Do Penalties Promote Responsible Operations? Evidence from the U.S. Mining industry
Abstract
Financial penalties — fines levied for violations found during site inspections — are widely used to encourage responsible operations (such as compliance with environmental and labor standards or with supplier codes of conduct). However, the effectiveness of penalties in achieving this objective remains unclear. In this paper, we empirically investigate whether higher penalties lead to more responsible operations using a large, granular dataset from the U.S. mining industry. Our identification strategy exploits a policy shock that sharply increased the penalty amounts for health and safety infractions in the mines. We find that higher penalties had, at best, a modest effect on responsible operations. While there was some decrease in violations, we find no evidence of a decrease in accidents or injuries at mines that faced higher fines. We show that this null effect is driven, at least in part, due to an unanticipated and unintended consequence of higher penalties: mining companies strategically contested the higher fines in court, that led to discounted payment amounts, delay in payment times, and higher regulatory costs. By examining the mechanisms through which higher penalties (fail to) promote responsible operations, our work offers insights that can be generalized to contexts beyond mining (e.g., global supply chains).
AUTHORS
Vibhuti Dhingra, Schulich School of Business, York University, Canada
Anna Saez de Tejada Cuenca, IESE Business School, Spain
***This seminar will be held in person in room T09-67. Alternatively, click here to join the seminar online.
Meeting ID: 960 8156 8716
