The Regulators

From baby food to seatbelts, government regulations touch many parts of our lives. Faced with market failures or new risks to consumers, government regulation is often the first thought of policymakers. But what about when institutions charged with carrying out regulations are unable to enforce them? How can policymakers improve public welfare in environments where traditional regulations have little to no impact?

In “State vs. Consumer Regulation: An Evaluation of Two Road Safety Interventions in Kenya,” authors James Habyarmana and William Jack compare two regulation strategies designed to address safety concerns in the Kenyan minibus market. Traffic fatalities are a major problem in many developing countries, accounting for 3.7 percent of all deaths worldwide – twice the number caused by malaria. Reducing the number of accidents and fatalities caused by minibus accidents is a major concern for Kenyan policymakers.

The first strategy Habyarmana and Jack investigate is the Michuki rules, a set of legal restrictions imposed by the central government. The Michuki rules required minibuses to implement standard safety measures, such as limiting the maximum number of passengers, enforcing maximum speed limits, and installing seat beats. These regulations represent the traditional form of regulation: legal requirements that prohibit some actions and require others.

While these regulations might sound like a common sense solution to improve traffic safety, the authors find that they had very little impact on the number of traffic accidents involving minibuses. The authors speculate that the Michuki rules failed to improve safety because the central government was too weak to enforce their regulations. More over, traditional regulation, the authors argue, has very little impact on the behavior of drivers, which is ultimately the cause of traffic fatalities.

The second strategy Habyarmana and Jack investigate is a consumer empowerment campaign designed to encourage passengers to demand safer driving behavior from minibus operators. In the pilot phase of the campaign, stickers were placed in minibuses encouraging passengers to heckle their driver if they felt unsafe. Unlike the legal restrictions imposed under the Michuki rules, the consumer campaign involved no legal changes and eschewed formal prohibitions entirely. Using random variation in the selection of minibuses receiving the stickers, the authors estimated that initial roll out of the campaign reduced accidents in participating buses by 50 percent.

The authors note that their work does not suggest that legal regulations are inherently ineffective. (Significantly, the authors did not investigate the extent to which existing legal restrictions created conditions under which the consumer empowerment campaign could succeed.) Instead, they write:

“Our analysis suggests that in institutionally weak environments, innovative consumer-driven solutions might provide an alternative solution to low quality service provision”

For policymakers hoping to influence consumer behavior in environments with weak enforcement infrastructure, creative consumer-engaging solutions might hold significant promise.

Feature Photo:cc/teachandlearn