Watchers of this page might note that I take an interest in the theory of regulation. I have brewing inside me a major work on the competition policy in telecommunications, but I have written on the approach to regulation recently.
The release of the Cooper report on superannuation provides an interesting case of the trends in regulation. The report focusses on questions of why competition is not delivering all its expected "benefits" in superannuation. Chapter 4 of Part 1 of the report addresses "The Super Fund Member" and commences;
A key tenet of the 1997 Wallis Report was that super fund members should be treated as rational and informed investors, with disclosure and market conduct controls being the main regulatory instruments with which to oversee the industry.
Later it states;
These realisations about financial literacy and engagement have led the Panel to propose the new ‘choice architecture’ framework for the Australian superannuation system that is detailed in this report. This framework is an adaptation of contemporary thinking in the field of behavioural economics. This field is currently being applied overseas to a variety of complex public policy challenges involving consumers ‐ for example, in the fields of health care, child nutrition, road safety and sustainability, as well as retirement savings.
The key tenet of this approach is the concept of ‘libertarian paternalism’ – the idea that the
outcomes experienced by inert or disengaged consumers should have inbuilt settings that most closely suit those consumers’ objective needs, as assessed by the expert providers of the product or service in question.
It could be noted that exactly the same tenet the report found in Wallis can be found in every other policy review from the mid 1980s on. While the Productivity Commission conducted a worthwhile seminar on behavioural economics and public policy, in its report on the Australian consumer policy framework the PC wrote;
Accordingly, the findings from behavioural economics, even if accepted without demur, are unlikely to require an overhaul or major redirection in consumer policy.
Specifically the Commission considered the option of specifying "default" options but somehow concluded there was an error risk in setting this incorrectly and assuming that the policy would create additional costs for the informed consumer. The PC wrote;
Many of these considerations evidently apply to all regulation making, indicating that designing policy responses to the issues raised by behavioural economics is not overly different from responding to more traditional problems such as externalities and the abuse of market power.
Hopefully the Cooper review is the start of a more informed policy response.
Meanwhile of course the industry is reported to be concerned that these policy initiative will actually drive up costs. It really looks like the usual concern from industry that a policy proposal designed to save consumers money is perceived as being to deny industry profits. The reality is that firms should share the interests of their consumers in having efficient and well working markets so they really can compete on the basis of their competencies not their inherited attributes.
Note: If all of the above on default options and behavioural economics is hard to follow I suggest you read Nudge by Thaler and Sunstein.