Real Effects of Information Frictions Within Regulators : Evidence from Workplace Safety Violations

The Occupational Safety and Health Administration (OSHA) is decentralized, where individual state-level field offices are responsible for undertaking inspections and sharing case information with other offices. Interviews with compliance officers suggest that this information structure leads to within-regulator information frictions. We study whether such frictions affect how overseen firms comply with workplace safety laws. We find evidence of geographic substitution, i.e., firms caught violating in one state subsequently violate less in that state, instead shifting violations elsewhere. Two key channels drive geographic substitution: inspections and punishment. Violations in one state do not trigger proactive OSHA inspections in other states. Moreover, firms face lower monetary penalties when shifting violations across state lines, consistent with greater frictions in the sharing of documentation required to assess severe penalties. Finally, more profitable firms shift violations less and firms with worse governance or culture shift violations more. While prior work highlights how internal information within firms affects corporate misconduct, our findings suggest that internal information within regulators impacts the likelihood and location of corporate misconduct as well