Analysis of the Three Regulation Approaches

information to the public beyond governmental requirements. Such information may include social responsible practices, information on new products, trend analyses, and company strategies. For instance, the US Securities and Exchange Commission has set detailed standards for this kind of information disclosure.³⁹³ The standards clearly states that no sanction will be imposed for failure to provide all or any part of the requested information.³⁹⁴ However, many corporations still disclose information in accordance with the statue to send signals to the stakeholders and relevant parties that the company is in good condition.³⁹⁵ As a reverse impact, the companies that choose not to disclose information is perceived as having latent risk and the company’s value on the market decreases. In this way, the regulatee will voluntarily reveal information regarding the fulfillment of social responsibilities, corporate strategies, future plans, and so on. The regulator can acquire additional information without promulgating prescriptive rules to force the regulatees to disclose information and verify the integrity thereof.

In summary, the meta-regulation of process-oriented regulation is a superior alternative when the regulator has a limited understanding of the right process and results or when non-compliance is prevalent and institutionalized. However, the major disadvantages to the success of this regulatory model are the lack of a stable regulatory agenda, long-term support, or a supportive political environment.³⁹⁶

III. Appropriate Regulation Approach for Digitalization of Shipping

knowledge on the apt domains and regulatory environments for the respective regulation approach should be acquired.

As presented in the diagram below, the management-based regulation is advisable for the type of domain where high externality exists. Food industry, pollution prevention, and industrial security are the common fields where the management-based regulation approach is employed. In these domains, a minor failure or mistake can influence the life of millions.

Therefore, inviting the highest level of public intervention and monitoring at the planning and implementation stages is reasonable. At the same time, putting the regulated area under stringent surveillance will bring about high information burden and monitoring costs for the regulator, hence, the regulation will only be worthwhile if the latent damage is tremendous.

Despite the complicity of the production or processing procedures, the technologies applied in these industries will not be altered daily. Changes in these industries are always step by step, replacing one production line by another. This condition leaves time and space for the regulator to learn about the environment and acquire necessary tools to collect information. As long as the regulator obtains the ability of continuous learning and the techniques to keep track of the regulatees’ compliance level, the management-based regulation can handle the regulated area.

For industries with low externality and few complicated procedures, the outcome-oriented regulation approach is suitable. The typical fields where the outcome-oriented approach is employed includes animal welfare, agriculture, entertaining, environmental protection, poverty elimination, and so on. These fields share the common ground that various methods are necessary to reach the final objective, and the standards to decide whether these methods are efficient or not are subjective rather than objective. Hence, setting up goals with measurable results for the regulatee is more practical than regulating the behaviors. In exchange, the regulatee can adopt whichever method he sees fit to achieve the result. The information burden and monitoring costs for the regulator in this approach are lower than the management-based approach. However, the real challenge for the regulator is to set up achievable goals for the regulatee. This task requires the regulator to be familiar not only with the problem but also with the industry. An inadequate goal can distort the market and bring bad influences. One recent

example is the Chinese environmental protection policy. As the air condition in China worsens, the Chinese government has set the goal of reducing the emission of contaminator by certain percentage.³⁹⁷ Subsequently, the local government must be responsible for cutting down the emission of sulfur dioxide and ammonia by 10% to 20%, depending on the air quality. However, this goal is too ambitious to realize. As a result, when the local governments spare no effort to achieve the goal, they have to shut down tens of thousands of local factories.³⁹⁸ Otherwise, the task cannot be fulfilled. This case demonstrates that knowing the problem is not enough. The regulator must also be acquainted with the industry to be able to set up an achievable objective based on full-scale data and careful evaluation. Accountability is also essential in this approach.

The responsibility must be coupled with the corresponding regulatee so that the incentive will encourage the regulatee to take action and bear the responsibility for failures. In short, this outcome-oriented approach is suited for areas with low externality and numerous processing methods.

As discussed in the previous section, the last regulation approach is a special type of process-oriented regulation called meta-regulation. This type of regulation neither takes notice of the process nor the outcome of the regulation. Instead, regulatees are held accountable for the incremental improvement of their internal systems. The reason this regulation approach is getting increasingly popular is that no one can be certain about the development of the industry anymore, especially in a fast-changing environment. Nowadays, predicting the human behavior model and technological development in the next three years will be difficult, almost impossible. Many traditional fields and disciplines start to cooperate and converge to generate new theories each day. Innovations in irrelevant fields can now be combined and to cause a revolutionary transformation in the industry. Imagine being a manager of a local supermarket in Seattle or Osaka. Three years ago, the first concern would be how to make efficient workplans for the cashiers and other employees, how to motivate them, how to set appropriate incentives, how to prevent theft and robbery, and how to pay tax. Today, the manager will be

397 See the “12th Five-Year Plan of the Guideline for Control of Major Contaminators”(十二五主要污染物总量控制规范 编制技术指南), available at https://wenku.baidu.com/view/006818d184254b35eefd3463.html?re=view&pn=50

398 See the news at https://www.forbes.com/sites/trevornace/2017/10/24/china-shuts-down-tens-of-thousands-of-factories-in-widespread-pollution-crackdown/.

sitting in front of a computer screen to manage his shop via programs and codes.³⁹⁹ The rules for employees and the management skill that used to be the core factor of business success are now insignificant. Nonetheless, the unpredictable future should not constitute the reason for nonintervention because innovations always come hand in hand with risks.⁴⁰⁰ Given the fundamental uncertainty about the future, evaluating the risk while maintaining the various possibility of technological advancements is crucial. Monitoring every business or scientific decision and evaluating the associated risks is beyond the regulator’s capacity. The more realistic way of regulation is to encourage the decision maker to establish a capable mechanism for risk assessment. The meta-regulation approach is commonly applied in the high-tech capital market and communication areas.

Despite the advantages of meta-regulation, this approach cannot provide the same level of security as the management-based or outcome-oriented regulations. This regulation approach should not be applied in fields with high externality.

399 See the article Amazon’s Most Ambitious Research Project is a Convenience Store, available at

https://www.bloomberg.com/news/features/2019-07-18/amazon-s-most-ambitious-research-project-is-a-convenience-store.

Amazon has opened up to 14 convenience stores that require no cashiers, and the same thing is happening in Sweden, China, Japan, and other countries.

400 See Irwin, Alan. Risk and the control of technology: Public policies for road traffic safety in Britain and the United States. Manchester University Press, 1985, at 10–12. “A product or process considered innocuous at its inception may later prove to have a devastating environmental impact, as has been the case with asbestos production or the drug thalidomide.”

Figure 6: Regulation Models

Regulation Model Management-based Outcome-orientedProcess-oriented Feature Regulateeshouldplanregulation within given framework Regulatee should achieve goals set by the regulator and produce desirable results

Regulatee should implement functioning interna responsibility process Regulatory FociRegulatee’s action in different stages must pass different checkpoints set by the regulator

Regulatormust identify the problem and the acceptable outcome Regulatorencourages preprocedural action an internal information disclosure Suited Domain Foodindustry, industrialsecurity, pollution prevention

Animal welfare, Agriculture, Entertaining High-tech, Finance, animal ethics Requirements for the regulator Know the problem and the solution well Know what are the good results, and the capability of the industry

Know the industry Stage of Public Interference Planning and Implementing stage Planning and ex-post Implementing stage A priori planning Level of ExternalityHigh MediumLow Information Burden High Low Medium Monitoring costs High MediumLow