Inspection regimes and regulatory compliance: How important is the element of surprise?

Abstract

Regulatory compliance is often promoted via unannounced inspections where firms found to be in violation of environmental, health, or safety regulations face punishments. When compliance is costly to firms, a key aspect of this approach is that the timing of inspections is unannounced and difficult to anticipate, lest firms comply only when they believe an inspection is likely. With data from Los Angeles (LA) County food-service health inspections, I estimate how the (in)ability to anticipate inspection timing affects compliance using a novel approach. Many facilities such as hotels, grocery stores, or food courts, consist of multiple food-service establishments sharing a single physical location. Multiple establishments within a single facility are commonly, though not always, inspected on the same day; meaning all but one of the establishments involved likely anticipate the timing of their next inspection to a considerable extent. Within such facilities, I show that establishments perform significantly worse on days in which they receive the sole inspection conducted at their facility. These sole inspections detect 7.75% more violations, 9.1% more inspection score point deductions, and 16.3% more major critical violations (the most severe violations of the county health code).