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  • Yale Economic Review

The Causes and Consequences of Industry Self-Policing

By: Jodi L. Short and Michael W. Toffel
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Abstract

Innovative regulatory programs are encouraging firms to police their own regulatory compliance and voluntarily disclose, or "confess," the violations they find. Despite the "win-win" rhetoric surrounding these government voluntary programs, it is not clear why companies would participate and whether the programs themselves do anything to enhance regulatory effectiveness. Tasked with monitoring the legality of its own operations, why would a firm that identifies violations turn itself in to regulators rather than quietly fix the problem? And why would regulators entrust regulated entities to monitor their own compliance and enforce the law against themselves? This paper addresses these questions by investigating the factors that lead organizations to self-disclose violations, the effects of self-policing on regulatory compliance, and the effects of self-disclosing on the relationship between regulators and regulated firms. We investigate these research questions in the context of the U.S. Environmental Protection Agency's Audit Policy.

Keywords

Corporate Disclosure; Governance Compliance; Law Enforcement; Policy; United States

Citation

Short, Jodi L., and Michael W. Toffel. "The Causes and Consequences of Industry Self-Policing." Yale Economic Review 4, no. 2 (Summer 2008).
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About The Author

Michael W. Toffel

Technology and Operations Management
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