This blog post will attempt to place the Regulatory Compliance Theory of Diminishing Returns into everyday terms addressing its potential implications beyond the human services and suggest how it can be applied anywhere in which standards/regulations/rules are utilized in the public policy domain.

The Regulatory Compliance Theory of Diminishing Returns was first proposed in the 1970’s when several studies were conducted comparing regulatory compliance with program quality in early care and education programs. These studies were expanded to include other child residential programs and similar results occurred in which a plateau or diminishing return in the levels of program quality & child outcomes were observed as regulatory compliance increased from a substantial level to a full (100%) level. Over the past 50 years, this same result was found when these analyses were performed. See the following article published in the Journal of Regulatory Science for additional details: (https://journals.tdl.org/regsci/index.php/regsci/article/view/108).

Why is this important from a public policy perspective? It appears from these results that public policies which demand full (100%) regulatory compliance may not be in the best interest of providers nor clients being served. The Regulatory Compliance Theory of Diminishing Returns has implications for all of regulatory science and would apply to any field in which a closed system of standards/rules/regulations are utilized. Therefore, it is being suggested that the theory be applied to other economic systems involving banking, trade, markets, supply/demand chains, etc… that are heavily regulated. When a more open system of standards/rules/regulations are utilized, the diminishing returns effect is less evident because of the introduction of program quality elements into the equation (see RIKI Technical Research Notes on the balance of regulatory compliance and quality as well as regulatory compliance modeling which clearly demonstrates the differences between open and closed systems).

So what would this look like from a program monitoring perspective? Rather than requiring companies, organizations, or agencies to be in full regulatory compliance, it would focus more on substantial compliance with all standards/rules/regulations and full compliance with key indicator standards/rules/regulations that statistically predict overall regulatory full compliance. This would be a more effective and efficient allocation of monitoring resources that would lead to increased outcomes for clients and better management for providers.

The ultimate goal is to obtain the proper balance of regulatory oversight which is not too stringent nor too lax but rather one that focuses on the right (statistical predictors) standards/rules/regulations producing the greatest impact on clients and providers of service.