Decentralized regulation has become increasingly important in many areas; examples range from school vouchers to workplace safety committees to alternative dispute resolution procedures replacing courts. Consistent with this trend, in 1993 California permitted construction unions and employers to “carve out” their own workers' compensation system. This study examines California's early experience with carve-outs by analyzing two case studies, a survey of all carve-outs in existence during the study period, and preliminary data on costs and dispute frequency at one carve-out. Overall, carve-outs do not appear to harm employees, and sometimes they help. At the same time, data analysis of one carve-out showed it had no effect on costs and dispute rates. Moreover, the low involvement of union officials and the many issues that overlap other parts of workplace regulation raise concerns about decentralizing workers' compensation. Lessons can be learned for other spheres of regulation. © 2002 by the Association for Public Policy Analysis and Management.