Self Regulation Can’t Make a “Bad Apple” Good
Self regulation appears to make “good apples” better but can’t make a “bad apple” good.
That’s the conclusion of a working paper looking at the self-policing required under the U.S. Environmental Protection Agency’s Audit Policy.
Michael Toffel of Harvard Business School and Jodi Short of Georgetown University Law Center examined whether self-policing is associated with improved environmental performance and whether regulators reduce their scrutiny over self-policing facilities.
Among the facilities that participated in the EPA self-policing program, only those with superior compliance records actually improved their environmental performance, the paper finds. “Regulators rewarded self-policing facilities that already had clean past compliance records with an inspection holiday, but they did not significantly decrease scrutiny of self-policing facilities that had poor past compliers.”
Compared to similarly situated, non-disclosing facilities, selfdisclosing firms on average reduce the number of abnormal events resulting in toxic chemicals being released to the environment.
…we find that these results are driven by improvements by the self-disclosers with clean compliance histories (good apples) when we compare them to nondisclosing good apples. In contrast, we find no evidence of such improvement when we compare selfdisclosers to non-disclosers among facilities with poor compliance histories (bad apples).
“We also find evidence that regulators interpret the voluntary self-disclosure signal accurately, rewarding effective selfdisclosers— but not ineffective self-disclosers—with an inspection holiday. These findings suggest that self-regulatory practices can provide some leverage on enforcement, but they can‘t make a bad apple good.”
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