Regulation under Uncertainty: The Co-evolution of Industry and Regulation in the Norwegian Offshore Gas and Oil Industry

December 2014
Charles Sabel, Gary Herrigel, Peer Hull Kristensen
Traditionally the problem of regulation has been an information asymmetry: Firms know more about the risks they generate and the costs of mitigating them than do regulators, and have incentives to make strategic use of their superior information to frustrate costly supervision. The task of the regulator is to elicit from firms the information necessary to establish public regarding but economically feasible standards and rules, but not at the price of “capture” or ceding control of regulation to its addressee.  
Under uncertainty, however, neither the regulator nor the regulated firms know what needs to be done. 
In this essay we look closely at developments in the Norwegian offshore oil and gas industry and its regulator, the Petroleum Safety Authority (PSA) to better understand the co-evolution of vertically disintegrated, industry and new forms of regulation based on incident reporting.