Regulation Enforcement

This paper compares the effectiveness of two mechanisms of regulation enforcement: (1) the frequency of inspections and (2) penalties for violations. Threat effects of increased penalties and inspection rates, rather than corrective effects upon receiving an inspection or penalty, are the focus of analysis. Mining industry data from 2004–2009 are used to analyze the responses of mines to separate increases in inspections and citation penalties regarding regulations of safety standards. Mines did not improve safety in response to increased penalties at the ex-ante inspecting rates; however, mines significantly reduced accidents under increased inspections when implemented at those higher penalty rates. The identification strategy results in a local average treatment effect that implies increasing inspection rates from current levels would likely increase social welfare. Results are shown to be robust to bandwidth changes and model specification. The interpretation of the estimated local effect in the context of selection is analyzed. Robustness checks regarding selection exploit staffing changes and restrict to similar samples of treated and non-treated mines, justifying that results are representative.