Voluntary hotel regulation as a political compromise

• Theory of voluntary regulation is applied to case of hotel classification in Israel.
• The theory overlooks the impact of various factors on the choice of such regulation.
• Relations between the actors involved affect the relative impact of each factor.
• Hotelier’s objection and power position dictated the choice of voluntary regulation.
• State voluntary regulation may reflect political compromise rather than best option.

The paper analyses the return of the hotel classification in Israel as a case of voluntary regulation regime by the state. The theory of such regimes explains why states resort to voluntary regulation, and what the preconditions for such a regime to succeed are. Applying this theory to the hotel classification case reveals that the incentive structure made the chances of the choice to succeed meager. Hence, the paper asks: Why, in spite of these conditions, the state chooses the voluntary regulation option? The paper argues that some challenges for the selection of such regime may be more critical than others, and depending on the institutional relations between the actors involved, voluntary regulation may reflect more political than regulatory rationale.