Kling’s mistake should be evident immediately to careful readers of this blog. Here’s his explanation of PBR:
With PBR, legislation would lay out broad but well-defined principles that businesses are expected to follow. Administrative agencies would audit businesses to identify strengths and weaknesses in their systems for applying those principles, and they would punish weaknesses by imposing fines. Finally, the Department of Justice would prosecute corporate leaders who flagrantly violate principles or who are negligent in ensuring compliance with those principles.
Where would this "legislation" he speaks of come from?
If you answer from the "administrative agencies" that would provide the judicial and executive functions as well, consider yourself educated on the workings of modern government.
(The Department of Justice is a canard in this argument, if regulated entities violate regulations, regulators have no need of assistance from DOJ to enforce their own regulations).
In a sense, all modern laws are principles-based, in that agencies now act as de facto judiciary, executive and legislator. When you write laws, interpret those laws, and enforce those laws, your whims are basically the laws. Specific conditions that are written into "laws" (i.e. regulations) are actually the only things that bind regulators.
Kling is attempting to solve an important problem (at least I think he is based on other things he’s written) – the problem of regulatory arbitrage. In modern government, regulatory arbitrage arises only when regulators are sympathetic to those they regulate. In other words, there are situations in which regulators want to be arbitraged. However, giving more flexibility to regulators via PBR isn’t going to solve the problem, it’s going to make it worse.