The Efficacy of Regulation as a Function of Psychological Fit: Reexamining the Hard Law/Soft Law Continuum

Abstract

Much of the legal literature discusses regulation and regulatory forms with a seemingly implicit assumption that "those to be influenced" are inherently self-interested and thus motivated to comply with legal structures only when there are sufficient external incentives to do so. This view of the person is inconsistent with recent perspectives in the field of psychology. A law and morality perspective, coupled with insights from the field of psychology, asserts that influence, compliance, and motivation are far more complex than this legal literature would suggest. In this Article, we map the varying influence structures, motives, psychological needs, emotional mechanisms, and levels of moral reasoning that various forms of regulation, from hard law to soft law, might affect. We provide examples from global banking and one soft law initiative, the Equator Principles, to illustrate reasons psychology would suggest why soft law may be more effective in some circumstances in influencing behavior within the firm than hard law, while recognizing important limits to such influence.

Keywords: Regulation, regulatory theory, social psychology, enforcement, compliance, motivation, soft law, hard law, Equator Principles, banking regulation

JEL Classification: G21, K20, K22, K42, M14, L50