Panel Paper: Impact of Inspector Intensity On Enforcement and Deterrence: Evidence From the Gulf of Mexico

Thursday, November 8, 2012 : 10:55 AM
Schaefer (Sheraton Baltimore City Center Hotel)

*Names in bold indicate Presenter

Lucija Muehlenbachs, Resources for the Future and Mark A. Cohen, Vanderbilt University

This paper estimates the effect that sending an additional inspector on an inspection has on the enforcement action taken and the subsequent deterrence of violations.    Important limitations to investigating the effect of an additional inspector are endogeneity and selection bias.   For example, facilities that are thought to be poor performers may be sent more inspectors making it difficult to identify a causal relationship between inspection group size and outcomes.  We use a unique dataset of inspections of offshore facilities in the Gulf of Mexico to estimate the causal effect of sending more than one inspector on an inspection by instrumenting for the number of inspectors with weather.   Inspections of offshore oil and gas platforms require the use of helicopters to take inspectors to production platforms; however, whether a helicopter can fly depends on weather conditions.  When helicopters are restricted to certain areas of the Gulf because of bad weather, inspection plans must be modified, and more inspectors are sent on fewer inspections.  This allows for exogenous variation in inspection group size that can be used to examine the severity of the enforcement action (from a issuing a warning to requiring a cessation of all production from the platform), and the deterrence of incidents (such as blow-outs, fatalities, and oil spills).

To further understand why an additional inspector might matter, several explanations, including regulatory capture and social pressure, will be investigated.  Group dynamics of inspectors will be examined by measuring the number of times that a group of inspectors has been together, as a proxy for how familiar they are with one another, and how often they have inspected the production platform, as a proxy for how familiar they are with the inspected party. A key advantage of the dataset is that it provides a record of each inspector’s inspection history, which allows us to calculate proxies for the familiarity an inspector has with a facility or with other inspectors in the group.   To our knowledge, all of the previous studies of collusive behavior and social pressure on enforcers are based on individual behavior---not group dynamics.

Since the BP Deepwater Horizon spill, there have been calls for significant increases in government enforcement activity. The 2012 fiscal year budget for the United States government doubled the budget for the offshore regulator to $500 million, with the call to “hire new oil and gas inspectors.”  An increase in the number of inspectors will likely result in an increase in the frequency of inspections, but it could also allow for an increase in the number of inspectors that are sent to each platform.  Our results are relevant understanding the optimal number of inspectors to send on an inspection.