Public Management Occasional Papers No. 19 PUTTING MARKETS TO WORK: THE DESIGN AND USE OF MARKETABLE PERMITS AND OBLIGATIONS

FOREWORD Regulations are the sinews of modern government, the legal instruments that connect abstract government policies with the day-today activities of commerce and private life. In the highly-developed administrative states characteristic of OECD countries, government effectiveness has become to a significant degree dependent on the quality of the systems that develop, enforce, adjudicate, and terminate regulations. As an instrument of governance, regulations will continue to be used to meet a wide variety of legitimate social and economic needs. In the past 20 years, few modern reforms of the public sector have received more attention, and stimulated more controversy, than has regulatory reform. Few governments are satisfied with the quality, effectiveness and cost of regulation. New demands-from opening world markets and international integration, from problems of unprecedented scale such as environmental degradation and high non-cyclical unemployment, and from emerging interest groups such as consumers, to mention only a few-have focused considerable attention on the role of regulation in causing and solving problems. There is growing evidence that reform of regulation, properly designed and carried out, can improve economic performance and government effectiveness in addressing pressing public concerns. Today, regulatory reform has become a core element of modern, effective government. Almost all OECD countries have regulatory reform programmes, up from perhaps three or four in 1980, and more and more the debate focuses on how to reform rather than why reform is needed. The new initiatives are aimed at improving the performance, impact, and institutions of regulation. These initiatives vary greatly in objective and design, but they have distinctive features that mark them as genuinely new management capacities enabling governments to regulate more carefully by answering key questions: Are regulatory costs justified by benefits? Does regulatory intervention produce more social and economic benefits than would alternatives? Are regulations designed to achieve policy objectives at lowest cost? The work of the OECD Public Management Committee (PUMA) on regulatory reform, carried out by the Group on Regulatory Management and Reform, attempts to respond to the specific needs of the new reform initiatives. The purpose is to provide better information-drawn from practical experience, comparisons, and international exchanges-on the benefits, costs, and risks of reform in the policies, management, processes and institutions of regulation. The series of occasional papers on regulatory management and reform is intended to disseminate more widely the background papers, reports, and preliminary results prepared for the programme. The regulatory management and reform …