Competitive Third-Party Regulation: How Private Certification Can Overcome Constraints that Frustrate Government Regulation

Abstract

Private certification as a means of risk regulation and quality assurance offers advantages over government regulation, including superior technical expertise, better inspection and monitoring of regulated entities, increased responsiveness to consumers, and greater efficiency. This article examines two examples of reliable private certification in regulatory arenas — fire safety and kosher food — where political opposition and resource constraints have frustrated government regulatory efforts. The article identifies the conditions that promote reliable private certification and analyzes its comparative institutional advantages over government regulation. Critics of private certification question its legitimacy, asserting that private regulation is less participatory, transparent, and accountable than government regulation. The article responds to these claims, arguing that the two examples of private certification presented here compare favorably with government regulation based on these criteria of legitimacy.

Keywords: regulation, private standards, certification, governance

JEL Classification: A12, D73, H11, I118, K23, L15, L51