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Process Reforms: Enabling decision-making under uncertainty 185
in which they can be interpreted. This is made worse by the opacity of increasingly complex
rules which makes it difficult for a third party to monitor how the discretion was exercised.
Black (2001) argues that “discretion and rules are not in a zero-sum relationship such that
the more rules there are the less the discretion there is and visa-versa.” In short, a complex,
uncertain world makes discretion inevitable where over-regulation, not simpler regulation, leads
to excessive and opaque discretion.
Evidence supporting the increase in discretion with over-regulation
6.10 In their book “In Regulating Aged care: Ritualism and the New Pyramid”, Braithwaite et.al.
(2007) study the healthcare sector in the United States and provide evidence that is consistent with
the above thesis. The book focuses on the impact of regulating care for the elderly. It was argued
that inspectors manning the aged care homes had a lot of discretion. To change this scenario
and reduce their discretion, the inspectors were provided with detailed protocols to audit. These
standards were further broken into sub-standards and had reached over 500 federal standards,
which were complemented by some state’s specific standards by 1986. For instance, the Illinois
code for nursing included over 5,000 care regulations. Consistent with the bounded rationality
posited above, the authors found that inspectors could not cope up with the rise in these number
of standards. Most of these standards were completely forgotten and only about 10 per cent of
the standards were repeatedly used to make norms. The study notes that the results depended
on the background of inspectors, such that “If you’ve got a nurse, it will be nursing deficiencies
in the survey report; if a pharmacist, you’ll get pharmacy deficiencies; a lawyer, patient rights,
etc.” The complex set of rules, in fact, gave more discretion to the inspector. Because of having
complex and a large number of standards to check, idiosyncratic factors associated with the
narrow expertise of the inspector caused particular standards to be checked in some homes,
but neglected in others. Thus, the over-regulation caused endemic unreliability and defeated
the whole purpose of having detailed regulations. The timelines associated with closing a clean
company with no litigation/ dispute, which is described in Table 3 above, represent an example
of this problem.
6.11 Similarly, Figures 3 and 4 provide large sample evidence across Indian states supporting
the thesis that discretion increases with the amount of regulation. The evidence is adapted from
Raj et al. (2018) who use the World Bank’s Enterprise level surveys for India to undertake their
analysis. In figure 3, the variation among firms in the actual days taken to provide a construction
permit as a function of the number of de jure days taken to provide a construction permit, as per
the regulatory rules for the same in the state are plotted. We see that an increase in the number
of regulations, which is proxied by the increase in the de jure days to get the permit, correlates
positively with the variation in the actual number of days taken. As variation against the de jure
norm proxies the discretion exercised across the various applications from the firms, this shows
that more the number of regulations, higher the discretion in implementing them in the case
of award of construction permits. Figure 4 shows the same using the days taken to provide an
operating license for a facility. Collectively, both these figures provide evidence consistent with
the thesis that discretion increases with the number of regulations.