The Value of Regulatory Discretion: Estimates from Environmental Inspections in India

Abstract

NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Government Decentralization Under Changing State Capacity: Experimental Evidence from Paraguay

“…One exception is Duflo et al (2018) who conducted a field experiment that increased the frequency of inspections of industrial plants in Gujarat, India. In the control group, plants were audited as usual at the discretion of the inspectors, whereas in the treatment group, the audits were conducted more frequently but at random.…”

“…We complement Duflo et al (2018) in important ways. Our experiment was designed to identify who the supervisors would target for monitoring without having to rely on strong functional form assumptions.…”

“…As a result, we can experimentally identify the decentralized counterfactual to a centralized approach. Moreover, that counterfactual depends both on supervisors' informational advantage and on potential preference biases, which we allow for but are absent from the targeting rules in Duflo et al (2018). Thus, we incorporate elements that are crucial to the evaluation of the relative merits of decentralization.…”

The Effect of Discretion on Procurement Performance

“…They show, among other things, that regulatory discretion is highly valuable in that environment because it allows the regulator to better target inspections at extreme polluters, compared to transparent random auditing rules. Our study, as Duflo et al (2015), shows that regulatory discretion may be a valuable tool for public administrations.…”

“…Our paper completes the assessment of the effects of discretion by analyzing data on ex post performance measures that were not available to Bandiera et al (2009), by studying a very different industry (public works) where contract incompleteness is a crucial issue; and focusing on how past performance can be indirectly rewarded when restricted auctions allow for the possibility of discretionally not inviting some (e.g., poorly performing) suppliers. A recent related study in this literature is Duflo et al (2015), which reports on a large field experiment on environmental regulation and its enforcement in India. They show, among other things, that regulatory discretion is highly valuable in that environment because it allows the regulator to better target inspections at extreme polluters, compared to transparent random auditing rules.…”