Do Policies with Limited Enforcement Reduce Harm? Evidence from Transshipment Bans
34 Pages Posted: 28 Jan 2019
Date Written: January 15, 2019
To mitigate environmental and social harm in supply chains, buyers often provide incentives or impose sanctions to discourage harmful behavior by suppliers. However, such policies are often implemented with limited monitoring and enforcement; theory suggests that such conditions may cause strategic behavior by suppliers, leading to unintended consequences. We study empirically if a policy with limited enforcement (1) can reduce harm, (2) leads to evasion and strategic behavior, and (3) increases raw material costs. We study these questions in the context of a ban on seafood transshipments. Seafood transshipments have been associated with illegal fishing and widespread forced labor in seafood supply chains, leading to pressure on seafood buyers to ban transshipments in their supply chain. Buyers have argued against such a ban, indicating that it would simply lead to evasion (because transshipments are difficult to monitor), while increasing costs (because transshipments allow for more efficient logistics). Directly studying the effect of a supply chain ban by buyers is difficult; instead, we study the effect of geographic bans implemented by international management organizations, and show that the resulting findings provide a conservative estimate of the effect of a supply chain ban. Using remote sensing data and exploiting variation over time and across regions, we find that a geographic ban reduces transshipments by 57% despite significant enforcement challenges. A difference-in-difference analysis of landing prices suggests that this reduction comes at a cost of 3.2% higher prices. In contrast to theoretical predictions, the ban does not appear to cause significant strategic evasion.
Keywords: Transshipments, Remote Sensing, Strategic Behavior, IUU fishing, Forced Labor
JEL Classification: Q2, Q22, Q28
Suggested Citation: Suggested Citation