INDECOPI, the agency of competition in Peru, has created a specialized unit called “Effective Compliance Team”, which incorporates behavioral insights (framing effect) in their communication with other government institutions. Through this innovation, the government has a cost-effective tool to incentivize compliance, ensure the understanding of other institutions about bureaucratic barriers to competition, and benefit economic agents in the market and overall, the citizens of Peru.
To ensure regulatory compliance in government institutions across the country, national agencies must explore the use of new cost-effective tools. This requires exploring new ways to approach problems faced by government authorities that need to guarantee law enforcement.
In this innovation, we use insights from behavioral economics to ensure the understanding of incentives for eliminating regulations that affect competition and the sanctions for not doing it. We built a specialized team that prioritizes persuasion before sanction and uses every form of communication to effectively send messages related to the benefits of complying and the costs of not doing it, considering the framing effect.
In this case, regulatory compliance occurs when government institutions follow a ruling issued by INDECOPI and definitively eliminate a regulation that affects competition. It is important to mention that INDECOPI, the agency of competition in Peru, rules after a demand by a company or citizen, which has been affected by the regulatory barrier. So, the no elimination of a bureaucratic barrier affects directly economic agents in the market.
According to the data, it was evidenced that government institutions eliminate their regulatory barriers on average in more than 200 working days after the ruling of INDECOPI. In this context, the “Effective Compliance Team”, hereafter CEM Team, is created.
This team had a precedent, and it was the “Effective Compliance Program”, which was recognized as one of the best practices related to Law Enforcement in Peru. This team consider the lessons from the program related to effective communication and the specialization of civil servants in persuasion before sanction. Thus, this team has three main objectives:
- Act as a delivery unit for eliminating barriers to competition by prioritizing persuasion before sanctioning other government institutions.
- Communicate the benefits for government institutions if they eliminate regulatory barriers to competition considering the framing effect.
- Increase the use of behavioral tools to solve problems related to conduct cost-effectively.
To tackle the problem, we identified -based on the results of focus groups and online forms made to officials- that non-compliance responds to a lack of knowledge. In this way, we use the framing effect to effectively communicate the scheme of sanctions and incentives of the system of bureaucratic barriers, as well as the steps to be taken to definitely eliminate the regulatory barriers.
According to the behavioral economics literature, decisions can be influenced by the way information is presented due to the cognitive bias "framing effect". In this sense, we propose as an innovative solution the incorporation of this concept in the design of the documents used for communication with the denounced entities. The objective of using behavioral economics tools in communication with denounced public entities is to facilitate the understanding the system of bureaucratic barriers and emphasize the key messages regarding sanctions and incentives.
Taking this into account, the documents that contain a new design are the consent resolution and the information request for compliance. The consent resolution uses a positive framework effect, to highlight the incentives for eliminating bureaucratic barriers, as well as numbering the steps to follow for non-application and providing a contact for personalized assistance. On the other hand, the information request for compliance uses a negative framing effect, incorporating dissuasive messages related to the negative consequences of not eliminating bureaucratic barriers, and as well as in the consent resolution, mentions the steps to follow for non-application and contact for assistance are indicated.
Once the project has begun, the results show that the average adaptation time for those denounced public entities that received the new document design is 87 working days, while for those denounced public entities that received documents with the previous design, the average time is more than 200 working days. Likewise, 79 bureaucratic barriers have been effectively eliminated. It should be noted that for the impact evaluation, we use propensity score matching.
What Makes Your Project Innovative?
This project is innovative in law enforcement because:
- It implements a delivery unit specialized in law enforcement by persuasion before sanctioning. This makes it possible to achieve the elimination of regulatory barriers and benefit the market.
- It uses behavioral economics concepts to achieve compliance of institutions that have created barriers to competition. The project uses the framework effect to communicate with other institutions. It also uses data science to monitor the project and ensure proper implementation.
- It facilitates the general understanding of the steps to be taken to achieve compliance and provides support through a personalized assistance contact. In this sense, the project reduces the biases identified in the public officials of the denounced entities.
What is the current status of your innovation?
The project ended in November 2022. To measure the impact, we use the methodology of Propensity Score Matching. We will continue to reinforce the messages about the actions that must be taken to adapt their behavior through training for public officials and at the same time, we are diffusing the lessons of the program that preceded the "Effective Compliance Team".
Collaborations & Partnerships
Three allied groups participated:
- Innovation Team, in charge of making the new design of documents based on the concepts of behavioral economics and, elaborating a control board to follow up the project.
- Resolutive Team, in charge of sending the new design of the consent resolution to all denounced public entities where the inapplication of barriers is needed.
- CEM Team, in charge of the communication with institutions that must eliminate their regulatory barriers to competition.
Users, Stakeholders & Beneficiaries
The users of the project are plaintiffs and, potentially, the general public that is affected by the imposition of bureaucratic barriers declared illegal and/or unreasonable. In this way, people that demand government institutions for regulatory barriers are benefited from the delivery unit. On the other hand, the interest group is those public officials of entities at the regional level, who do not have a complete understanding of the system of bureaucratic barriers.
Results, Outcomes & Impacts
According to the results, it is evident that the average adaptation time for those denounced public entities that received the new document design is 87 working days, while for those reported entities that received documents with the previous design, the average time is over 200 working days. Therefore, in terms of working days, there has been a reduction of 72%. Likewise, 79 bureaucratic barriers have been effectively eliminated, of which 30 had general effects. It should be noted that for the impact evaluation, we use propensity score matching.
Challenges and Failures
- Ensure that the new design of the consent resolution is viewed by the official of the area involved in bureaucratic barrier removal. Normally, this document is only notified to the public prosecutor. For this reason, it was deemed pertinent to design a notification letter addressed to the area involved in the management of the inapplication of bureaucratic barriers in question.
- Lack of personnel to conclude effective compliance investigations. It is necessary to conclude the investigation through a report, in order to identify whether the behavior of the denounced institution has been adapted; and therefore, to know if the new document design has been able to persuade the official to effectively not apply the bureaucratic barriers.
Conditions for Success
One of the main conditions is the coordination and active involvement of the participants in the development and implementation of the project.
Also, the use of data science to perform the pertinent follow-up, which shows in real-time the progress of all the cases. This is possible due to the recollection evidence in matrices and their visualization in dashboards for the participants involved.
This innovation is highly replicable, given that, within the context o law enforcement, there are many authorithies that issue rulings that need compliance.
According to the methodology proposed for this innovation, the findings should be disseminated to collaborators and invite replication in other areas. This seeks to institutionalize the practice and motivate other public institutions in the use of behavioral solutions so that they can solve the problems identified within the framework of their competencies from an innovative view.
There are three main lessons:
- Ensuring that the decision makes is being reached by the delivery unit: Communication with other institutions can be difficult if we do not have a proper system for public communication. In this context, it is important for enforcement to clearly identify and aim at the person that is in charge of making compliance possible.
- Personalized training for civil servants: Personalized training was of great help to achieve that the entities adapt their conduct by effectively non-applying the bureaucratic barriers. In these trainings, we ensure that members of other institutions understand the benefits and sanctions related to barriers in competition.
- Dissemination of complaints of non-compliance: The complainants are unaware that they can submit a communication reporting the non-compliance of a ruling by INDECOPI, which is completely free in case the institution continues to impose the bureaucratic barrier declared illegal and/or unreasonable.
To monitor the implementation and correct use of the new document designs, a data dashboard was created to show in real-time the cases treated and potential cases to be treated. This tool uses information recorded and systematized in monitoring matrices used by the CEM Team.
- Diffusing Lessons - using what was learnt to inform other projects and understanding how the innovation can be applied in other ways
7 February 2023