Inspection Regimes and Regulatory Compliance: How Important is the Element of Surprise?

Makofske, Matthew (2018): Inspection Regimes and Regulatory Compliance: How Important is the Element of Surprise?

Abstract

Regulatory compliance is often promoted via unannounced inspections where firms found to be in violation of environmental, health, or safety regulations face punishments. When compliance is costly to firms, a key aspect of this approach is that the timing of inspections is unannounced and difficult to anticipate, lest firms comply only when they believe an inspection is likely. With data from Los Angeles (LA) County food-service health inspections, I estimate how the (in)ability to anticipate inspection timing affects compliance using a novel approach. Many facilities such as hotels, grocery stores, or food courts, consist of multiple food-service establishments sharing a single physical location. Multiple establishments within a single facility are commonly, though not always, inspected on the same day, meaning all but one of the establishments involved likely anticipate the timing of their next inspection to a considerable extent. Within such facilities, I show that establishments perform significantly worse on days in which they receive the sole inspection conducted at their facility. These "surprise" inspections detect 7.75% more violations, 9.1% more inspection score point deductions, and 16.3% more major critical violations (the most severe violations of the county health code).

• Item Type: MPRA Paper
• Language: English
• Keywords: regulatory inspection, health and safety regulation, monitoring, restaurant hygiene
• Subjects: K - Law and Economics > K3 - Other Substantive Areas of Law > K32 - Environmental, Health, and Safety Law; L - Industrial Organization > L5 - Regulation and Industrial Policy > L51 - Economics of Regulation; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q18 - Agricultural Policy ; Food Policy

References

Cameron, A., J. B. Gelbach, and D. Miller (2011). Robust inference with multiway clustering. Journal of Business and Economic Statistics 29 (2), 238-249.

Eckert, H. (2004). Inspections, warnings, and compliance: The case of petroleum storage regulation. Journal of Environmental Economics and Management 47 (2), 232-259.

Gray, W. and M. E. Deily (1996). Compliance and enforcement: Air pollution regulation in the U.S. steel industry. Journal of Environmental Economics and Management 31 (1), 96-111.

Telle, K. (2009). The threat of regulatory environmental inspection: Impact on plant performance. Journal of Regulatory Economics 35 (2), 154-178.