Disclosure policies in inspection programs: The role of specific deterrence

Abstract

In inspection programs, policies of disclosing inspection performance promote greater compliance via general deterrence—i.e., by increasing the expected cost of regulatory violations. Yet, despite their growing popularity as regulatory aids, an unexamined matter is how specific deterrence – deterrence that follows from receiving punishment – might influence the effectiveness of disclosure policies. In Las Vegas, Nevada, food-service health inspections are scored numerically. Using a simple grading scale, scores are then coarsened into letter grades which restaurants must prominently display. There is, however, a wrinkle to this grading scale: establishments committing the same violation in consecutive inspections are downgraded one letter. By virtue of this downgrade rule, punishment assignment varies among identically scored inspections. Relative to establishments with identical sequences of prior inspection scores, I find that restaurants are assessed 17%–27% fewer demerits following a downgrade. This substantial specific deterrence effect has important implications for the design of disclosure policies; particularly, regarding the coarsening of numeric scores into letter grades.