Do deficiencies in regulatory rules and regulatory implementation induce different behaviour? A comparative analysis of the efficiency in the United Kingdom and Norwegian continental shelves in imperfect regulatory environments

Abstract

In principal–agent relationship, the asymmetry of information, where it exists, forces the principal to set regulatory rules and apply implementation instruments (such as scrutiny apparatus and/or incentive compatible schemes) to ensure predetermined favourable outcomes. The problem arises when one of the two arms of regulatory rules and regulatory implementation suffers from deficiency. In the context of the North Sea petroleum industry, this study examines whether an agent's behaviour, when facing deficient regulatory rules, is different from when facing deficient regulatory implementation. This issue is a part of the ongoing debate in the field of regulation: whether emphasis should be placed on designing an optimal regulatory system or on the efficient implementation of the regulatory framework. We show that oil companies active in the United Kingdom continental shelf behaved in the same manner, when deficiency existed in the regulatory rules, as oil companies active in the Norwegian continental shelf, when witnessing deficiency in regulatory implementation.