive/reflexive regulation should bereinterpreted as an effort to answer the problem of second order reflexivity.This reinterpretation generates new conceptual, pragmatic, and empirical




challenges that have not received sufficient attention in the current litera-

ture.8 The first section of the article discusses this paradox in the context of

three strands of responsive/reflexive regulation: self-regulation, responsiveregulation, and reflexive law, as they were developed by such writers as IanAyres, John Braithwaite, Julia Black, Robert Baldwin, and Gunther Teubner.It begins with a general discussion of the challenges of social engineering,then moves to a detailed analysis of epistemological and teleological tensionsthan underlie the reflexive regulation project. The second section exploresthe possibility of a meta-order solution to this conundrum, developing anunderstanding of second-order reflexivity. In this context, it discusses themeta-order puzzle in other disciplines, including philosophy (e.g., meta-epistemology and meta-ethics), decision-making theory (the “deciding howto decide” puzzle), and systems theory (the idea of the observer). The articleconcludes by revisiting the theoretical structure of reflexive regulation, draw-ing on the idea of second-order reflexivity, focusing in particular on the chal-

lenge of creating institutional sensitivity to reflexivity of a higher order.

II. THE EPISTEMIC AND TELEOLOGICAL PARADOXES OF

THE REFLEXIVE REGULATION PROJECT

A. THE CHALLENGES OF SOCIAL ENGINEERING

Following Anthony Ogus, I consider regulation to refer to legal interventiondesigned to induce individuals and firms to take action and achieve out-

comes that they would not voluntarily undertake or achieve.9 Such regula-

8 The article’s main purpose is critical, not normative. It seeks to extend our understanding

of the difficulties underlying the reflexive regulatory project, rather than resolving them. While such deeper understanding is a critical step in developing a normative position, thearticle offers only tentative thoughts in that direction.

9 See Anthony Ogus, “Regulation Revisited” [2009] PL 332 at 333. See also Julia Black,

“Decentring regulation: Understanding the role of regulation and self-regulation in a‘post-regulatory’ world” (2001) 54:1 Curr Legal Probs 103 (such intervention can beinitiated by non-state bodies, which are taking increasingly important role in the currentregulatory landscape).




tory intervention faces several challenges. The first challenge is designing a

regulatory program in a social environment with a multiplicity of causes. Inthe environmental domain, for example, diverse ideologies compete in the

policy arena, including environmental economics, environmental justice, anddeep ecolog y. A regulatory program that fails to appreciate this multiplicityof values exposes itself to radical critique, which can ultimately underminethe program’s capacity to attain its goals. Bridging between the potentiallyconflicting environmental ideologies constitutes a difficult policy challenge.10 The second challenge of the regulatory endeavor is epistemic. A social plan-ner must first develop an understanding of the regulatory dilemma, whichrequires a selection between multiple epistemological viewpoints and com-

peting representations of reality. Furthermore, a theory of regulatory intervention requires an understanding not only of the internal dynamic of theintervention targets (e.g., individuals, firms, social subsystems, nature), but

also of the systems through which the intervention is executed and the inter-

actions between them, which tend to be complex and non-linear. These in-

clude the legal system, political system, and organizational system of the statebureaucracy, and regulatory agencies. Finally, any intervention in a subsystemof society must be sensitive to its own internal logic. Insensitive interventioncan lead to a degeneration of internal processes, undermining the system’scapacity to attain its unique goals.11

The challenge of forming a coherent picture of reality is made difficult bythe epistemological diversity that characterizes contemporary society. Whilescience plays a central role in developing theories about the world, other so-

cial systems develop competing description of reality—whether as interpreta-

10 Such conflicts are ubiquitous in the planning field, in which incommensurable value

frames can lead to bitter social conflicts. See e.g. the dispute over Sasgon valley in thesouth of Israel: Daniella Cheslow, “A little green lie”, Jerusalem Post (8 June 2009) 12 (as

an example of a conflict ubiquitous in the planning field, in which incommensurate valueframes can lead to bitter social conflicts).

11

See e.g. Hugh Willmott, “Managing the Academics: Commodification and Control inthe Development of University Education in the U.K.” (1995) 48:9 Human Relations 993(adverse effects of capitalistic intervention of universities). This of course constitutes a

problem for society only if the system's goals are considered socially valuable.




tions of scientific claims or independently of any scientific mediation.12 For

example, the law creates an idiosyncratic image of reality that mirrors its self-generated normative grid.13 In the legal realm, pollution can be describedonly within the context of a particular normative structure and in light of evidence given in court. This evidence does not have to be necessarily “scien-tific”; the law can bypass science and experts to form a picture of reality bydrawing directly on the judgmental impressions of witnesses.14 Even when thecourt hears the testimony of experts, it retains the discretion to determine

which testimony to accept, setting standards that distinguish between “good”and “bad” science.15 By contrast, within the economic system pollution canbe perceived only if it is expressed in the language of cost-benefit calculus.16 This epistemological multiplicity is not limited to nature but also reflectshow each subsystem observes its social environment of other social subsys-tems and human agents.

The modern regulatory project faces, therefore, three central challenges:(a) designing regulatory policy in a social environment characterized by mul-

tiple causes, (b) confronting epistemic challenges associated with regulatory

12 See Black, supra note 9 at 106–07; Gunther Teubner, “How the Law Thinks: Toward a

Constructivist Epistemolog y of Law as an Autopoietic System” (1990) 23:5 Law & Soc’yRev 727.

13 Gunther Teubner, Law as an Autopoietic System (Oxford: Blackwell, 1993) at 77–78

[Teubner, Autopoietic ].14 See e.g. the Israeli Supreme Court ruling in Criminal Appeal 151/84, Israel Electric Com-

pany v Pinchas Pareshet and 4 others, PD 39(3) 1 (1961).

15 The court functions in this context both as gatekeeper and as a kind of meta-scientific

authority. See Daubert v Merrell Dow Pharmaceuticals, 509 US 579 (1993); Leslie I

Boden & David Ozonoff, “Litigation-Generated Science: Why Should We Care” (2008)116:1 Environmental Health Perspectives 117; Simon A Cole, “Out of the Daubert Fireand into the Fryeing Pan? Self-Validation, Meta-Expertise and the Admissibility of LatentPrint Evidence in Frye Jurisdictions” (2008) 9 Minnesota Journal of Law, Science &Technology 453; Susan Haack, “Irreconcilable Differences? The Troubled Marriage of Science and Law” (2009) 72 Law & Contemp Probs 1.

16 Teubner, Autopoietic , supra note 13 at 79.




intervention, and (c) intervening in the inner dynamic of autonomous sys-

tems without endangering them.17 Conventional regulatory approaches, from command and control to eco-

nomic regulation, do not provide a convincing answer to this tripartite chal-lenge.18 Indeed, the story of the neo-liberal regulatory state seems to be oneof continuous failures, with seemingly little capacity for retrospective learn-ing.19 Despite their claim to outperform command and control regulation,economic models of regulation seem to suffer from similar shortcomings.This is primarily due to the failure of economic theory to develop an inte-grated regulatory model which combines the insights of normative econom-ics with the sociological nuances of political economy, public choice, andneo-institutionalism. This failure is manifest in domains in which economicideas have influenced the regulatory landscape, including the use of market-based instruments in the environmental regulatory arena,20 antitrust regula-tion,21 and the regulation of the financial markets (which was exposed by theeconomic crisis of 2008).22

17 See further Oren Perez, “Regulation as the Art of Intuitive Judgment: A Critique of theEconomic Approach to Environmental Regulation” (2008) 4 International Journal of Law in Context 291.

18 Ibid .

19 See e.g . Martin Lodge, “The Wrong Type of Regulation? Regulatory Failure and the

Railways in Britain and Germany” (2002) 22:3 J Publ Pol’y 271; Howard Latin, “Regula-tory Failure, Administrative Incentives, and the New Clean Air Act” (1991) 21:4 Envtl L

1647; W John Thomas, “The Vioxx Story: Would it Have Ended Differently in theEuropean Union?” 32:2 Am J L & Med 365; Slavisa Tasic, “The Illusion of RegulatoryCompetence” (2009) 21:4 Critical Review: A Journal of Politics and Society 423. Themost recent case of regulatory failure is the 2011 nuclear disaster in Fukushima Japan. Forinitial analysis, see Daniel Kaufmann & Veronika Penciakova, Preventing Nuclear

Meltdown: Assessing Regulatory Failure in Japan and the United States (np: Brookings

Institute, 2011).

20 See e.g . Michael Hanemann, “Cap-and-Trade: A Sufficient or Necessary Condition for

Emission Reduction?” (2010) 26:2 Oxford Review of Economic Policy 225; Dieter

Helm, “Climate-Change Policy: Why Has So Little Been Achieved” (2008) 24:2 OxfordReview of Economic Policy 211.

21 See Robert W Crandall & Clifford Winston, “Does Antitrust Policy Improve Consumer

Welfare? Assessing the Evidence” (2003) 17:4 The Journal of Economic Perspectives 3;




B. THE HIDDEN P ARADOXES OF THE R EFLEXIVE R EGULATION

PROJECT

The difficulties underlying the social engineering project have been the subject of intense research. In recent years, various models have sought to re-spond to the challenge of regulating under conditions of epistemic scarcityand normative multiplicity, including self-regulation,23 reflexive law,24 andresponsive regulation.25 The shift to more reflexive and circumlocutory formsof regulation can be highly attractive, considering the challenges and con-

tinuous failures of the conventional regulatory approaches.26

Closer inspec-

George Bittlingmayer & Thomas W Hazlett, “DOS Kapital: Has Antitrust ActionAgainst Microsoft Created Value in the Computer Industry?” (2000) 55:3 Journal of Fi-nancial Economics 329; Paul L Joskow, “Transaction Cost Economics, Antitrust Rules,and Remedies” (2002) 18:1 J L Econ & Org 95.

22 See Daron Acemoglu, “The Crisis of 2008: Structural Lessons for and from Economics”(2009) 28 Center for Economic Policy Research (CEPR) Policy Insight, online:

<http://www.cepr.org>; Luigi Spaventa, “Economists and Economics: What Does theCrisis Tell Us?” (2009) 38 CEPR Policy Insight, online: <http://www.cepr.org>; JeffreyFriedman, “A Crisis of Politics, Not Economics: Complexity, Ignorance, and Policy Fail-ure” (2009) 21:2 Critical Review: A Journal of Politics and Society 127.

23 See e.g. Neil Gunningham & Joseph Rees, “Industry Self-Regulation: An Institutional

Perspective” (1997) 19:4 Law & Pol’y 363.24 See e.g. Teubner, Autopoietic , supra note 13 at 64–99; Gunther Teubner, “Substantive and

Reflexive Elements in Modern Law” (1983) 17:2 Law & Soc’y Rev 239 [Teubner, “Sub-

stantive”].25 See e.g. Ian Ayres & John Braithwaite, Responsive Regulation (Oxford: Oxford University

Press, 1992).

26 Systems theory provides one of the best available accounts of this complexity of contem-

porary society but it is by no means the only one. For systems theory approach, see NiklasLuhmann, Social Systems (Stanford: Stanford University Press 1995); Teubner, Autopoi-

etic , supra note 13. For other attempts to incorporate the idea of complexity into the social

sciences, see Philip Anderson, “Perspective: Complexity Theory and Organization Sci-ence” (1999) 10:3 Organization Science 216; Arie Y Lewin, Chris P Long & Timothy N

Carroll, “The Coevolution of New Organizational Forms” (1999) 10:5 Organization Sci-ence 535; David Byrne, “Complexity, Configurations and Cases” (2005) 22:5 Theory,Culture & Society 95. See generally MEJ Newman, Complex Systems: A Survey

[unpublished, archived at University of Michigan (website of Mark Newman)], online:




tion reveals, however, that despite their apparent epistemic modesty these

alternative models generate similar epistemological challenges to those un-derlying more conventional regulatory structures. Furthermore, the reflexiveoutlook developed by these models is limited as it makes no attempt to gobeyond a first-order analysis of the notion of reflexivity.

Consider first the model of self-regulation, which is based on the creationof a legal infrastructure that encourages an internal process of learning andself-improvement within regulated bodies. In this context, the regulatoryintervention focuses on influencing organizational routines, changing deci-sion-making structures within the organization, and restructuring the organ-izational hierarchy.27 The model is based on the idea that external interven-tion is seldom sufficiently sensitive to the autonomous dynamics of organiza-tions. But despite two decades of experimentation with various models of self-regulation, questions still remain about the institutional elements thatconstitute effective self-regulatory program.28 These doubts refer both to theinternal organizational elements necessary to facilitate credible processes of

self-improvement and to the external institutional components required tosupport them. This theoretical issue has been addressed in studies that dem-onstrate the inefficacy of many voluntary programs, leading to some disillu-sionment with self-regulation in the mid-1990s.29

<http://www-personal.umich.edu>; Computational Legal Studies blog, online:<http://computationallegalstudies.com>.

27 Teubner, Autopoietic , supra note 13 at 96; Julia Black, “Constitutionalising Self-

Regulation” (1996) 59:1 Mod L Rev 24 at 47.

28 See generally Neil Gunningham, “Environment Law, Regulation and Governance: Shift-ing Architectures” (2009) 21:2 Journal of Envtl L 179 at 186–88. It is insightful to com-

pare, in this context, the ISO 14001 and the Responsible Care schemes. See e.g. AndrewA King & Michael J Lenox, “Industry Self-Regulation Without Sanctions: The ChemicalIndustry’s Responsible Care Program” (2000) 43:4 Academy of Management Journal 698;Aseem Prakash & Matthew Potoski, The Voluntary Environmentalists: Green Clubs, ISO

14001, and Voluntary Environmental Regulations (Cambridge: Cambridge University

Press, 2006). See also Nicole Darnall & Stephen Sides, “Assessing the Performance of Vol-untary Environmental Programs: Does Certification Matter?” (2008) 36:1 Policy Studies

Journal 95.

29 Gunningham, supra note 28 at 187.




Despite this disillusionment, the ethos of self-regulation has not disap-

peared from the regulatory scene. The skepticism of the 1990s continues,however, to haunt the self-regulatory project as reflected, for example, in the

variety of approaches taken by environmental regulators across the Atlantic.Environmental regulators in the US and Canada have taken a more cautiousapproach toward self-regulatory schemes,30 whereas the European Commis-sion has shown a greater belief in these methods, as shown primarily by itssupport of the Eco-Management and Audit Scheme (EMAS) program.31 Therevised EMAS regulation encourages European Union (EU) member statesand institutions to offer comprehensive regulatory benefits to EMAS-certified firms,32 and generally seeks to boost awareness of the program acrossthe EU.33 In general, it seems the difficulties underlying the establishment of effective self-regulatory schemes has not received sufficient attention in onthis issue, and to a large extent remain unresolved to this day.34

30

See e.g. US Environmental Protection Agency, Position Statement on Environmental Management Systems (US Environmental Protection Agency, 13 December 2005),

online: <http://www.epa.gov>; Government of Alberta: Environment, “EnviroVista”,online: <http://environment.alberta.ca>; Ontario Ministry of the Environment, “Envi-ronmental Leaders Program” (Ontario), online: <http://www.ene.gov.on.ca>.

31 The program was revised in 2009; see Regulations EC, Regulation (EC) No 1221/2009 of

the European Parliament and of the Council of 25 November 2009 on the voluntary partici-

pation by organizations in a Community eco-management and audit scheme (EMAS)

[2009] OJ 342/1. See also European Commission Environment, “What is EMAS?”,

online: <http://ec.europa.eu>.32 Kristina Dahlstrom et al, “Environmental Management Systems and Company Perform-

ance: Assessing the Case for Extending Risk-Based Regulation” (2003) 13:4 EuropeanEnvironment 187.

33 See European Commission: Environment, “EMAS—The European Eco-Management

and Audit Scheme (EMAS): EU Activities”, online: <http://ec.europa.eu> (for a detailedsurvey of member states’ promotion actions).

34 See Andrew A King & Michael W Toffel, “Self-Regulatory Institutions for Solving Envi-

ronmental Problems: Perspectives and Contributions from the Management Literature”in Magali A Delmas & Oran R Young, eds, Governance for the Environment: New Perspec-

tives (Cambridge: Cambridge University Press, 2007) for a recent discussion of this ques-

tion.




The concepts in reflexive law and responsive regulation raise similar ques-

tions. Both reflexive law and responsive regulation are driven by the recogni-tion that epistemic scarcity and social autonomy constitute a major challengefor successful regulation; scholars working in these traditions have thereforesought to create mechanisms that can cope with these cognitive and planning challenge.35 A close examination of these theories, however, reveals that de-spite their proclaimed sensitivity to the cognitive challenges associated withregulatory intervention, their programmatic strategies exhibit an epistemo-logical pretence not significantly different from that of the conventionalmodel of regulation. To illustrate this argument, I focus on three key contri-butions to the reflexive/responsive literature: Ayres and Braithwaite’s modelof responsive regulation, Baldwin and Black’s recent writings on “really re-sponsive regulation” and Teubner’s reflexive law model.

Ayres and Braithwaite’s model of responsive regulation is based on a tit-for-tat approach to escalatory regulatory responses:

The idea of the pyramid is that our presumption should always be to start at

the base of the pyramid first. Then escalate to somewhat punitive approachesonly reluctantly and only when dialogue fails. Then escalate to even more

punitive approaches only when more modest sanctions fail.36

This approach is universal in that it holds across topics and regulatorysubjects, covering both environmental offences and economic crimes (e.g.,antitrust), and extending to firms and individuals. Implementing this ap-

proach, however, involves various cognitively demanding choices.Despite the richness of this theory, the complexity of the epistemic and

practical challenges it poses have not been persuasively addressed inBraithwaite’s writings. Consider, for example, the epistemic challenge associ-ated with determining a regulatee’s cooperative attitude, which is a key factorin the tit-for-tat strategy.37 A case in point is the interaction between a regu-


36 John Braithwaite, “The Essence of Responsive Regulation” (2011) 44:3 UBC L Rev 475

[Braithwaite, “Essence”].

37 Vibeke Lehmann Nielsen & Christine Parker, “Testing Responsive Regulation in

Regulatory Enforcement” (2009) 3:4 Regulation & Governance 376 at 381.




lator and industrial firms in the context of a permit regime based on the doc-

trine of “best available technique (BAT)”.38 Although the regulator may havesuperior knowledge about the social costs of industrial emissions, it is clearly

placed in an inferior position with respect to the cost structure of regulatedfirms. Firms have clear incentives to overstate their costs in order to escapestricter licensing requirements.39 Thus, although the firm may appear as if it

were participating in a sincere and forthcoming dialogue with the regulator,in reality it may be engaging in strategic communication, motivated by eco-nomic calculations as opposed to the goal of reaching an understanding.40 Contrary to the assumptions underlying the responsive regulation model, theregulator will likely find it difficult to distinguish between these differentcommunicative strategies. This uncertainty makes the choice of escalation(or de-escalation) almost arbitrary.

Similar informational challenges underlie the escalation decision in sim- pler regulatory contexts, such as the regulation of household recycling behav-iour. In a study I conducted with Yuval Feldman,41 we demonstrated that the

effect of various policies seeking to encourage recycling behaviour is highlysensitive to whether or not the individual is committed to environmental values. In particular, we found that for environmentally conscious individu-als, increasing sanctions could, counter-intuitively, be associated with a re-

38 See Directives EC, Directive 2008/1/EC of the European Parliament and of the Council of

15 January 2008 concerning integrated pollution prevention and control [2008] OJ, L 24/8

(establishing such a regime); Environment Agency (UK), “Best Available Technique

(BAT) and Best Practicable Environmental Option (BPEO)”, online: <http://www.environment-agency.gov.uk> (for the implementation of this approach in EU memberstates).

39 See Cass R Sunstein, “Paradoxes of the Regulatory State” (1990) 57:2 U Chicago L Rev

407 (“Government is rarely in a good position to know what sorts of innovations arelikely to be forthcoming; industry will have a huge comparative advantage here. Per-

versely, requiring adoption of the BAT eliminates the incentive to innovate at all . . .”).

40 Sandra Harris, “Pragmatics and Power” (1995) 23:2 Journal of Pragmatics 117.

41

Yuval Feldman & Oren Perez, “Motivating Environmental Action in a Pluralistic Regula-tory Environment: An Experimental Study of Framing, Crowding Out, and InstitutionalEffects in the Context of Recycling Policies” (2 May 2011) [unpublished, availableonline: Social Science Research Network <http://www.ssrn.com>].




duction in individuals’ willingness to recycle.42 This finding is consistent

with a more general empirical result, demonstrated in several studies, that insome cases raising monetary incentives could actually increase rather thandecrease asocial behaviour, due to crowding out of intrinsic motivation.43 This means that in designing escalatory strategy in the context of recycling

program, the regulator must gain costly knowledge of the composition of thetarget population. It is clear that in a highly diverse community a uniformregulatory strategy may prove counterproductive.

Finally, in choosing an escalation strategy, the regulator also must be ableto correctly evaluate the environmental risks involved. Where regulation isdirected at potentially catastrophic risks, the appropriate reaction may be toimmediately resort to the highest level of regulatory reaction rather thanapplying the conventional escalatory approach.44 But in the case of new tech-nology, such as nanotechnology or genetic modification, such a simple testmay be unsatisfactory given the lack of clear understanding of the potentialrisks.45

Baldwin and Black’s model of “really responsive regulation”

46

is even moreambitious in the epistemic onus it imposes on the regulator. This model al-lows risk regulators, Baldwin and Black argue, to attune “the logics of riskanalyses to the complex problems and the dynamics of real-life regulatoryscenarios”.47 It offers a framework for regulation

42 Our findings refer to policies that impose high monetary fines for non-recycling.

43

Samuel Bowles, “Policies Designed for Self-Interested Citizens May Undermine ‘TheMoral Sentiments’: Evidence from Economic Experiments” (2008) 320:5883 Science1605; Bruno S Frey & Reto Jegen, “Motivation Crowding Theory” (2001) 15:5 Journalof Economic Surveys 589.

44 Robert Baldwin & Julia Black, “Really Responsive Regulation” (2008) 71:1 Mod L Rev

59 at 62–63.

45 See Oren Perez, “Precautionary Governance and the Limits of Scientific Knowledge: a

Democratic Framework for Regulating Nano-Technology” (2011) 28:1 UCLA J Envtl L& Pol’y 29.

46 Baldwin & Black, supra note 44; Julie Black & Robert Baldwin, “Really Responsive Risk-

Based Regulation” (2010) 32:2 Law & Pol’y 181.

47 Ibid at 182.




which responds to firms’ attitudinal settings, recognises the significance of

the institutional environment (or ‘regulatory character’), which develops anawareness of the differential nature of the logics of different regulatory toolsand strategies, which is performance sensitive, and which responds tochange.48

The importance of evaluating a firm’s idiosyncratic culture, in particularits cooperative stance, is further emphasized in Baldwin and Black’s 2010article, which highlights the critical role of “amenability analysis”, a tool thatallows the regulator to consider “the attitude, nature, and organization of thefirm as this relates to (1) the mode of intervention likely to prove most effi-cient in furthering statutory objectives and (2) the anticipated benefits

yielded per unit of regulatory expenditure.” Baldwin and Black criticize themodel of risk-based regulation for its lack of appreciation of the importanceof this separate type of examination.49

The responsive regulator imagined by Baldwin and Black is much moresophisticated than the omniscient ruler of command and control regulation.

The responsive regulator can not only grasp perfectly all the multiple logicsthat populate the regulatory arena (both within the regulated bodies and within the state bureaucracy), but can also create a regulatory program that issensitive to these idiosyncratic logics and at the same time maintain a moreor less coherent structure.50 This responsive regulator is also equipped withremarkable powers of retrospection and is capable of reassessing and redes-igning its overall regulatory strategy in light of unfolding contingencies.51 Itcan also use sophisticated amenability analysis to assess a firm’s innate culture

and its receptivity to regulatory intervention.52

Baldwin and Black admit thatthese are “fairly formidable tasks”.53 With respect to amenability analysis,

48 Baldwin & Black, supra note 44, 75–76.

49 Black & Baldwin , supra note 46, at 191–92 (referring to the scoring system of the Portu-

guese environmental regulator as an approximate example of amenability analysis).

50 Baldwin & Black, supra note 44 at 72; Black & Baldwin , supra note 46 at 198.

51 Baldwin & Black, supra note 44 at 94; Black & Baldwin , supra note 46 at 205.52 Black & Baldwin , supra note 46.

53 Baldwin & Black, supra note 44 at 76.




they note that “information on amenability will not always be readily avail-

able”.54 But despite these reflections on the epistemic side effects of theirmodel, they propose it as a feasible policy option.55

Baldwin and Black’s model of really responsive regulation appears to beinherently paradoxical: although it claims to take seriously the cognitive andcomputational difficulties facing the social planner,56 de facto the variousrequirements and goals it sets for the regulator disregard these difficulties.For example, identifying a firm’s “true culture” constitutes a difficult andhighly contested research question; these difficulties are brushed aside inBaldwin and Black’s discussion.57

Teubner’s model of reflexive law seems to suffer from a similar unresolv-able tension. The concept of reflexive law responds to the crisis of rationalitylimiting the potential of conventional regulation. Teubner argues that undera regime of reflexive law “the legal control of social action is indirect and ab-stract. For the legal system only determines the organizational and proce-dural premises of future action.”58 The law realizes “its own reflexive orienta-

54 Black & Baldwin , supra note 46 at 193.

55 Ibid at 210.

56 Ibid at 181, 182. They open their 2010 paper by stating that “[r]egulators usually find

that they have more to do, and more issues to respond to, than time or resources allow”.They note further that they were prompt to re-examine the implementation challenges of risk-based regulation by the 2007–2009 credit crisis and “the widespread perception thatrisk-based regulation, at least in the UK, signally failed to protect consumers and the pub-

lic from the catastrophic failure of the banking system.” This decline in the reputation of risk-based approach to financial regulation, they note “presses us to examine whetherthere is a need to apply risk-based regulation in a newly reflective manner and to conceiveof it in a more nuanced way. We will argue that a ‘really responsive’ approach offers aframework for reconceiving risk-based regulation in such a fashion”.

57 For studies exploring this question see e.g. Mats Atvesson, “Organization: From Sub-

stance to Image?” (1990) 11:3 Organization Studies 373; Dennis A Gioia, MajkenSchultz & Kevin G Corley, “Organizational Identity, Image, and Adaptive Instability”(2000) 25:1 The Academy of Management Review 63; Oren Perez, Yair Amichai-Hamburger & Tammy Shterental, “The Dynamic of Corporate Self-Regulation: ISO14001, Environmental Commitment, and Organizational Citizenship Behavior” (2009)43:3 Law & Soc’y Rev 593.

58 Teubner, “Substantive”, supra note 24 at 255.




tion insofar as it provides the structural premises for reflexive processes in

other social subsystems.”59 In a later publication, Teubner offers a more radi-cal thesis: similar to other subsystems, the law can regulate other systems onlyby regulating itself.60 This process takes place through a “‘blind’ process of co-evolution . . . regulated by the twofold selectivity of the autopoiesis of thelaw and that of the social system concerned. Legal acts must stand up to theautopoiesis of both systems.”61

According to Teubner, reflexive legal rationality requires the legal system“to view itself as a system-in-environment and to take account of the limits of its own capacity as it attempts to regulate the functions and performances of other social subsystems.”62 One practical path for influencing the co-evolutionary processes associated with regulatory enterprises is to increasethe “possibilities for variation within the law”.63 Teubner clearly rejects theconventional narrative of the regulatory dilemma, which emphasizes theneed to develop “scientifically grounded models of the surrounding systems”

which would allow the social planner to “tailor its norms accordingly.”64 Ul-

timately, Teubner’s thesis can be interpreted as turning the epistemic chal-lenge underlying regulatory action inward rather that outward. This changeof perspectives, however, does not diminish the magnitude of the epistemicchallenge: introspective learning is not less difficult than outward learning.65

59 Ibid at 275.


61 Ibid at 80.

62 Teubner, “Substantive”, supra note 24 at 280.

63 Ibid at 82.

64 Ibid at 81.

65

See Michael T Cox & Anita Raja, “Metareasoning: A Manifesto” (Paper delivered at theAAAI 2008 Workshop on Metareasoning, Chicago, 13 July 2008) [unpublished]; Mi-chael T Cox, “Metacognition in Computation: A Selected Research Review” (2005)169:2 Artificial Intelligence 104.




III. FROM FIRST ORDER TO SECOND ORDER REFLEXIVITY

By rejecting the omnipotent pretense of command and control and eco-nomic approaches to regulation, responsive and reflexive regulation appearsto be based on solid intuition. But none of the approaches described above

provide a convincing response to the epistemic and normative challenges of the neo-liberal project of social engineering.

All the authors discussed above recognize the importance of epistemicscarcity. Braithwaite has been open about the lack of sufficient empirical data

regarding the working of the responsive regulation model. He has noted that Valerie Braithwaite and I tried in vain to persuade that regulator to randomlyassign companies to the pyramidal versus the standardized approach. Untilthat is done, the warrant for confidence in responsive regulation as a generalstrategy will remain limited. We have to be content with evaluation researchthat tests small elements of the approach.66

Commenting on the current understanding of the causal operation of the pyramid approach he further noted: “[b]ut because we do not really under-stand the causal mechanisms that made it work, if indeed it has worked, wedo not assume it will work in future and we hedge its promise with otherlayers of the pyramid that hold out different theoretical bases for their prom-ises of effectiveness.”67 It is ironic that a model of responsive regulationshould suffer from such a low level of empirically based self-reflexivity.68 Similarly, Teubner has mentioned the need of sociological jurisprudence “todevelop a concept of ‘bounded rationality’ in order to construct workable

models of reality that are of practical use for legal decision processes,”69

andBaldwin and Black have noted the formidable nature of the epistemic chal-lenge facing the really responsive regulator.70

66 Braithwaite, “Essence”, supra note 36 at 515.

67 Ibid at 517.

68 See Nielsen & Parker, supra note 37 at 394 (the tension is also apparent in this study of

responsive regulation).

69 Teubner, “Substantive”, supra note 24 at 280. See also Teubner, Autopoietic , supra note 13

at 68.

70 Baldwin & Black, supra note 44 at 76.




The reflexive regulation literature has not yet delved deeply enough into

the epistemological presuppositions of the reflexive regulation project. Thisconceptual weakness has also decreased the capacity of reflexive models todeliver practical outcomes. An articulation of this epistemological problem-atic should be based, I will argue, on the idea of second-order reflexivity.Second-order reflexivity involves an attempt to take a step back from thesubstantive debates among theoreticians and practitioners of responsive orreflexive regulation in order to examine the presuppositions and commit-ments that are shared by those who engage in the debate.71 As a meta-theoretical enterprise, a model of second-order reflexivity involves theorizing about theories in an attempt to unveil the underlying structures of the first-order theories of reflexivity; it asks us to consider the conceptual and practi-cal implications of a recursive application of reflexivity.72 In laying bare someof the basic presuppositions of first-order theories of reflexive regulation,second-order reflexivity seeks to provide a detached vantage point from

which the competing models can be compared and assessed.73 Such second-

71 In thinking about second-order reflexivity I draw on the discussion of the idea of meta-

theory in various fields, ranging from ethics to sociology and history. See e.g. “Metaethics”in Edward N Zalta, ed, The Stanford Encyclopedia of Philosophy: Fall 2008 Edition,

online: <http://plato.stanford.edu>; Jonathan Dancy, “Intuitionism in Meta-Epistemology” (1982) 42:3 Philosophical Studies 395; George Ritzer, “Metatheorizing inSociology” (1990) 5:1 Sociological Forum 3. On the second order, see also Robert Chia,“The Problem of Reflexivity in Organizational Research: Towards a Postmodern Scienceof Organization” (1996) 3:1 Organization 31; Stefano Guzzini, “A Reconstruction of

Constructivism in International Relations” (2000) 6:2 European Journal of InternationalRelations 147; Niklas Luhmann, “Deconstruction as Second-Order Observing” (1993)24:4 New Literary History 763.

72 John Yolton has given a concise account of meta-inquiry in an essay about meta-history:

“If taken seriously, the analysis of the meta-discipline reflects back upon the discipline it-self, recommendations made upon the meta-level are absorbed into the original activity.The meta-discipline lays bare latent presuppositions, exposes them to criticism, challengestheir accepted meanings, and indicates contractions required for precision.” See John WYolton, “History and Meta-History” (1955) 15 Philosophy and Phenomenological Re-

search 477 at 477. See also Shanyang Zhao, “Metatheory, Metamethod, Meta-Data-Analysis: What, Why, and How?” (1991) 34:3 Sociological Perspectives 377 at 378.

73 I used the term “detached” rather than “neutral” or “unbiased” because the second-order

viewpoint comes with its own set of pre-commitments. This claim was made convincingly




order inquiry into the idea of reflexive regulation should be sensitive to the

pragmatic nature of the regulatory project and to the constraints of time andresources underlying it.74

None of the reflexive/responsive models discussed above engage in a sec-ond-order analysis. Given the neglect of the second-order dilemma in theliterature, it could be instructive to consider how the question of second-order analysis has been addressed in other fields. I focus on meta-order analy-sis in three fields that are closely related to the regulatory domain: meta-epistemology, decision-making theory (i.e., the “deciding how to decide”

puzzle), and systems theory (i.e., the notion of “observer”). I am particularlyinterested in the way in which the problems that emerge from second-orderanalysis have been articulated in these fields, and in attempts to resolve these

problems from a pragmatic point of view. Is it possible to extract from thisliterature some pragmatic meta-principles that could guide the processes of reflexive learning and oversight developed by the reflexive regulation litera-ture, and provide them with an evaluative background?

It is useful to start the discussion of meta-epistemology with a distinctionbetween epistemic foundationalism and meta-epistemic foundationalism:

Epistemic foundationalism concerns the justification of beliefs about the non-

epistemic, the justification of beliefs whose objects are propositions that arenot themselves about the justification of belief or beliefs. Meta-epistemic

foundationalism concerns the justification of beliefs about the epistemic.75

Among other things, meta-epistemology seeks to provide theoretical an-

swers to the right structure of beliefs. It considers various epistemic stan-dards, distinguishing, for example, between foundationalism, coherentism,

in literature on meta-ethics. See “Metaethics”, supra note 71 at 2 and Yolton, supra note 72

at 477–78.

74 Regulatory judgment belongs to the realm of practical reasoning. By regulatory judgmentI refer to the collective (or individual) process of opinion formation, pertaining to any of the various decisions associated with a particular regulatory program. See also Peter JSteinberger, The Concept of Political Judgment (Chicago: University of Chicago Press,

1993) at 89.

75 Ernest Sosa, “The Foundations of Foundationalism” (1980) 14:4 Noûs 547 at 556 [em-

phasis added].




and various criteria of epistemic warrant (a priori, evidentiary).76 The phi-

losophical exploration of the meta-epistemic issues has not yet yielded, how-ever, a unified epistemic framework that can resolve the first-order epistemiccontroversies.

One possible response to the meta-epistemic puzzle is a relativistic oranti-universalistic approach, which denies that there is only one correct epis-temic standard. For example, Steven Luper arguess that epistemic relativismis best defended on the basis of the parity thesis, which holds “that (nearly)all epistemic standards are on a par in that none of them is more defensiblethan the next.”77 This approach has not been popular among philosophers,

who describe it as nihilistic and intellectually irresponsible, leading to irra-tional indifferentism.78 But what would constitute a more responsible meta-answer? Nicholas Rescher has resorted to practical considerations in his cri-tique of the relativistic position. He argued that the fatal flaw of the relativis-tic position lies in disregarding the intrinsically teleological nature of all hu-man enterprises. In particular, “the cognitive enterprise of rational inquiry

has the mission of providing implementable information about our naturaland artificial environments—information that we can use to orient ourselvescognitively and practically in the world.”79 But the drive to purposive efficacythat underpins all human action is incompatible with epistemic indifferent-ism. Functionalism carries with it two higher-level meta-norms: “conformity

76 See generally Nicholas Rescher, Epistemology: An Introduction to the Theory of Knowledge

(Albany: State University of New York Press, 2003); Matthias Steup, “Epistemology” in

Edward N Zalta, ed, The Stanford Encyclopedia of Philosophy, online <http://plato.stanford.edu>; Alvin I Goldman, “A Priori Warrant and Naturalistic Epistemology”(1999) 33 Noûs Supplement 1; Scott Aikin, “Meta-Epistemology and the Varieties of Epistemic Infinitism” (2008) 163:2 Synthese 175 at 175–76.

77 Steven Luper, “Epistemic Relativism” (2004) 14:1 Philosophical Issues 271 at 274.

78 See e.g. Alvin I Goldman, “Foundations of Social Epistemics” (1987) 73:1 Synthese 109at 117; Rescher, supra note 76 at 170, 172. For further arguments against relativism, see

Paul Boghossian, Fear of knowledge (Oxford: Clarendon Press, 2006); Paul Boghossian,

“What the Sokal Hoax Ought to Teach Us: The pernicious consequences and internalcontradictions of ‘postmodernist’ relativism”, The Times Literary Supplement , (13 De-

cember 1996) 14.

79 Rescher, supra note 76 at 171.




to one’s standards and conduciveness to one’s goals”.80 These replace relativ-

ism by a standard of rational appropriateness, albeit at a price: a lack of sub-stantive uniformity. The pragmatic solution developed by Rescher resonates

with the pragmatic undertone of the reflexive regulation project. 81 One won-ders, however, to what extent pragmatism constitutes a real solution to themeta-epistemological puzzle; Rescher himself leaves unresolved the questionof the meta-justification of pragmatism.82

The dilemma of “deciding how to decide” highlights the pragmatic ques-tions underlying second-order articulation of reflexive regulation, focusing in

particular on the difficulties caused by scarcity of time and resources. Becausethe reflexive regulatory project is a practical and not merely epistemic enter-

prise, careful articulation generates a deeper understanding of the limits andchallenges of reflexivity as a practical endeavor. The starting point of the “de-ciding how to decide” puzzle is recognition that information gathering anddeliberation are costly. Consequently, as the theory of responsive/reflexiveregulation seeks to develop second-order reflexivity, it must also provide

guidance with respect to how much (costly) effort should be invested in in-formation gathering and deliberation in order to find the optimal structureof the regulatory program (let’s call it x*).83 Note that at the second-orderstage the question is not merely about the cost of the information search;there are also deliberation or computation costs associated, for example, withchoosing the best method of data acquisition (e.g., exploring the firm’s innate

80 Ibid .

81 For other accounts of pragmatic epistemology see, Cheryl Misak, “Pragmatism onSolidarity, Bullshit, and other Deformities of Truth” (2008) 32:1 Midwest Studies InPhilosophy 111; Mark C Modak-Truran, “A Pragmatic Justification of the JudicialHunch” (2001) 35:1 U Rich L Rev 55.

82 Rescher simply postulates the meta-norms that underlie his concept of functional episte-

mology. On the illusory quest for neutral meta-language or Archimedian vantage point.see also Humberto R Maturana, “Reality: the Search for Objectivity or the Quest for aCompelling Argument” (1988) 9:1 The Irish Journal of Psychology 25 at 33; StevenShapin, “Here and Everywhere: Sociology of Scientific Knowledge” (1995) 21:1 AnnualReview of Sociology 289 at 314.

83 With x being a vector, whose components are variables designating the elements (and

their associated costs) of a particular regulatory program.




culture) and designing an efficient algorithm that translates data into policy

recommendations (e.g., an escalation strategy). But solving this augmenteddecision problem requires some costly deliberation and possibly data collec-tion, generating a new meta-problem, producing presumably a different value

for x*, and so on ad infinitum.84 The resulting augmented problem, whichincorporates the costs of deciding how to decide, therefore leads to an infi-nite regress.85

The literature offers a variety of responses on the “deciding how to de-cide” dilemma, generating a highly contested theoretical arena. Someeconomists have approached the problem through the prism of “optimiza-tion under constraints”, focusing on the characterization of optimal stopping rules that allow the decision maker to stop the search when the costs of fur-ther search exceed its benefits.86 Other scholars are doubtful of the ability of rational theories to solve this dilemma, arguing the search for optimal stop-

ping rules is problematic because it does not follow the regress through all

84 See John Conlisk, “Why Bounded Rationality” (1996) 34:2 Journal of Economic Litera-ture 669 at 687.

85 Ibid at 687; Gred Gigerenzer, “Decision Making: Nonrational Theories” (2001) 5 Inter-

national Encyclopedia of the Social and Behavioral Sciences 3304 at 3306-3307. Sche-matically the infinite regress argument looks like this: (1) devise an algorithm for solving the problem at hand, collect an optimal amount of information, compute to find a solu-tion (the first maximization problem); (2) to do (1) we must first collect information

about how much information it would be optimal to collect, devise an algorithm for solv-ing this second order problem, and compute a solution (the second maximization prob-

lem); (3) to do (2) we have to collect an optimal amount of information about how muchinformation we should collect before we decide how much information to collect, devisean algorithm for solving this third order problem, and compute a solution (the third

maximization problem), etc.

86 See Patrick Bolton & Antoine Faure-Grimaud, “Thinking Ahead: The Decision Prob-

lem” (2009) 76 Review of Economic Studies 1205; W Bentley McLeod, “Planning Costsand the Theory of Learning by Doing” (2003) USC Center for Law, Economics & Or-

ganization Research Paper No C03-16, online: Social Science Research Network<http://ssrn.com>; Mark Armstrong, John Vickers & Jidong Zhou, “Prominence andConsumer Search” (2009) 40:2 The Rand Journal of Economics 209; Rami Zwick et al,“Consumer Search: Not Enough or Too Much?” (2001) 22:4 Marketing Science 503.




the way.87 For example, John Conlisk stresses the difficulty of formulating “an

optimization problem which takes full account of the cost of its own solu-tion”,88 concluding that we “seemingly must yield to the idea that some behav-ioural hypothesis, other than optimization, such as learning or adaptation, isneeded to escape the regress.”89

Various scholars such as Jon Elster, Gerd Gigerenzer, and Reinhard Seltenhave explored the non-optimization route.90 For Elster, the infinite regress,

which is generated by the demand for optimal evidence, provides a generalargument for the “satisficing” model.91 Selten also adopted this method when

87 Gigerenzer, supra note 85.

88 Conlisk, supra note 84.

89 Ibid .

90 Whether this alternative route should be termed non-rational is subject to debate. Selten

argues that bounded rationality is not irrationality, but rather reflects a rational responseto human cognitive limitations .“Bounded rationality is not irrationality. A sharp distinc-tion should be made here. The theory of bounded rationality does not try to explain trustin lucky numbers or abnormal behaviour of mentally ill people. In such cases one mayspeak of irrationality. However, behaviour should not be called irrational simply becauseit fails to conform to norms of full rationality. A decision maker who is guided by aspira-tion adaptation rather than utility maximization may be perfectly rational in the sense of everyday language use”. See Reinhard Selten, “Aspiration Adaptation Theory” (1998)42:2 Journal of Mathematical Psychology 191. Gigerenzer, however uses the term non-rational and bounded-rational interchangeably, to describe this alternative route, reflect-ing the rejection of these models of the maxims of full rationality with their portrait of

the individual as omniscient agent: Gigerenzer, supra note 85; Gred Gigerenzer & PMTodd, “Fast and Frugal Heuristics: the Adaptive Toolbox” in G Gigerenzer, PM Todd &the ABC Group, eds, Simple Heuristics that Make Us Smart (New York: Oxford Univer-

sity Press, 1999) [Gigerenzer, Todd & ABC, Simple Heuristics]; Peter M Todd & Gred

Gigerenzer, “Précis of Simple Heuristics That Make Us Smart” (2000) 23:5 Behavioraland Brain Sciences 727 at 729–31. Further, as I will demonstrate below, these alternativeaccounts involve some leap of faith which involves irrational—or maybe intuitive—

judgment.

91 Jon Elster, Sour Grapes: Studies in the Subversion of Rationality (Cambridge: Cambridge

University Press, 1985) at 18. See also Jon Elster, ed, Deliberative Democracy (Cambridge:Cambridge University Press, 1998) at 10. For discussion of Elster’s work, see Hans OMelberg , “A critical discussion of Jon Elster's arguments about rational choice, infinite re-gress and the collection of information: How much information should you collect before




he developed his aspiration adaptation theory. Aspiration level theories as-

sume that agents form aspiration goals that are either a value on a goal vari-able, or in the case of multiple goals a vector of goal values satisfactory to theagent (e.g., for an environmental regulator, a vector of environmental indica-tors). When choosing among a large set of alternatives, agents search untilthey find the first alternative that meets or surpasses their aspiration level, at

which point they stop searching and follow that alternative. It is also assumedthat agents adapt their aspiration goals in light of new data.92

Gigerenzer, who leads the Adaptive Behavior and Cognition (ABC) Re-search Group at the Max Planck Institute for Human Development in Ber-lin, has offered a different approach to this dilemma based on the notion of fast and frugal heuristics. Fast and frugal heuristics cut the regress by using simple stopping rules that allow decision makers to solve the first order prob-lem with little computation (“fast”) and information (“frugal”). This modeldraws on a vision of ecological rationality: adaptive behaviour resulting froma fit between the mind’s mechanisms and the structure of the environment.93

The fast and frugal model holds that individuals consider only the singlemost valid cue that discriminates between options; all other cues are ignored.Gigerenzer and his colleagues at the ABC Research Group have suggested a

variety of fast and frugal heuristics that together form an “adaptive toolbox”.These strategies include recognition, “take the best”, and elimination heuris-tics. Individuals facing a decision choice select the heuristic that presents thebest fit with the environment within the context of a particular task.94

making a decision?” (Candid Polit Thesis, University of Oslo Department of Economics,1999) [unpublished], online: <http://www.reocities.com>.

92 Selten, supra note 90; Hugh Schwartz, “The role of aspirations and aspirations adaptation

in explaining satisficing and bounded rationality” (2008) 37:3 Journal of Socio-Economics 949; Gerlinde Fellner, Werner Güth & Ev Martin, Satisficing or Optimizing?

An Experimental Study [unpublished, available online: Max-Planck-Gesellschaft

<https://papers.econ.mpg.de>].

93 Gigerenzer, supra note 85 at 4; Gigerenzer &Todd, supra note 90 at 729–31. See also Max

Planck Institute for Human Development, online: <http://www.mpib-berlin.mpg.de>.

94 To give one example, Borges et al tested the recognition heuristic in the context of in-

vestment decision-making, by asking several sets of people what companies they recog-




But as critics have noted, it is unclear to what extent these two non-

optimization models actually solve the regress problem. The satisficing model raises two critical challenges: (a) where aspiration levels come from inthe first place,95 and (b) the method by which agents update their aspirationlevels in view of new data from the environment. Such updates require agentsto invest effort in seeking information and processing it, and it thereforeseems to raise once again the problem of infinite regress. A similar problemexists with respect to fast and frugal heuristics. The question of “how do weselect the fast and frugal heuristic to decide which fast and frugal heuristic toapply in the first place” results in the same type of regress that the fast andfrugal method claimed to solve in the first place.96 Feeney has noted “[g]iventhat Gigerenzer et al’s central complaint about the optimization under con-straints view of rationality is that it leads to an infinite regress, it is ironic thatunless their own account can be supplemented with metacognitive principlesit must be adjudged merely to have replaced one infinite regress with an-

nized and forming investment portfolios based on the most familiar firms. In this waythey sought to examine the operation of a simple heuristic in a complex social environ-ment. They found that ignorance-driven recognition alone could match and often beatthe highly trained wisdom of professional stock pickers. It should be noted though thatBorges et al do not provide evidence that people actually use the recognition heuristic

when making such choices—they only demonstrate that using this heuristic can be a sur- prisingly adaptive strategy in a complex environment. The authors leave the experimentalexamination of whether or not people employ the recognition heuristic (and others) inthese types of social domains to future work. Bernhard Borges et al, “Can Ignorance Beatthe Stock Market?” in Gigerenzer, Todd & ABC, Simple Heuristics, supra note 90 at 59.

For experimental evidence of the use of 'fast and frugal' heuristics (with mixed results) seeMandeep K Dhami & Peter Ayton, “Bailing and Jailing the Fast and Frugal Way” (2001)14:2 Journal of Behavioral Decision Making 141; Ben R Newell, Nicola J Weston &David R Shanks, “Empirical tests of a fast-and-frugal heuristic: Not everyone ‘takes-the-best’” (2003) 91:1 Organizational Behavior and Human Decision Processes 82; Daniel MOppenheimer, “Not So Fast! (And Not so Frugal!): Rethinking the Recognition Heuris-tic” (2003) 90:1 Cognition B1.

95 Gigerenzer, supra note 85 at 4.

96 Richard Cooper, “Simple Heuristics Could Make Us Smart; But Which Heuristics Do

We Apply When?” (2000) 23:5 Behavioral and Brain Sciences 746.




other.”97 The foregoing discussion highlights the difficult theoretical ques-

tions that arise when questions of practical reasoning are analyzed using sec-ond-order reasoning. Given their claim for both practicality and reflexivity, itis difficult to see how models of reflexive or responsive regulation can disre-gard these theoretical questions.

Systems theory approaches the challenge of meta-inquiry through a so-ciological model of multifocal observation, which offers a framework forconceptualizing society’s multiple epistemological points of view.98 Drawing on Luhmann’s work, Lars Qvortrup has dubbed this condition of modernsociety “hypercomplexity”. According to Qvortrup, the state of hypercom-

plexity arises by mutual observations and self-observations of complex sys-tems. This condition can be analysed only through the precepts of second-order cybernetics, which state that “the principle of order for any given socialor psychic system can be seen only as the outcome of the operations of thatsystem itself. Such systems themselves produce their elements, relations, andconditionalizing forces.”99 But adopting this framework of analysis also en-

tails a transition “from anthropocentrism to poly-centrism, i.e., from a societythat believed in the transcendentally given rational human being as the centerto a society that observes itself as a social system with an immense number of communication centers and codes.”100 This transition creates a social ecologyof (polycentric) ignorance. As Luhmann noted: “Every description is boundto the basic structure of the operation of observing and can therefore notovercome the limitations this implies.”101

However, systems theory does not offer a normative framework that can

resolve the clash between competing normative and epistemic viewpoints

97 Aidan Feeney, “Simple Heuristics: From One Infinite Regress to Another?” (2000) 23:5Behavioral and Brain Sciences 749 at 750.

98 See Niklas Luhmann, “Stenography” (1990) 7 Stanford Literature Review 37; NiklasLuhmann, “On the Scientific Context of the Concept of Communication” (1996).35:2Social Science Information 257.

99 Lars Qvortrup, The Hypercomplex Society (New York: Peter Lang, 2003) at 14.

100 Ibid .

101 Niklas Luhmann, Observations On Modernity, translated by William Whobrey (Stanford:

Stanford University Press, 1998) at 78.




through meta-discourse. In this regard, there is a deep cleavage between the

way in which systems theory approaches the problem of second-order reflex-ivity, which is strictly non-normative, and the attempts of epistemology anddecision theory to develop normative responses to the second-order puzzle(i.e., universal epistemology and inclusive decision-making strategy). Indeed,Luhmann was reluctant to engage in any form of policy analysis or advice,although he recognized that systems theory sheds light on important practi-cal dilemmas, such as the problem of steering. Luhmann noted that the dis-advantage of systems theory “lies in its high intrinsic complexity and the re-lated abstractness of its concepts”. Although practical applications are notimpossible, “they will happen rather sporadically and incidentally, rathermore at random and in the form of irritations than in the form of logicalconclusions”. We do not, Luhmann concludes, “attempt to present a theorythat is supposed to guide practice”.102

IV. THE CHALLENGE OF INSTITUTIONALIZING HIGHER-

ORDER REFLEXIVITY

The foregoing reflections point to a paradox in the project of reflexive regu-lation. On one hand, recognition of the limits of conventional regulationhave driven theoreticians of reflexive regulation to adopt a general stance of epistemic and pragmatic modesty. On the other hand, closer inspection of the reflexive regulation project shows that any attempt to implement it in

practice (in its various manifestations) would face substantial epistemic andoperational challenges.

Coping with this paradox requires explicit engagement with the questionof second-order reflexivity and with the epistemic and computational limitsof the regulatory endeavor. One possible way out of this paradoxical tensionthat underlies reflexive regulation is to adopt a strategy of regulatory indif-ferentism. Although the option of indifferentism has a certain logical allure,it has been clearly rejected by scholars of responsive/reflexive regulation whoremain motivated by a strong teleological drive “to do better”. The rejectionof indifferentism suggests the reflexive regulation project can be reinter-

102 Niklas Luhmann, Law as a Social System , translated by Klaus A Ziegert (Oxford: Oxford

University Press, 2004) at 65.




preted as an effort to develop practical answers to this tension. More specifi-

cally, it can be understood as an effort to answer the question: How can wedevelop or cultivate greater institutional sensitivity to the challenge of higher-order reflexivity?

The following observations on this institutional challenge are intended to(a) explain the limits and nature of a potential answer, and (b) help develop amore general understanding of the regulatory structures by which the institu-tionalization of higher-order reflexivity can take place, drawing on examplesfrom current regulatory scholarship and praxis.

If anything can be derived from discussions of the meta-order problem inother domains, it is that the resolution of this problem, at least within therealm of practical reasoning, defies a universal, rational solution. It seemsbreaking the infinite regress generated by meta-order inquiry involves theinvocation of intuitive insight, which cannot be reduced to algorithmic solu-tions.103 The use of regulatory judgment, both in general and in devising re-flexive regulatory structure, seems to require some irrational or intuitive leap

of faith. Furthermore, the discussion of meta-order questions in other do-mains also calls for an approach of regulatory humility, recognizing the im- possibility of first-best solutions to regulatory dilemmas.

I would like to start the analysis of the regulatory structures by whichhigher-order reflexivity can be institutionalized with a discussion of twomodels of institutionalization: categorical codification and hierarchical cen-tralization. These models represent common regulatory reactions, and assuch deserve close scrutiny. Categorical codification constitutes an attempt

to resolve the institutionalization puzzle by introducing a concrete legal obli-gation to be reflexive. For example, on March 11, 2011, the US governmentissued a memorandum to the Heads of Departments and Agencies on Prin-ciples for Regulation and Oversight of Emerging Technologies, which in-cludes the following provision:

103

See Byron Holz, “Chaos Worth Having: Irreducible Complexity and Pragmatic Jurispru-dence” (2007) 8:1 Minnesota Journal of Law, Science & Technology 303 at 336; AndyStirling & David Gee, “Science, Precaution, and Practice” (2002) 117:6 Public HealthReports 521 at 524.




Flexibility: To the extent practicable, Federal regulation and oversight

should provide sufficient flexibility to accommodate new evidence and learn-ing and to take into account the evolving nature of information related toemerging technologies and their applications.104

The value of an obligation to be “flexible” and to “take into account theevolving nature of information” seems quite minimal. After all, the real ques-tion is what strategies and mechanisms can make a regulatory agency moreflexible and more sensitive to new information. Simply obligating the agencyto be flexible does not assist it in becoming so. Provisions of this type do havea minor benefit of placing the challenge of higher-order reflexivity on theregulatory agenda by emphasizing the epistemic and deliberative difficultiesinvolved in implementing the vision of responsive or reflexive regulation. Butregulators clearly require more substantial guidelines.

A second common regulatory reaction is to resolve the reflexivity prob-lem by creating a central oversight institution that would serve as a reflexivitylocus to the entire regulatory establishment. A good example of this is the US

Office of Information and Regulatory Affairs (OIRA) that operates withinthe Office of Management and Budget. OIRA was established by PresidentReagan in the 1980s with the task of reviewing federal regulations. The re-

view methodology is set out in a series of Executive Orders (EOs), whichbegan with President Reagan’s EO 12291, and culminated (thus far) withPresident Obama’s EO 13563, and has been greatly influenced by the con-cept of cost-benefit analysis.105 In general terms, the idea behind OIRA wasto create a mechanism which, owing to its independence and expertise, could

identify intrinsic flaws and mutual inconsistencies in proposed regulationsthat presumably could not have been spotted by the agencies themselves be-

104 US, Office of Science and Technolog y Policy, United States Trade Representative & Ad-

ministrator, Office of Information and Regulatory Affairs, Principles for Regulation and

Oversight of Emerging Technologies (11 March 2011), (this provision draws on Executive

Order 13563: Improving Regulation and Regulatory Review 76:14 Fed Reg 3821 (2011)

[Order 13563] at s 4).

105

For the evolution of regulatory review in the US see Richard L Revesz & Michael A Liv-ermore, Fixing Regulatory Review: Recommendations for the Next Administration (De-

cember 2008). See also US, Office of Management and Budget, OIRA Reports to Congress,

online: The White House <http://www.whitehouse.gov>.




cause of institutional and epistemic constraints.106 But this type of centralized

response to the reflexivity challenge raises the question of who should scruti-nize the operation of the regulatory watchdog: who will watch the

watcher?107 Creating another watchdog does not resolve the problem but merely re-

produces it at another level.108 Furthermore, by giving up the attempt to fa-cilitate the creation of reflexive sensitivities in each of the regulatory agenciesor schemes, centralized reflexivity seems to be inconsistent with the holistic

vision of reflexive regulation.The historical record of OIRA does not provide a convincing answer to

this critique. For example, OIRA was criticized for adopting a one-size-fits-

106 These constraints reflect a kind of situated blindness. See Eliot R Smith & Gün R Semin,

“Socially situated cognition: cognition in its social context” (2004) 36 Advances in Ex- perimental and Social Psychology 53; P. Cobb, Situated Cognition: Contemporary De- velopments, in Neil J Smelser & Paul B Bates, International Encyclopedia of the Social &

Behavioral Sciences (Oxford: Elsevier, 2001) 14121.107 See e.g. James B Doyle, “Who Will Watch the Watcher: Using Independent Counsel to

Compel Federal Facilities to Comply with Federal Environmental Laws” (1991) 26:2 ValU L Rev 671. Interestingly many authors focused on the opposite issue of the auditor in-dependence (or “purity”), neglecting the question of its own accountability: see e.g.Patrick G Grasso & Ira Sharkansky, “The Auditing of Public Policy and the Politics of Auditing: The US GAO and Israel's State Comptroller” (2001) 14:1 Governance: AnInternational Journal of Policy and Administration 1 at 5; Yves Gendron, David J Cooper,& Barbara Townley, “In the name of accountability: State auditing, independence and

new public management” (2001) 14:3 Accounting, Auditing & Accountability Journal278. Other authors have proposed variations on the model of centralized reflexivity, but

with little regard to the question of second-order reflexivity. See Michael Abramowicz,Ian Ayres & Yair Listokin, “Randomizing Law” (2010) 159:4 U Pa L Rev 929 at 984(proposing the creation of a specialized agency that will be given the general task of con-ducting policy experiments and interpreting their results for all the federal agencies).

108 Interestingly, OIRA is subject to review by the US Government Accountability Office

(previously the General Accounting Office (GAO)). The GAO produced a report reviewing OIRA's operation: US, GAO, Rulemaking: OMB’s Role in Reviews of Agencies’

Draft Rules and the Transparency of Those Reviews (GAO-03-929) (Washington, DC: USGAO, 2003). The review had, however, little impact on OIRA's operation. Such changehad to wait for the election of President Obama. See Barack Obama, “Toward a 21st-Century Regulatory System”, Wall Street Journal (18 January 2011) A17 .




all approach in its analysis of federal regulations, drawing largely on a uni-

form cost-benefit analysis.109 Critics have argued that OIRA should adopt ageneral principle of deference to agency expertise, allowing agencies to de-

velop their own risk assessment methodologies, which would fit their con-crete missions and risk domains.110 OIRA’s claim to provide a neutral tool forrational decision-making was also questioned. For example, Revesz and Liv-ermore showed that OIRA’s work was heavily influenced by the politicalagendas of individual presidents, with sharp differences in OIRA’s outputbetween Republican and Democratic administrations.111

It is not the argument of this article, however, that central review bodiessuch as OIRA are entirely useless. Their main contribution, however, shouldbe in facilitating reflexive processes within regulatory agencies and initiativesrather than providing detailed scrutiny of specific regulatory schemes.112 In-deed, under the Obama presidency OIRA seems to have been following this

path, with some interesting initiatives to be discussed below.The regulatory response to the problem of meta-order reflexivity cannot

be limited to rigid solutions—whether codification or hierarchy. The projectof reflexive regulation should follow a different direction, focusing, I willargue, on two themes. The first theme highlights the linkage between reflex-ivity and creativity; the second on a move from forward-looking optimiza-tion to retrospective learning. Neither of these directions offers an easy-to-follow algorithm for resolving the meta-reflexivity problem. Rather, they canserve as conceptual sign-posts for a new reading of the reflexive regulation

project.

109 Gary D Bass et al, Advancing the Public Interest through Regulatory Reform: Recommenda-

tions for President-Elect Obama and the 11th Congress (Washington, DC: OMB Watch,

2008) at 24.

110 Ibid at 27.

111 Revesz & Livermore, supra note 105 at 3–5.

112 See ibid at 9 (in that spirit, the critique of OIRA); Judith Healy & John Braithwaite,

“Designing safer health care through responsive regulation” (2006) 184:10 Medical Jour-nal of Australia (Supplement) S56 (for a similar emphasis on meta regulation). But evenin such more restricted role, OIRA would remain bounded by the general constraints of higher order reflexivity identified in the previous section three.




Emphasizing the linkage between reflexivity and creativity highlights the

important role of reflexive regulation in facilitating creative processes withinregulatory institutions. This requires the cultivation of organizational capac-ity to transcend the boundaries of a particular point of view, to challengeestablished categories and recast them in a new light, and to perceive prob-lems simultaneously from multiple perspectives. The combination of thesefeatures can enhance the institution’s “novelty” potential, and more generallyits capacity for creative finding and solving of problems. The linkage be-tween creativity and reflexivity lies first in their common rejection of dog-matic frameworks, and second in the capacity of creative thinking to enablenon-linear crossing between reflexive hierarchies.113 This linkage, and theconceptual and pragmatic questions it generates, has not received sufficientattention in the responsive/reflexive literature.

Establishing a creative institutional environment is a difficult design problem, and I do not propose to offer a complete treatment here.114 An important element in the effort to develop creative sensitivities within bureau-

cratic institutions is the encouragement of critical debate (internal and exter-nal) that would be attentive to various discourses. In many cases, creativityemerges in response to the need to bring together apparently incompatiblerepresentations or interpretations.115 Creating institutional space for such

113 See Claire Petitmengin-Peugeot, “The Intuitive Experience” in Francisco Varela & Jona-than Shear, eds, The View from Within: First-person Approaches to the Study of Conscious-

ness (Thorverton, UK: Imprint Academic, 1999) 43; Oren Perez, “Normative Creativity

and Global Legal Pluralism: Reflections on the Democratic Critique of TransnationalLaw” (2003) 10:2 Indiana J Global Legal Stud 25; Teubner, Autopoietic , supra note 13 at

82.

114 See e.g. Gary A Steiner,Selected Papers No 10: The Creative Organization, (Chicago: Chi-

cago Graduate School of Business, 1971); Greg R Oldham & Anne Cummings, “Em- ployee Creativity: Personal and Contextual Factors at Work” (1996) 39:3 The Academyof Management Journal 607; Lisa K Gundry, Jill R Kickul & Charles W Prather, “Build-ing the creative organization” (1994) 22:4 Organizational Dynamics 22; ConstantineAndriopoulos, “Determinants of organisational creativity: a literature review” (2001)39:10 Management Decision 834.

115 Marc De Mey, “Mastering Ambiguity” in Mark, Turner, ed, The Artful Mind: Cognitive

Science and the Riddle of Human Creativity (New York: Oxford University Press, 2006)

271.




cross-dimensional and inter-disciplinary discourse is therefore a critical first-

step in the attempt to foster a culture of creativity. Focusing on the individuallevel, involving several voices in the problem-solving process can also enhanceinstitutional creativity through the pooling of unshared knowledge116 andthrough better utilization of variations in individuals’ cognitive propensi-ties.117

These arguments and findings suggest that incorporating participatory processes into the regulatory process could enhance its creativity and reflexiv-ity. Participatory mechanisms were indeed found to be positively associated

with creativity both in studies of organizational dynamic and of deliberativedemocracy.118 Efforts to increase the deliberative profile of regulatory proc-esses have taken place both in the US and in Europe, forming a key elementof President Obama’s new approach to regulation.119 But implementing the

116 Gary P Latham, Dawn C Winters & Edwin A Locke “Cognitive and motivational effects

of participation: A mediator study” (1994) 15:1 Journal of Organizational Behavior 49 at

60.117 Monica J Garfield et al, “Research Report: Modifying Paradigms—Individual

Differences, Creativity Techniques, and Exposure to Ideas in Group Idea Generation”(2001) 12:3 Information Systems Research 323; Michael Bobic, Eric Davis & RobertCunningham, “The Kirton Adaptation-Innovation Inventory” (1999) 19:2 Review of Public Personnel Administration 18.

118 Daniel Plunkett, “The Creative Organization: An Empirical Investigation of the Impor-tance of Participation in Decision-making” (1990) 24:2 Journal of Creative Behavior 140; Bo T Christensen & Thomas Jønsson, “Why does participation in decision making en-

hance creativity in work groups? An integrative review” (Copenhagen: CopenhagenBusiness School, 2011); Robert E Goodin & John S Dryzek, “Deliberative Impacts: TheMacro-Political Uptake of Mini-Publics” (2006) 34:2 Politics & Society 219 at 225–32;Archon Fung & Eric Olin Wright, “Deepening Democracy: Empowered ParticipatoryGovernance” (2001) 29 Politics & Society 5 at 19–21. Some writers remain skepticthough; see Douglas J Sylvester, Kenneth W Abbott & Gary E Marchant, “Not Again!Public Perception, Regulation, and Nanotechnology” (2009) 3:2 Regulation and Gov-ernance 165 at section IV.

119 See Order 13563, supra note 104 at s 2; Cass R Sunstein, “The Power of Open Govern-

ment” (Address delivered at the Brookings Institution, 10 March 2010), online: WhiteHouse <http://www.whitehouse.gov>. It is also essential ingredient of EU environmental

policy. See Jonathan Verschuuren “Public Participation regarding the Elaboration andApproval of Projects in the EU after the Aarhus Convention” in TFM Etty & Han




participatory vision at the micro level of concrete regulatory initiatives in a

way that could unleash its creative potential still faces substantial chal-lenges.120

The second theme involves a shift from prospective to retrospective out-look. Accordingly, we should abandon the idea of reflexive law offering adecision-making framework that can produce regulatory decisions which area priori superior to those generated, for example, by economic calculation.Rather, the main goal of reflexive law is to instill institution-wide sensitivityto mistakes, based on a retrospective rather than a prospective approach.

Selten’s learning direction theory, which was developed as an alternativeto the conventional neo-classical model of rationality, offers a similar insight.It is based on ex post rationality that requires reasoning only about the past,

not about the future. Selten distinguished between ex post rationality, which

refers to the analysis of what could have been done better, and ex ante ration-

ality, which reasons about future consequences of possible actions. The di-

rection of future decisions in this model is determined, therefore, by a com-

parison between actual and counterfactual outcomes.121 Learning directiontheory was applied to repeated decision tasks in which a parameter ptmust bechosen in a sequence of periods t = 1 . . . T, provided that the decision makershave a qualitative causal model and receive feedback enabling them to revisetheir actions (in accordance with that model).122

Somsen, eds, Yearbook of European Environmental Law, Vol. 4 (Oxford, Oxford Univer-

sity Press, 2004) 29; European Commission, DG ENV Study concerning the report on the

application and effectiveness of the EIA Directive Final report June 2009, online:<http://ec.europa.eu> at 43–64.

120 See generally Oren Perez, “Complexity, Information Overload and Online Deliberation”

(2008) 5 I/S: A Journal of Law and Policy for the Information Society 43. Braithwaite provides some initial ideas on the linkage between responsive regulation and the democ-ratic ideal in John Braithwaite, “Responsive Regulation and Developing Economies”(2006) 34 World Development 884 at 884–86.

121 Judith Avrahami et al, “Learning (Not) To Yield: An Experimental Study of Evolving

Ultimatum Game Behavior” (2010) The Jena Economic Research Papers, # 2010 – 092 at5.

122 Selten, supra note 90 at 16; Reinhard Selten, “Features of experimentally observed

bounded rationality” (1998) 42:3-5 European Economic Review 413 at 421–23.




This emphasis on ex post adaptive learning fits well with the spirit of re-

flexive/responsive regulation. Indeed, John Braithwaite referred to this ideain a paper on health care regulation (with Judith Healy), noting that “thechallenge for health care is to shift from a blame culture to a learning culture,in order to learn from adverse events”,123 and emphasizing the value of requir-ing continuous improvement rather than pre-determined outcomes.124 Simi-lar emphasis on retrospective learning can be found in President Obama’snew approach to regulation.125The challenge for reflexive regulation underthis account lies in designing learning mechanisms that can deliver optimal(or continuously improving) learning in more complex environments thanthose stipulated in Selten’s model. This complexity can be reflected, for ex-ample, in the lack of agreed-upon causal model (allowing for the possibilityof ex-post revision of the causal model itself )126 or by the scale of the parame-ter p which can be interpreted as a complex variable representing a whole

policy or regulatory model (consisting of multiple sub-parameters).127 The

123 Healy & Braithwaite, supra note 112 at S57.124 Selten, supra note 122 at 422. The idea of continuous improvement is also a key compo-

nent of ISO 14001 environmental management system.125 Order 13563, supra note 104 at s 6 (which deals with Retrospective Analyses of Existing

Rules, and requires agencies to develop and submit to OIRA plans under which the

agency will periodically review its existing significant regulations). See also US, ExecutiveOffice of the President: Office of Management and Budget (OMB), Memorandum for the

Heads of Executive Departments and Agencies, and of Independent Regulatory Agencies (M-

11-10) (Washington, DC: OMB 2 February 2011) at 4.126 For example, what is the causal model according to which regulators should analyze thebehavioural impact of legally-binding economic incentives (e.g., fines, taxes, deposits). Ra-tional expected utility and crowding-out offer competing causal models for this question.See e.g. Feldman & Perez, supra note 41; Bruno S Frey & Reto Jegen, “Motivation

Crowding Theory” (2001) 15:5 Journal of Economic Surveys 589.

127 For example, should a new recycling scheme be based on a voluntary regulatory model oron a model based on monetary incentives? Each of these models involves multiple sub-

parameters. For the richness and complexity of recycling policies see e.g. PJ Shaw & SJ

Maynard, “The potential of financial incentives to enhance householders' kerbsiderecycling behaviour” (2008) 28:10 Waste Management 1732; RE Timlett & ID

Williams, “Public participation and recycling performance in England: A comparison of tools for behaviour change” (2010) 52:4 Resources, Conservation and Recycling 622.




key challenge seems to lie again at the level of second order reflexivity; not

merely to be able to learn from your mistakes at the first order level of the policy parameters, but also to be able to reflect on your learning proceduresand improve them as independent objects of inquiry.

The idea of retrospective learning, however, presents a modest view of theregulatory project because in this model the capacity of the regulator toachieve welfare-enhancing social goals is limited. It depends on the regula-tor’s initial choice of the relevant parameters, which can be significantly off-target, and on the accuracy of the causal model according to which the regu-lator revises the structure of the regulatory scheme and on the efficacy of thelearning procedures employed by the regulator.128

Ultimately, however, the reinterpretation of the reflexive regulation project, which was developed in this paper, should not be seen as a call for regu-latory indifferentism. Rather, drawing on what Nicholas Rescher has de-scribed as the intrinsically teleological nature of all human enterprises, itsimply prompts us to try to do better, relying on a more complex understand-

ing of the challenges we are facing.

128 On the limits of retrospective learning, see Jörg Rieskamp, “How Do People Learn to

Allocate Resources: Comparing Two Learning Theories” (2003) 29:6 Journal of Experi-mental Psychology: Human Learning and Memory 1066.

PerezUBC_LRevaspublished

Documents

Transcript of PerezUBC_LRevaspublished