The Integrity of Private Third-Party Compliance Monitoring

6 Pages Posted: 27 Nov 2015 Last revised: 11 Dec 2015

See all articles by Jodi L. Short

Jodi L. Short

University of California Hastings College of the Law

Michael W. Toffel

Harvard Business School

Date Written: December 10, 2015

Abstract

Government agencies are increasingly turning to private, third-party monitors to inspect and assess regulated entities’ compliance with law. The integrity of these regulatory regimes rests on the validity of the information third-party monitors provide to regulators. The challenge in designing third-party monitoring regimes is that profit-driven private monitors, typically selected and paid by the firms subject to monitoring, have incentives to downplay problems they observe in order to satisfy and retain their clients. This paper discusses the most important factors that our research and the research of many others has shown can affect the integrity of third-party monitoring, and highlights some policy implications for regulators designing third-party monitoring regimes.

Keywords: auditing, regulation, compliance, conflicts of interest, policy, inspection, certification, third-party

JEL Classification: D82, G18

Suggested Citation

Short, Jodi L. and Toffel, Michael W., The Integrity of Private Third-Party Compliance Monitoring (December 10, 2015). Available at SSRN: https://ssrn.com/abstract=2695429 or http://dx.doi.org/10.2139/ssrn.2695429

Jodi L. Short

University of California Hastings College of the Law ( email )

200 McAllister Street
San Francisco, CA 94102
United States

Michael W. Toffel (Contact Author)

Harvard Business School ( email )

Boston, MA 02163
United States
617.384.8043 (Phone)

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