Regulatory Islands

Abstract

Policy experimentation in the “laboratory of the states” is a frequently cited benefit of our federalist system, but a necessary condition of thoughtful experimentation is often missing. To conduct useful policy experiments, states and other sub-federal actors need baseline information: in order to learn from the successes and failures of their neighbors, state actors must understand the laws and regulations that other jurisdictions have enacted. And, despite the seemingly ready availability of legal and regulatory materials in the information age, sub-federal officials often lack this understanding. The literature has recognized that states often fail to share policy results, particularly failures, but few scholars have explored the lack of information about the substance of policy — an essential foundation for thoughtful experimentation. This information deficit pervades technical policy areas in particular — those that do not follow uniform codes and require expertise to understand, like hydraulic fracturing and health care. In these areas and others, the states may still be laboratories, but they are laboratories on islands, with relatively little information exchanged among them. This limits the experimental upside of laboratories — informed, efficient, and innovative regulatory approaches. It also expands laboratories’ known downside: the costs to private entities of complying with different standards.

This Article explores the problem of regulatory islands and the public choice, political economy, and resource-based dynamics that create them. It argues that the federal government is in the best position to work with sub-federal institutions to produce and synthesize regulatory information, creating both interstate comparisons of policy and detailed, state-level policy summaries, or “capsules.” This is particularly so because when the federal government allows sub-federal experimentation in areas of federal concern, it should already be producing much of this information anyway, for its own use in monitoring state regulation to ensure that federal goals are being met, and to ensure that states are not imposing externalities on their neighbors. This will enable more informed experimentation and allow monitoring of policy gaps. In the many areas in which it does not regulate directly, the federal government in modern regulatory experiments is an informational one.

Keywords: Federalism, laboratories of the states, regulatory experimentation, policy diffusion, information age, information sharing, hydraulic fracturing, healthcare, climate adaptation, renewable portfolio standards, oil and gas