Sustainable Transparency
The Political Economy of Disclosure
Mary Graham, Archon Fung, David Weil
Transparency Policy Project, JFK School of Government
National Center for Digital Government and
The Regulatory Policy Program
Harvard University, Cambridge, MA
May 12, 2003
© Fung, Graham, Weil, 2003
2003 Sport Utility Vehicles
http://www.nhtsa.dot.gov/ncap
Make & Model
2003 Acura MDX
4-DR.
2003 Cadillac
Escalade 4-DR.
2003 Chevrolet
Blazer 4-DR.
© Fung, Graham, Weil, 2003
Rollover Rating
In a single vehicle crash, a vehicle with a
rating of:
Has a risk of rollover of less than 10
percent
Has a risk of rollover between 10
percent and 20 percent
Has a risk of rollover between 20
percent and 30 percent
Has a risk of rollover between 30
percent and 40 percent
Has a risk of rollover greater than 40
percent
© Fung, Graham, Weil, 2003
The Daily News of Los Angeles
October 5, 1998, Monday,
RESTAURANT RATINGS ARE HASH TO PUBLIC
Melissa Schmitt Daily News Staff Writer
The Daily News of Los Angeles
February 23, 2000 Wednesday, Valley Edition
GLITCH ALLOWS RATS, ROACHES AND 'A' GRADE
Troy Anderson, Staff Writer
© Fung, Graham, Weil, 2003
Megan’s Law: sex offenders disclosure
www.co.walla-walla.wa.us/sexoffenders.htm
DANIELSON, Kevin Scott
Kevin Danielson was convicted in 1989 in Oregon of Sex
Abuse 1st for sexually molesting his father’s girlfriend’s three
children, a female aged four and two males aged six and
seven. In 1990 he was convicted of Burglary 2nd and Assault
1st in Walla Walla County, after breaking into the residence of
an adult female where he threatened her with a knife and
choked her into unconsciousness, then stole her car.
Danielson has not completed any sex offender treatment.
Psychological evaluations placed him at a moderate to high
risk for re-offense. Terms of supervision include no contact with
anyone under the age of 18 unless approved by Community
Corrections Officer; curfew from 8:00 PM - 6:00 AM; no use of
alcohol or frequenting of bars/taverns. White male, DOB/ 1109-71
5'10", 190#, blond hair, blue eyes
100 block N. Spokane, Walla Walla
Unemployed
© Fung, Graham, Weil, 2003
Your Community: MIDDLESEX County
Your Zip Code: 02138
Who Is Polluting Your Community?
Reported Environmental Releases from TRI Sources in 2000
Rank
Facility
City
Pounds
1
IDEAL TAPE CO.
LOWELL
179,944
2
MAJILITE MFG. INC.
LOWELL
70,800
3
BRADFORD INDS. INC.
LOWELL
69,800
4
ADDEN FURNITURE INC.
LOWELL
52,628
5
HOLLINGSWORTH & VOSE CO. WEST GROTON
WEST GROTON
47,850
6
MILLIPORE CORP.
BEDFORD
44,870
7
POLAROID CORP.
WALTHAM
34,152
8
EXXONMOBIL CORP. EVERETT TERMINAL
EVERETT
21,432
9
DUNCAN GROUP
EVERETT
20,400
10
EASTERN CHEM-LAC CORP.
MALDEN
17,715
11
CAMBRIDGE PLATING CO.
BELMONT
15,510
12
LEE PRODS. CO.
EVERETT
13,664
13
PRINTED CIRCUIT CORP.
WOBURN
13,150
14
SANMINA CORP.
WILMINGTON
12,433
15
WINFIELD BROOKS CO. INC.
WOBURN
12,209
16
MILLIPORE CORP.
BEDFORD
12,000
17
SUPERIOR PROCESS CO. INC.
FRAMINGHAM
11,896
18
HAARTZ CORP.
ACTON
11,790
19
SURFACE COATINGS INC.
WILMINGTON
10,904
20
M/A-COM INC.
LOWELL
© Fung, Graham, Weil, 2003
9,149
Emergent Transparency
•
•
•
•
•
•
Financial Disclosure (SEC,
1933)
Labor Management Disclosure
Act (1959)
Federal Election Act (1973)
Home Mortgage Disclosure Act
(1975, 1989)
Automobile Safety Reporting
(1978)
Hazard Communication
Standard (1983)
© Fung, Graham, Weil, 2003
•
•
•
•
•
Toxics Release Inventory
(1986)
Nutritional Labeling (1994)
Medical Mistakes Legislation
(not passed, 1998-2000)
Megan’s Law (WA: 1990, CA:
1994)
School Report Cards (national,
1994)
Common Features
•
•
•
•
•
•
Transparency policies mandate disclosure
By corporations or other actors
Of new, standardized, disaggregated
information
Regarding specific products or practices
To a broad audience (not just the
government)
For a regulatory purpose…
© Fung, Graham, Weil, 2003
Regulatory Theory
Law
Info
Public/User
Behavior
Change
User pressures
often improve
extent of
transparency
© Fung, Graham, Weil, 2003
Discloser
Behavior
Change
Big Question, Two Parts
•
What makes some transparency policies
effective at changing discloser behavior and
some not?
Part 1: Dynamics: Why do some
transparency policies improve over time?
• Part 2: Performance: Why do some
transparency policies effectively change
discloser behavior in socially desirable ways?
•
© Fung, Graham, Weil, 2003
Specifying Improvement
A system of regulatory transparency improves
when:
• Scope of disclosers/information increases
relative to scope of perceived problem
• The number of users increases relative to
intended audience
• The quality of information (accuracy,
relevance, accessibility) improves
© Fung, Graham, Weil, 2003
Political Impossibility?
•
•
•
Public interest (policy-maker’s)
perspective: one tool among many.
Political puzzle: how can disclosure ever
survive?
Stiglitz, Wilson, and many others predict
failure b/c transparency imposes
concentrated costs (upon disclosers) for
the sake of dispersed benefits (for users)
© Fung, Graham, Weil, 2003
Distinctive Politics of Transparency
•
Transparency regimes can create classes of
beneficiaries among disclosers (thus weakening
political resistance).
•
•
•
•
•
Competition and reputation (market)
Information for management (market)
Regulatory advantages (state)
Shaming and public reputation (politics)
Transparency regimes are sometimes supported
by well-organized groups of disclosers (thus
overcoming collective action problems).
© Fung, Graham, Weil, 2003
Political Support…
Many
Disclosers
Benefit
User Groups
Not
Organized
Low
Political
Sustainability
© Fung, Graham, Weil, 2003
High
Political
Sustainability
User Groups
Organized
Few
Disclosers
Benefit
Political Support…
Many Disclosers
Benefit
Financial Stds
Hazard
Communication
User Groups
Not Organized
Medical
Mistakes
HMDA
Nutritional
Labeling
School Rpt.
Cards
TRI
WARN
FEC
LMRDA
Megan’s Law
Few Disclosers
Benefit
© Fung, Graham, Weil, 2003
User Groups
Organized
Case: Bank Discrimination
•
•
•
•
•
•
Problem: racial discrimination in lending
Law (HMDA, 1975): banks must disclose lending
practices - how much and where
Used by community groups to document disparities,
negotiate with banks, and press for further
transparency
Banks discover new markets, create new products.
Banks that excel at low-income lending benefit
Sustainability: laws gradually demand more
transparency, complemented by regulatory
incentives to use the regulation (CRA, 1977)
© Fung, Graham, Weil, 2003
Case: Union Corruption
Problem: Union corruption
• Law (LMRDA, 1959): Unions must reveal financial and
governance information to members
• Disclosers: no benefit to union leadership, only downside
cost
• No organized interest groups to represent workers
(against their leadership)
• Result: very little use of LMRDA data - not very
accessible
• Result: transparency system has improved little in four
decades
•
© Fung, Graham, Weil, 2003
Distinctive Economics of
Transparency
•
Transparency regimes, once in place, create a set of
benefits and costs for disclosing parties
•
•
•
Transparency regimes create benefits and costs for
users
•
•
•
Benefits: Consumer benefits; Signaling; Penalty avoidance
Costs: Revealing information to competitors, regulators, public
with different stakes
Benefits: Information on risk, institutional behavior, other
information with value to users
Costs: Collecting, interpreting and using information requires
resources
As a result, “information thresholds” will emerge for
disclosers and users.
© Fung, Graham, Weil, 2003
Benefits and costs of disclosure:
Information disclosers
Disclosing Party: Maximum information threshold
MB/MC
MC
MB
I*D
© Fung, Graham, Weil, 2003
Info
Benefits and costs of disclosure:
Information users (1)
MB/MC
MB
MC
I*U
© Fung, Graham, Weil, 2003
Info
Benefits and costs of disclosure:
Information users (2)
MB/MC
MB
MC
I1
© Fung, Graham, Weil, 2003
I2U
U
Info
Economics of Transparency:
What Drives Improvement?
Relation of the information thresholds of
disclosers and users will determine the use of
information at a point in time, and the dynamic
towards improvement over time
• The presence of third-parties for users will drive
improvement (c.p.)
• The presence of heterogeneity in the information
provided by disclosers will drive improvement
(c.p.)
•
© Fung, Graham, Weil, 2003
Case 1: No improvement in disclosure
Disclosing Party
MB/M
C
MC
I*U > I*D:
No impetus
for disclosure
system improvement
MB
Info
I*D
Information User
MB/MC
MB
Examples:
LMRDA, Hazard
Communication
MC
© Fung, Graham, Weil, 2003
I*D
I*U
Info
Case 2: Pressure to improve disclosure
Disclosing Party
MB/
MC
MC
MB
Info
I*D
MB/M
C
I*U < I*D:
High pressure to
improve disclosure
system
Information User
Example:
Megan’s Law
MB
MC
© Fung, Graham, Weil, 2003
I*D
I*U
Info
Case 3: Need for third parties
Disclosing Party
MB/MC
MC
If no third party (MBIND):
I1U > I*D:
No improvement
If third party (MBCOL):
I2U < I*D:
Improvement in
information disclosure
MB
Info
I*D
Information User
MBCOL
MB/MC
MBIND
MC
© Fung, Graham, Weil, 2003
I2U
I*D
I1U
Info
Example:
HMDA
Case 4: Dynamics of disclosers
Disclosing Party
MB/MC
I*U < I*D  I*U < I**D
Incentive for disclosure
system improvement
(sustainability) increases
as a result of the shift in
benefits to the disclosing
party.
MC
MB1
I*D
I**D
MB2
Info
Information User
Example:
TRI
MB/MC
MB
MC
I*D
© Fung, Graham, Weil, 2003
I**D
I*U
Info
Paths of Research
Voluntary systems, or only mandatory?
• Performance and effectiveness
•
•
•
•
Regulatory synergies
•
•
•
embeddedness hypothesis (bounded rationality)
pathways of impact (political, regulatory, market)
Disclosure + command and control (HMDA + CRA)
Disclosure + market mechanisms (school vouchers)
Information technology
•
•
Reduce user costs
But, a host of complications…
© Fung, Graham, Weil, 2003
© Fung, Graham, Weil, 2003
A Framework for Studying Transparency Policy
Stage of Information-based regulatory
System and key research question
Core factors to be studied
Creation of an informationbased regulatory system:
What factors account for the creation
and initial structure of IBRS?
•Nature of regulatory problem
•Relation of information to
regulatory problem
•Political dynamics / coalitions
Survival of the IBRS:
What factors account for the
survival of IBRS?
•Role of market forces
•Role of political forces
Sustainability of the
IBRS:
What factors lead to the continuous
improvement of IBRS?
•Quality of information
•Growth of 3rd parties
•Use of information
•Integration into decision-making
processes
Performance of the IBRS:
What factors lead an IBRS to
change the behavior of regulated
parties in desired directions?
© Fung, Graham, Weil, 2003
•Relation of information to behaviors
to be changed
•Relation of changed behaviors
to regulatory / policy ends