Experimental Design
This experiment sought to curb a conflict of interest in the enforcement of industrial emissions standards by altering the market structure for environmental audits of industrial plants to incentivize accurate reporting. It was conducted in collaboration with the environmental regulatory body in Gujarat, India. Ordinarily, auditors are chosen by, paid by, and report to the audited firm. Beginning with two populations of industrial plants from two regions of Gujarat, half of the industrial plants in each region were randomized into a treatment with four parts. First, treatment plants were randomly assigned an auditor they were required to use. Second, auditors were paid from a central pool, rather than by the plant. Third, a random sample of each auditor's pollution readings were verified with follow-up visits (backchecks) to the audited plants by an independent technical agency. Fourth, at the start of the second year, treatment auditors were informed that their pay would be linked to their reporting accuracy, as measured by these backchecks. Data were collected from audit reports filed with the regulator, and from the agencies conducting backcheck readings.