Hybrid Regulation

The fourth and final heading that one should explore is that of hybrid regulation. This term can be used to describe a coordination structure (Schup- pert 2007) that consists of both private and state regulatory elements and can therefore be located between the extremes of pure state sanction-based regulatory elements (public ordering) and the completion of a transaction entirely on the basis of private agreement and self-implementation.

In a recent publication, Klaus Heine (2008, 3) examines this mode of governance of hybrid regulation in greater detail from an economic perspective. He distinguishes four generic modes of regulation that he derives from two components: a substantive component, which specifies the cases for which and ways in which the regulation should take effect, and an implementation component, which ensures compliance with the regulation through the recourse of a sanctioning mechanism. If the two components are privately determined Heine calls this “private ordering,” whereas if the two components are determined by the state, he calls this “public ordering.” Based on this,

“hybrid regulation” is involved if one of the two components arises through “private ordering” and the other through “public ordering.” Thus, four generic modes of regulation arise for problem resolution, which can entail specific advantages and disadvantages, depending on the situated context.

Heine’s examples of prototypes of hybrid regulation are hardly surprising: first, the German Corporate Governance Code and, second, the International Accounting Standards, which are formulated by the private-law-based International Accounting Standards Board and then transformed into European Community Law through a committee procedure (Kirchner and Schmidt 2006). Heine (2008, 12) identifies the first important advantage guaranteed by hybrid regulation as the fact that specific regulatory knowledge that is required “is availed of?’ He assumes that an initial possible advantage of private regulation exists in its relation to the quality of the regulation. High-quality regulation exists from the perspective of regulation seekers if the regulation is tailored to their needs or aims to achieve a fair balancing of interests between the parties affected by the regulation. In order to illustrate private regulation, Heine gives the example of the International Accounting Standards Board. As it concentrates entirely on the design of an issue in need of regulation, the regulator can accumulate substantial expertise in this area. Heine points out that the learning processes that lead to the production of the high-quality regulation design are not as broadly based as those involved in the case of a state regulator, which must regulate a large number of different issues. But they are developed in depth in relation to a single regulatory object.

A second advantage of private regulations from a reputation-seeker’s point of view is their greater credibility and higher reputation as compared with state regulations (Heine 2008, 13). Credibility, in his understanding, means that the addressee of the regulation can rely on the fact that the future application of a regulation will take place as expected by them at the time of the selection of the regulation. Credibility in this sense, however, does not necessarily refer to the stability of the regulation, as it can also consist of the belief that a regulation design will be developed on a continuous basis and

table 3.1 Generic Modes of Regulation





state regulation

hybrid regulation


hybrid regulation

private regulation

adapted to changing situations. In Heine’s opinion, if a regulation is repeatedly credible in this way, the regulation gains reputation. Regulation seekers prefer approved regulations because conclusions can be drawn regarding future regulatory practices from the application of the regulation observed in the past. As a result, the costs and benefits of a regulation are identifiable on a comparatively reliable basis.

Interim Conclusions

All four headings outline a consistent finding: the area of “rule making” is increasingly less concerned with exclusively private or state lawmaking and there is greater dovetailing and overlapping of the public, private, and tertiary sectors (Schuppert 2000). As a result, the interaction between state and nonstate actors in the production of rules needs to be examined more closely, and questions need to be asked about the contextual conditions, which, first, give rise to the careers of such hybrid forms of regulation and, second, determine the shares of the different actors in this process of functional division of labor.

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