"Compliance as Costs and Benefits"

Michigan Law Authors
Publish Date
Cambridge Handbook of Compliance
Publication Type
Book Chapter

This chapter explores the conceptual, measurement, and incidence issues surrounding the costs and benefits of compliance. At the conceptual level, foundational questions are not fully resolved. For example, when speaking of compliance, do we mean compliance with the law or something else (e.g., an ethical code or industry standard)? What a firm is complying with will influence the costs and benefits being considered. Further, are the costs and benefits to be assessed from the perspective of the firm or from the perspective of society? Which one is chosen will impact what are viewed as costs and benefits. At the measurement level, assessing the effects of various compliance initiatives is a fraught exercise as attested to by a voluminous literature. It will typically require the use of multidisciplinary approaches with challenging questions about the unit(s) of measurement, the presence of counterfactuals, difficult to measure items, and difficult to operationalize trade-offs along with many potentially questionable assumptions. Further, embedded within measurement issues will be legal policy choices and structures that influence how, and by whom, the measurement is conducted. Finally, questions of incidence are important but are not often addressed in the literature. For example, if the costs of compliance fall disproportionately on smaller businesses, then what impact does that have on the political sustainability of the compliance initiative, the equity of it, and the competitive structure of the sector subject to these initiatives? Bringing together these considerations allows for a richer and more nuanced understanding of the costs and benefits of compliance and also encourages us to develop more careful theoretical models with which to analyze, and more reliable evidence-based research with which to assess, compliance initiatives.

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