Testing Compliance-Based Inspection Protocols (CEBRA Project 1404C)

This report forms part of the evidence base to support the Commonwealth Government Department of Agriculture and Water Resources (the department) in reforming the design and implementation of Australia’s regulatory framework for biosecurity assurance. It builds on the findings of CEBRA Project 1304C: Incentives for Importer Choices (Rossiter et al., 2016), which developed proposals for regulatory frameworks that could provide appropriate incentives for participants to reduce the likelihood of biosecurity risk material entering Australia. CEBRA Project 1404C tests the appropriateness of candidate mechanisms and scopes alternative approaches to the way they are implemented using a series of economic experiments conducted with university students in a computer laboratory.
Much of the department’s focus on resource allocation in the context of biosecurity risk management, including the Risk-Return Resource Allocation model, does not formally incorporate or model the likely response of stakeholders (e.g. importers and suppliers) to changes in biosecurity control strategies employed by the department. Recent investigations in Rossiter et al. (2016) and Rossiter and Hester (2017), however, highlight that departmental assessments of biosecurity control strategies need to take these behavioural responses into account. This is because, under some circumstances, the incentive structures inherent in certain processes and strategies could encourage stakeholders to behave very differently under new protocols, relative to the established ones.
Imposing regulatory changes without carefully considering stakeholder responses could introduce inappropriate incentive structures for compliance and deliver unintended policy consequences, potentially undermining the maintenance of Australia’s high biosecurity status. In this context, the experiments conducted in this project are novel because their focus is on the behaviour of stakeholders, namely importers, in response to different protocols applied by a biosecurity regulator. In turn, this provides a complementary, but distinct, approach to guide how trade-offs associated with meeting the department’s biosecurity policy objectives could be managed.
This report documents the design and results from the experiments, where experimental subjects (students) assumed the role of importers and were required to make choices about their supplier over time. The experiments sought to mimic the interactions between the department and importers relating to biosecurity inspections. Rather than testing all aspects of importer decision-making under different candidate rules, the experiments examined particular aspects of the rules likely to be more difficult to assess in the field. The experimental treatments tested were constructed to inform the department about implementing compliance-based protocols and identify how current practices may be fine-tuned to better support departmental objectives.
The project investigated how the following aspects affect an importer’s choice of supplier:
i. different inspection rules from the continuous sampling plan (CSP) family;
ii. the level of information provided to stakeholders about the inspection rule;
iii. feedback on an importer’s performance under the inspection rule;
iv. costs of being inspected and of failing inspection;
v. allowing rule-choice from a limited set of options; and
vi. an importer’s understanding of the rule.