Stephen D. Sugarman University of California, Berkeley

1. Performance-Based Regulation: Enterprise Responsibility for Reducing Death, Injury, and Disease Caused by Consumer Products Stephen D. Sugarman University of California, Berkeley

2. Canada - Deaths each year

3. Tobacco products 37,000

4. Alcohol products 8,000

5. Motor Vehicles 3,000

6. Junk food/obesity (est.) 8,000

7. Annual Canadian Deaths • Total annual deaths 240,000 • from: • Tobacco products 37,000 • Alcohol products 8,000 • Motor Vehicles 3,000 • Junk food/obesity (est.) 8,000 • These four “products” are responsible for approximately 25% of all deaths

8. U.S. Death Data • Total annual deaths 2,500,000 • from • Tobacco 400,000 • Alcohol 80,000 • Junk food 100,000 • Motor vehicles 40,000 - Again, these four “products” are responsible for about 25% of deaths.

9. Canada, AU and US Death Data • Population adjusted (to AU #s) • AU US CANADA • Tobacco 19,000 20,000 18,500 • Alcohol 6,000 4,000 4,000 • Junk food 5,000 5,000 4,000 • Motor Veh 1,800 2,100 1,500 - Basically similar results

10. Framing by Industry • We wash our hands of these matters – they are not our problem

11. “Collateral Damage”

12. According to industry, it is a: User problem (people smoke, drink and eat too much, drive badly) and User abuse (second-hand smoke, drunk drivers)

17. Re-Framing • 1. Enterprises need to take responsibility for the negative social consequences – the large scale public health disaster – caused by just these few consumer products. • 2. They profit from the sale of these products; they know these harms will occur; they have moral obligations. • 3. They are well positioned to reduce harm.

18. My Proposed Strategy: Enterprises are given responsibility for reducing the negative consequences of their products through Performance-based Regulation

19. What is PBR? Firms are given a harm reduction target

20. Public authorities measure whether target has been achievedIf so, firms are praised

21. If not, firms must pay for the social costs beyond the target

22. Performance-based Regulation • What sort of targets? • 50% reduction in deaths by the end of 7 years (with interim goals) • 50% reduction in consumption/customers • What sort of payment if targets are not met? • Call it a fee, fine, penalty, or tax • Substantial in amount to provide needed incentive • ALSO: If firms do better than their targets, provide them with a bonus (society benefits, Health Canada benefits)

23. Performance-based Regulation and Tobacco Products • Although it is long term mortality and morbidity we care most about… • A better target in the shorter run is customers/consumption • E.g., 50% reduced smoking prevalence rate in 7 years (say from 20% to 10%) • Possible “cap and trade” feature

24. Performance-based Regulation and Motor Vehicles/Drunk Driving • Say 50% reduction in highway fatalities in 7 years. • And/or 50% reduction in drunk driving deaths in 7 years. • For vehicles generally, allocate reduction goal to each auto maker based on its models involved in highway deaths • For drunk driving, allocate reduction to alcohol companies by market share

25. Performance-based Regulation and Junk Food • Focus on childhood obesity – set target at 50% reduction in 7 years • Identify junk food – say more than 30% fat or 40% sugar • Determine large firm market share of junk calories (i.e., above cutoff) • Assign responsibility by share

26. Performance-based Regulation Matching/Measuring • Tobacco – sales by maker • Vehicles – death by model • Junk food – identify schools with high childhood obesity levels, allocate schools to firms based on market share of responsibility • Drunk driving – allocate portion of the country based on market share

27. Why Performance-based Regulation • Firms whose products cause problem are held responsible for sharply reducing the problem • Firms are given incentives (penalty threat; bonuses) to serve the public good • Firms can be nimble, experiment, engage in innovation, competition to best figure out how to solve their problem • Firms not told what to do; can claim credit

29. Alternative Strategies to Performance-based Regulation:Command and ControlRegulation

30. Ban Sweetened Beverages from Schools

31. Require Air bags and Seat belts in Cars

32. Require warnings on tobacco products

33. Even stronger warnings

34. Require disclosure of nutrition information on food products

35. Require menu boards to disclose calories

36. Bars may not serve alcohol to those who plan to drive

37. Alternative Strategies to Performance-based Regulation:Command and Control • E.g., no Cokes in schools, air bags in cars, no cigarette sales to minors, no serving alcohol to those who will drink & drive • Input based (unlike PBR) • Firms told what to do (unlike PBR) • BUT regulators often don’t know what to demand, have not achieved enough, lock in old technology, capture, bureaucracy

38. Alternatives: Taxes and Subsidies • E.g. tobacco/alcohol tax; subsidize fresh veggies, tax corn syrup; tax credit for side air bags • Depends on price change causing increased or decreased demand • No assured outcome gains; indirect • Firms can undercut by absorbing • No reward to firm for better outcomes

39. Plus taxes are unpopular

40. Performance-based Regulation “Tax” v. Traditional Tax • PBR “tax” is only on the target shortfall – e.g. excess drunk driving deaths or excess smokers • PBR “tax” is on outcomes and taxed firms can eliminate tax by achieving target • PBR “tax” is large • Traditional tax is not on outcomes, rather it is on all sales, and usually modest in size

41. Alternatives: • E.g. public health appointees to product development committee, to marketing committee, to board of directors • This is a process solution that depends on subjecting firms to voice and transparency • No assured outcomes; capture/silencing concerns

42. Alternatives: Litigation

43. Alternatives: Litigation • Sue product makers in tort for damages • Common law claims would be based on fault – as such they are “input” oriented, what exactly should firm have done differently • Judges (in the US juries) instead of agencies or legislatures decide what is reasonable • No assured outcomes, costly, inexpert

44. Alternatives: Strict Liability Litigation • Imagine true strict liability in tort • This is outcome oriented like PBR • Instead of PBR penalties paid to government, damages paid to victims/lawyers • But costs imposed for all victims, not just those beyond target (as though the target were 0) • It would create strong incentives for firms to figure out how to improve results • Legally unlikely?

45. Performance-based Regulation Concerns • Better outcomes but also other worse outcomes – less obesity, more anorexia (agency veto right) • Inaccurate measuring – keep obese kids home on weigh-in day (auditing) • Can regulated firms really help solve the problem? (contracting out) • What is an appropriate target? (50% in 7 years?) • What is the appropriate penalty? (social cost, but what is it?) • Competing, conflicting policies at the same time • Temptation to order solutions (consult v. impose)

46. Still • Performance-based regulation is how we are likely to attack “climate change” • Performance-based approaches are being used for schools and for other public contracts • Command and control plus traditional taxes just don’t seem to get us what we want (tobacco taxes and alcohol taxes help but not enough) • Public health community needs to open itself up to considering new ideas • Ideas that use private firms to promote public good

48. Contact • Stephen D. Sugarman • School of Law • University of California, Berkeley • sugarman@law.berkeley.edu • www.law.berkeley.edu/faculty/sugarmans