Truth telling by third-party audits and the response of polluting firms: Experimental evidence from Gujarat, India
Speaker: Prof. Rohini Pande, Director Evidence for Policy Design , Harvard University; J-PAL Affiliate
Date: 24 January, 12.15-1.15 p.m.
Venue: Upper Meeting Room, 36 Gordon Square LIDC building London
The seminar is open to all. Seating will be on first come first serve basis.
How accurate and credible is an environmental audit if the auditor is chosen and paid for by the firm being audited?
In 2009, the Gujarat Pollution Control Board (GPCB) partnered with Harvard and MIT researchers, together with J-PAL South Asia, on the design and validation of policy reforms that have since led to more accurate environmental audits – cutting air and water pollution in the region and demonstrating the crucial role for pollution control boards as innovators for better environmental rulemaking.
In this 3ie-supported impact evaluation, the GPCB-researcher collaboration identified improvements to the third party environmental auditing system. From a sample of 473 industrial plants in Ahmedabad and Surat, 233 were randomly assigned to receive a new audit system in which auditors were randomly assigned to the industrial plants they would monitor, paid from a common pool of funds, and monitored for accuracy. The remaining 240 plants served as the comparison group and remained in the status quo audit system.
The experiment, published in The Quarterly Journal of Economics, found that the changes caused the auditors to report more truthfully. In the restructured market, auditors were 80 per cent less likely to falsely report a pollution reading as in compliance, and their reported pollution readings were 50 to 70 per cent higher than when they were working in the status quo system. Most importantly, the researchers found that the plants that were required to use the new auditing system significantly reduced their emissions of air and water pollution, relative to the plants operating in the status quo system. Presumably, this was because the plants’ operators understood that the regulators were receiving more accurate information and would follow up on it.