Reregulation and the Regulatory Timeline

Author:Peter Molk & Arden Rowell
Position:Assistant Professor, Willamette University College of Law/Professor and University Scholar, University of Illinois College of Law; Visiting Professor, Harvard Law School
Pages:1497-1533
SUMMARY

Regulation is often casually conceived of as functioning like a binary on/off switch: as if an area, issue, or industry is either regulated or not. While this binary model of regulation can be useful, it also decontextualizes regulatory decisions from their position in time, and thus obscures important ways by which regulators are constrained and incentivized by past and future decisions. As an... (see full summary)

 
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1497
Reregulation and the Regulatory Timeline
Peter Molk & Arden Rowell
ABSTRACT: Regulation is often casually conceived of as functioning like a
binary on/off switch: as if an area, issue, or industry is either regulated or
not. While this binary model of regulation can be useful, it also
decontextualizes regulatory decisions from their position in time, and thus
obscures important ways by which regulators are constrained and incentivized
by past and future decisions. As an alternative, we present a timeline
approach to regulation. The timeline approach is particularly helpful in
illustrating the ways that earlier regulatory decisions create vestigial effects for
later related decisions, and for highlighting the informational advantage that
later regulators have over regulators earlier in the timeline. These temporally
contextualized qualities are especially important under conditions of
reregulation, which arise when a previously deregulated issue is regulated
once again. Applying insights from financial option theory, we show how
lessons from the timeline approach can be used to enhance regulatory decision-
making at all stages on the timeline.
Assistant Professor, Willamette University College of Law. Thanks to Matt Adler, Al
Brophy, Andrew Chin, Jeff Dobbins, Pamela Foohey, Katie Rose Guest Pryal, Paul Heald, Don
Hornstein, David Hyman, Melissa Jacoby, Joan Krause, Michael Livermore, Jud Mathews,
Jonathan Nash, Jennifer Nou, Howard Pashman, Frank Partnoy, Dara Purvis, Dan Schwarcz,
Nadav Shoked, Paul Stancil, Suja Thomas, Tom Ulen, Chris Walker, Melissa Wasserman, Mark
Weidemaier, Lesley Wexler, Jonathan Wiener, Verity Winship, and workshop part icipants at
Duke, Emory, and the University of North Carolina for insightful comments and conversations.
 Professor and University Scholar, University of Illinois College of Law; Visiting
Professor, Harvard Law School.
1498 IOWA LAW REVIEW [Vol. 101:1497
I. INTRODUCTION ........................................................................... 1498
II. THE REGULATORY TIMELINE ...................................................... 1501
A. THE REGULATORY TIMELINE ................................................. 1502
1. Temporal Scope .......................................................... 1502
2. Intertemporal Dependence ........................................ 1504
B. REREGULATION AS A CATEGORY ............................................. 1510
1. Vestigial Effects ............................................................ 1510
2. Opportunities for Learning ........................................ 1511
3. Distinctiveness of Reregulation .................................. 1512
III. USES FOR REGULATORY TIMELINES ............................................ 1513
A. USING TEMPORAL SCOPE ....................................................... 1513
B. USING INTERTEMPORAL DEPENDENCE .................................... 1515
IV. PRESCRIPTIONS FOR TIMELINES .................................................. 1520
A. INSIGHTS FROM OPTION THEORY ........................................... 1522
B. INCORPORATING FLEXIBILITY INTO DECISION-MAKING ............ 1525
1. Follow Simple Rules of Thumb .................................. 1525
2. Perform Qualitative Ordinal Analysis ........................ 1526
3. Use Full Decision Trees .............................................. 1527
4. Price the Regulatory Option ...................................... 1529
C. FORGOING CERTAINTY ........................................................... 1530
D. SUMMARY ............................................................................. 1531
V. CONCLUSION .............................................................................. 1531
I. INTRODUCTION
In the modern regulatory state, regulations—agency-made law—are in a
constant state of flux. Regulators1 regulate new industries; those regulations
are later unwound through deregulation; and changing circumstances then
drive a need for renewed regulatory approaches. The result is a complex and
trembling web of regulatory influence that is constantly being woven,
unwoven, and rewoven.
Experts sometimes describe these shifting regulatory landscapes as
following a “cycle” or “sine wave,” swinging like a “pendulum,” or “oscillating,”
1. Throughout this Article we use “regulator” to mean an implementer of regulatory policy.
Thus, regulators include actors engaged in what we call initi al regulation (the first meaningful
regulation of an area, issue, or industry), regulatory reform (substantive changes to existing
regulation), deregulation (the rolling back of an existing regulatory policy), and reregulation
(regulating a previously deregulated industry). The exact boundaries of each of these tasks is likely
to be fluid, but we will argue that regulators at various stages of a timeline nevertheless tend to face
different challenges and opportunities when engaging in regulatory action.
2016] REREGULATION AND THE REGULATORY TIMELINE 1499
as an industry is first regulated and later deregulated or subjected to
regulatory change.2 These metaphors all imply a binary regulatory process,
with regulation functioning essentially like a flip switch: either “on”
(regulation) or “off” (deregulation). Under this mentality, the decision to
regulate after a period of deregulation—what we refer to as reregulation3
looks just like the decision to regulate an industry initially: in both cases,
regulation is merely “switched on.” From this perspective, the intervening
deregulation serves to roll back the clock, as if the initial regulation had never
happened.
Binary models of regulation capture much that is important about how
regulation functions. They are particularly helpful for emphasizing
distinctions between the two prongs of the “regulated” and “not regulated”
dichotomy, and for highlighting similarities within periods of regulation and
of non-regulation. They can also be useful for emphasizing the type of
political oscillation that is most likely to occur under a two-party political
system, and how such oscillation is likely to press upon administrative
agencies.4
2. See, e.g., Walter R. Burkley, Environmental Reform in an Era of Political Discontent, 49 VAND.
L. REV. 677, 678 n.4 (1996) (referring to the “oscillations in environmental regulation”); John
C. Coffee, Jr., The Political Economy of Dodd-Frank: Why Financial Reform Tends to Be Frustrated and
Systemic Risk Perpetuated, 97 CORNELL L. REV. 1019, 1029 (2012) (defining the phrase “Regulatory
Sine Curve” as characterizing regulation in, among other industries, finance and environmental
regulation); Richard D. Cudahy, Retail Wheeling: Is This Revolution Necessary?, 25 ENERGY L.J. 161,
163 n.16 (2004) (referring to the “pendulum-like oscillation . . . between regulation and
competition”); Patrick McGinley, Collateral Damage: Turning a Bli nd Eye to Environmental and Social
Injustice in the Coalfields, 19 J. ENVTL. & SUSTAINABILITY L. 304, 385 n.265 (2013) (referring to the
“repeating cycle” of environmental safety regulation); Anne Joseph O’Connell, Political Cycles of
Rulemaking: An Empirical Portrait of the Modern Administrative State, 94 VA. L. REV. 889 (2008)
(tracking the “cycles” of rulemaking by following political transitions); Larry E. Ribstein,
Commentary, Bubble Laws, 40 HOUS. L. REV. 77, 79–83 (2003) (developing a “cycle” of financial
regulation). On occasion both the regulatory framework and the accompanying industry
response are described this way. See, e.g., Frank Partnoy, Shapeshifting Corporations, 76 U. CHI. L.
REV. 261, 284–85 (2009) (analyzing the cycling of corporations between public and private
ownership due to changing regulatory environments).
3. Although “reregulation” is a term occasionally used in the literature, in the past, it has
lacked any generally accepted definition. See, e.g., Nicole Fradette et al., Project: Regulatory Reform:
A Survey of the Impact of Reregulation and Deregulation on Selected Industries and Sectors, 47 ADMIN. L.
REV. 461 (1995) (writing a 200-page study that never defines or expands on the term); Barry R.
Weingast, Regulation, Reregulation, and Deregulation: The Political Foundations of Agency Clientele
Relationships, 44 LAW & CONTEMP. PROBS. 147 (1981) (failing to define or expand on the term);
see also ALAN GART, REGULATION, DEREGULATION, REREGULATION: THE FUTURE OF THE BANKING,
INSURANCE, AND SECURITIES INDUSTRIES (1994) (using “reregulation” variously to encompass our
view of reregulation and as what we call regulatory reform). But see Jeff Schwartz, The Twilight of
Equity Liquidity, 34 CARDOZO L. REV. 531, 600–02 (2012) (using “reregulation ” to refer to the
period of regulation following deregulation, as the term is used in this Article).
4. See, e.g., O’Connell, supra note 2 (tracking the “cycles” of administrative regulation as
they are affected by political oscillation between two parties).

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