Article | Organization Science | Forthcoming
by Lamar Pierce and Michael W. Toffel
Governments and other organizations often outsource activities to achieve cost savings from market competition. Yet such benefits are often accompanied by poor quality resulting from moral hazard, which can be particularly onerous when outsourcing the monitoring and enforcement of government regulation. In this paper, we argue that the considerable moral hazard associated with private regulatory monitoring can be mitigated by understanding conflicts of interest in the monitoring organizations' product/service portfolios and by the effects of their private governance mechanisms. These organizational characteristics affect the stringency of monitoring through reputation, customer loyalty, differential impacts of government sanctions, and the 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 these inspections to the private sector. Analyzing millions of emissions tests, we find empirical support for our hypotheses that particular product portfolios and forms of governance can mitigate moral hazard. Our results have broad implications for regulation, financial auditing, and private credit- and quality-rating agencies in financial markets.
Keywords: Crime and Corruption; Decision Choices and Conditions; Corporate Accountability; Governance Compliance; Policy; Management Practices and Processes; Demand and Consumers; Market Design; Market Entry and Exit; Market Transactions; Service Delivery; Service Operations; Business Processes; Organizational Structure; Performance Effectiveness; Performance Expectations; Practice; Transportation; Transportation Industry; Service Industry; United States; New York (state, US);
Citation:
Pierce, Lamar, and Michael W. Toffel. "The Role of Organizational Scope and Governance in Strengthening Private Monitoring." Organization Science (forthcoming).
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Article | Boston Review | May–June 2013
Can Global Brands Create Just Supply Chains? Promoting Political Mobilization
Jodi L. Short and Michael W. Toffel
Keywords: regulation; auditing; Labor relations; occupational safety; Environmental Operations; environmental regulation; Employees; Labor; Labor and Management Relations; Governing Rules, Regulations, and Reforms; Manufacturing Industry; China; Bangladesh; India; Honduras; Nicaragua; Pakistan; Guatemala; Malaysia; Viet Nam;
Conference Presentation | May 2013
Which Suppliers Better Adhere to International Labor Standards? Evidence from Codes of Conduct Audits
Michael W. Toffel
Talk | 10 Apr 2013
Which Suppliers Adhere to Global Labor Standards? Evidence from Codes of Conduct Audits