Leniency in private regulatory enforcement
Subtitle: the role of organizational scope and governance
By: Lamar Pierce, Michael W. Toffel
Contributors: Toffel, Michael W.; Harvard Business School
Series: Working paper / Harvard Business School -- 11-004; Working paper (Harvard Business School) -- 11-004.
Publisher: Harvard Business School
Published: 2010
Place of publication: [Boston]
Language: eng
Number of pages: 43
Description: Profit-seeking firms can present efficiency improvements when performing functions traditionally relegated to government. Yet these potential cost-efficiencies from market competition are often offset by poor enforcement quality resulting from moral hazard, which can be particularly onerous when outsourcing enforcement of government regulation. In this paper, we argue that the considerable moral hazard of private regulatory enforcement can be mitigated by the scope of organizations' product/service portfolios and by private governance mechanisms. These organizational characteristics affect the stringency of enforcement through reputation and customer loyalty, differential impacts of government sanctions, and standardization and internal monitoring of operations. We test our theory in the context of vehicle emissions testing in a state in which the government has outsourced inspection and enforcement to private sector establishments. Analyzing millions of emissions tests, we find empirical support for our hypotheses that particular forms of firm governance and product portfolios can mitigate moral hazard.
Notes: "July 2010"--Publisher's website.

Includes bibliographical references.