Administrative Law 3.0

—Georgios Dimitropoulos, Max Planck Institute Luxembourg

On September 15, 2015, President Obama issued an Executive Order that is expected to have a significant influence on US administrative law. The Executive Order — Using Behavioral Science Insights to Better Serve the American People is moreover an important milestone in the 200-year plus history of administrative law that went rather unnoticed.

The first change that the EO purports to bring about is in the organization of US administrative agencies. It encourages them to recruit behavioral scientists in the Federal Government, and to strengthen their relationships with the behavioral science research community (see Section 1(iii) and (iv)). This can be expected to result in major changes in the personnel who staff the US Government. It is bad news for the lawyers, who have traditionally had a strong presence in the administrative apparatus of many countries, and very good news for other social scientists. Empirical social scientists might now find more positions in US public administration. Additionally, the EO officially establishes the White House Behavioral & Social Sciences Team (SBST) that had already started operating a couple of months ago. As stated on its homepage, the “Social & Behavioral Sciences Team includes leading behavioral scientists and innovators from across the country.”

A second change introduced by the EO concerns regulatory instruments of US Government. Behavioral regulation and nudging now become mainstream regulatory instruments. Behavioral regulation is a sub-discipline of Behavioral Law & Economics that deals with the design of government interventions based on the insights of behavioral economics and cognitive psychology. “Nudges,” according to Thaler & Sunstein, are a light form of regulatory control that purport to maintain people’s freedom of choice. As such, they are opposed, in principle, to command-and-control regulation. Nudges form part of a broader category of behavioral interventions that have the purpose of “debiasing” individuals by aligning their choices more closely with their true preferences.

Several categories of nudges have been developed in recent years. Altering legal default rules – see Section(b)(iii) of the EO, like automatic enrollment in education, health and savings programs, is one of the most important debiasing instruments that can be found in the Behavioral Law & Economics toolkit.  Under a default rule, people are automatically placed in a certain situation unless they expressly opt out. For different reasons including laziness, fear, and distraction most people go with the option that requires the least effort, or the least resistance. Thus, we should expect that most people will end up with the default option independent of whether it is good for them or not. Based on the observed biases of people, the regulator will thus introduce the appropriate regulatory response. Further nudges include: arranging a specific “choice architecture” – see Section(b)(iv) of the order – that increases ease and convenience by, for example making low-cost options or healthy foods visible; simplification – see Section (b)(i), meaning the reduction of complexity of the laws; the supply of more or better information –  Section(b)(ii); warnings, graphic or otherwise such as positive messages; uses of social norms, emphasizing what most people do–especially people of the same community; and other strategies of data-driven personalization like reminders by e-mail or text message, for example on overdue bills.

This is not the first time that nudges have been used in an official document of the US Government. Executive Order 13,563 of January 18, 2011 first introduced nudges as a general administrative law instrument of US administrative law.  President Obama issued EO 13,563 to improve regulation and regulatory review when Cass Sunstein was the Head of the Office of Information and Regulatory Affairs (OIRA). EO 13,563 took the same approach as previous EOs developed by the Clinton and Bush Administrations on regulatory review, while adding some features that are very important for behavioral public policy.

EO 13,563 has a very interesting “geology” that is suggestive of the changing structure of administrative law inside and outside the United States. Section (1)(b) discusses the classic stratum of command-and-control regulation – or “direct regulation” as the EO calls it. This is the classic regulatory tool of administrative law from the 19th century; what one might call Administrative Law 1.0. The same Section includes a reference to the great advance of the 20th century – the influence of economics on law, through market-based regulation and the use of incentives. This Administrative Law 2.0 remains an extremely important set of regulatory tools.

Section 4 of EO 13,563 introduces behavioral regulation and nudging under the heading “Flexible Approaches:” “Where relevant, feasible, and consistent with regulatory objectives, and to the extent permitted by law, each agency shall identify and consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice for the public. These approaches include warnings, appropriate default rules, and disclosure requirements as well as provision of information to the public in a form that is clear and intelligible.” These nudges have been identified as the most powerful by Thaler & Sunstein and other behavioral economists.

Following this geology, the September 15 Order makes behavioral regulation and nudges a mainstream instrument and adds another layer to contemporary administrative law: Administrative Law 3.0.

Administrative Law 3.0 is not an isolated development of US administrative law. It is rather part of a larger current trend in many legal orders. Behavioral economics and cognitive psychology are beginning to have a great influence on the design of government institutions and administrative interventions in a number of countries around the world. The common law world was the first to respond to these shifts. The UK is the leader in the implementation of behavioral insights in government design and public policy, and is also being followed – apart from the US – by Australia, New Zealand and Singapore, among others. In terms of institutional design, the current trend in the common law world is to introduce so-called “central units,” namely units that operate at the central government level and are specialized in introducing behavioral interventions. The UK Behavioural Insights Team (BIT) was the first ever nudge unit to be established, and as a first-mover, has contributed to the expansion of behavioral public policy around the globe by helping other governments establish their own teams. Additionally, UK BIT has formed its own global administrative network with offices in London, Sydney and New York. This global network of nudge units is a unique case of globally distributed administration organised in a bottom-up way.

Scandinavian countries are following a similar, yet distinct, path. In Denmark, for example, the rather decentralized Danish Nudging Network (DNN) is comprised of the public sector – including ministries and municipalities – civil society, and business. In Scandinavia, the actors of the bottom-up networks deal predominantly with the introduction of nudges on environmental issues, such as the green footprint in Copenhagen.

Continental administrative law is now also following the trend, although more hesitantly. France, for example, is taking a middle path by introducing some initiatives at the ministerial level and pairing them with initiatives in the private sector. The Secrétariat Général pour la Modernisation de l’Action Publique (French Secretariat-General for Government Modernisation (SGMAP)) and the BVA Nudge Unit, a research center of the private company BVA, have succeeded in encouraging citizens to file tax returns online by using an approach informed by behavioral economics and other social sciences. The website of the French tax administration has been redesigned taking into account “life events” of users based on input received in workshops with users and employees. Moreover, the tax returns process has been redesigned to make the online tax return process easier and to present the benefits of online filing. The main nudge was to switch the default choice for filing from paper to digital. This methodology applied in 2014 generated a 10% increase in online tax returns, doubling the adoption growth rate in comparison to 2013, and saved 400 tons of paper.

Nudging affects all spheres of life. Administrative Law 3.0 possesses instruments with the power of intervention in areas that were absent from previous layers of administrative law, including everyday-life habits, fitness, saving money, protecting the environment, and the pursuit of happiness. For this reason, it has been accused of giving government too much power to intervene in society. Future scholarship in comparative public law will need to help governments nudge for good and while maintaining boundaries between state and society.

Suggested citation: Georgios Dimitropoulos, Administrative Law 3.0, Int’l J. Const. L. Blog, Dec. 18, 2015, at: http://www.iconnectblog.com/2015/12/administrative-law-3-0/