Operating Controls

Operating controls prohibit certain actions while compelling others. Operating controls that achieve 100 percent compliance create a situation similar to that reached under a prohibitive tax policy. In each instance, undesirable activity is completely eliminated, and no tax revenues are collected. When operating controls result in less than full compliance, operating control regulation becomes like tax policy because fines and levies increase the costs to violators.

The effectiveness of operating control regulation can be limited by vague or imprecise statutory standards. If sanctions against violators are poorly defined or lenient, incentives for compliance can be weak. Beyond the difficulties created by poorly defined regulations and sanctions, problems can arise when conflicting operating controls are imposed. For example, mandatory safety standards and pollution controls have increased automobile costs by several hundred dollars per unit. Other indirect costs are also incurred. Auto safety and pollution standards have the effect of reducing fuel efficiency and thus reduce U.S. energy independence.

The clearest difference between operating control regulation and regulation via tax or subsidy policies is the reliance on nonmonetary incentives for compliance. There are no easy alternatives to operating control regulation when social costs are prohibitive (e.g., nuclear disaster, groundwater contamination, and so on). Unfortunately, many firms direct their efforts toward being exempted from operating controls rather than toward reducing the negative externalities of concern to society.

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