Journal of Law, Economics, and Organization Advance Access originally published online on August 30, 2007
Journal of Law, Economics, and Organization 2008 24(1):45-71; doi:10.1093/jleo/ewm039
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Coerced Confessions: Self-Policing in the Shadow of the Regulator
University of California, Berkeley
Harvard Business School
* University of California, Berkeley. Email: jlshort{at}berkeley.edu.
** Harvard Business School. Email: mtoffel{at}hbs.edu.
As part of a recent trend toward more cooperative relations between regulators and industry, novel government programs are encouraging firms to monitor their own regulatory compliance and voluntarily report their own violations. In this study, we examine how regulatory enforcement activities influence organizations' decisions to self-police. We created a comprehensive data set for the "Audit Policy," a United States Environmental Protection Agency program that encourages companies to self-disclose violations of environmental laws and regulations in exchange for reduced sanctions. We find that facilities are more likely to self-disclose if they were recently subjected to one of several different enforcement measures and if they were provided with immunity from prosecution for self-disclosed violations.
Insightful comments by Neil Fligstein, Robert A. Kagan, David I. Levine, Howard Shelanski, and Jason Snyder are gratefully acknowledged, as are comments from participants in the Fifth Annual Strategy and the Business Environment Conference at Stanford University and the First Annual Conference on Institutional Mechanisms for Industry Self-Regulation at Dartmouth University. We appreciate the assistance of Phil Milton, Audit Policy Coordinator at the US EPA, for providing and interpreting some EPA data. Research funding was provided by the Center for Responsible Business and the Institute of Business and Economic Research at the Haas School of Business. Ara Abrahamian provided excellent research assistance.