Design effectiveness of intermediated regulatory regimes: the case of AML regimes

This paper addresses a critical gap in regulatory effectiveness research by developing a novel index for measuring the effectiveness of intermediated regulatory regimes' design. While existing literature on effectiveness is predominantly outcome oriented, the foundational role of initial design in determining a regime's potential for effectiveness often gets overlooked. Understanding design effectiveness is crucial for establishing valid causal relationships between regulatory regimes and outcomes—without first assessing design effectiveness, researchers and policymakers risk attributing policy failures to implementation issues or to inherent flaws in the regulatory tool itself when fixable design problems may be responsible. This misdiagnosis often leads to abandoning potentially valuable regulatory tools rather than addressing specific design weaknesses. Since design is causally prior to both outcomes and impacts, evaluating it provides a methodologically sound first step for assessing overall effectiveness and identifying specific areas for improvement in regulatory frameworks. The paper introduces and utilizes the Design Effectiveness Index—a comprehensive measurement tool that evaluates design effectiveness through three critical dimensions: regulatory scope, implementation framework, and compliance framework. This standardized metric enables systematic comparison of regulatory design effectiveness across time and jurisdictions, providing researchers and policymakers with an evidence-based framework for assessing regime design, identifying design flaws and explain their causes. Applying this index to Israel's AML regime at two distinct time points (2002 and 2024), the paper investigates a puzzling phenomenon: why does the same regulatory regime exhibit significant variations in design effectiveness over time despite addressing the same policy problem with unchanged goals? Through process tracing analysis, the study examines how three competing theoretical frameworks—institutional, public choice, and ideational—explain these temporal variations in design effectiveness within a single regime.