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

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).