Transparency, overall, is good for both public and private organizations; when the public knows more about what’s going on, this can lead to improved services. In new research Zhengyan “Ian” Li looks at the impact of requiring regulated organizations – industrial facilities which manage toxic chemicals – to disclose information about their performance. He finds that regulators which had access to this additional information were more likely to scrutinize the disclosing facilities more closely. 

Performance information is a mainstay of contemporary governance. Public and private organizations have increasingly been required to track and measure their operation, services, and performance, and often, to disclose the collected information to the public. This approach—unlike conventional approaches that rely on financial incentives or enforcement of rules and standards—leverages the power of information to change the behavior of consumers, citizens, companies, and government agencies as an alternative way to achieve specific goals.

Advocates believe that increased transparency has the potential to increase accountability, assist in performance improvement, and enhance the provision of goods and services. Indeed, research, for example, has shown that disclosure of performance information about public schools has increased citizen participation in local school board elections. Another example is the requirement for water utilities to issue consumer confidence reports, which contain information about violations of water regulations and contaminant levels. Researchers found that water utilities significantly increased the quality of drinking water in response to the disclosure requirement.

How do government agencies respond to performance information about the third parties they regulate?

These examples clearly demonstrate that well-designed transparency schemes can increase the accountability of public organizations. But how will government agencies respond to information that is not directly about government performance? In new research, I answer this question, finding that performance information on a third party, which is linked to how public agencies perform, can increase governmental accountability.

My research examines how regulators change their enforcement of environmental regulations after regulated entities are required to disclose environmental performance information to the public – in this case, industrial facilities and their management of toxic chemicals. Theoretically, information about performance of regulated entities will implicate the performance of regulators since government agencies play critical roles in shaping the environmental performance of the organizations they regulate. When relevant information is disclosed, stakeholders, such as elected officials, interest groups, the media, and citizens may demand government agencies to do more to address pollution from regulated entities.

Information about regulated entities may also serve an instrumental purpose by providing regulators with new knowledge about the performance of the organizations which are regulated. Enforcement of regulation is in essence a principle–agent problem (where there is a conflict between the priorities of one person or group acts on another’s behalf) that is characterized by a difference in the amount of information between the regulators and who they regulate.

Considering new information about the performance of regulated entities, regulators will adjust their enforcement strategies to maximize deterrence. Prior research shows that regulators often become more stringent with entities with poor performance. If information that is disclosed shows that regulated entities have worse performance than regulators’ prior expectations, regulators will scrutinize these entities more closely.

Testing how regulators regulate

Both theories point out that regulators will increase their scrutiny of regulated entities that are required to disclose information about performance. To test this, I investigated how regulators change the intensity of monitoring on a group of facilities that started to disclose information about environmental performance following the requirements of the Toxics Release Inventory (TRI), a major environmental information disclosure program in the United States. The TRI requires covered industrial facilities to disclose information about their management of listed toxic chemicals, including details about how much has been released into the environment, on an annual basis.

I found that regulators did scrutinize the disclosing facilities more closely; my results show that regulators conducted 27 percent more inspections, which regulators use to determine the compliance status of facilities, on disclosing facilities, compared with facilities that are not required to disclose information. The increase shows that regulators do respond to performance information even when the information is not directly about government agencies.

Photo by Nick Fewings on Unsplash

Regulators looked more closely when they had more information

A closer look at regulators’ responses suggests that they did not respond because of heightened pressure from other stakeholders. If they are acting on pressure from other stakeholders, we would expect inspections to increase more in communities with more media coverage and stronger political activism. However, the results show that there is no discernable difference in the increase of inspections on facilities located in communities with higher levels of education, population density, and voter turnout, which are factors associated with media coverage and political activism.

Instead, the increase of inspections was much larger on facilities with worse performance records, compared with facilities that disclosed less worse records, which is consistent with the prediction of the argument that information disclosure offered regulators new knowledge about the performance of regulated entities.

My study shows that performance information on a third party, which implicates the performance of government agencies, also affects bureaucratic behaviors. Like earlier research, I found that performance information has the potential to increase government accountability. The findings that regulators increase regulatory inputs and resources to target facilities that disclose performance information show that regulators have paid more attention to and have been more concerned about the environmental performance of these facilities.

In addition, my research shows that information disclosure can empower bureaucrats by providing them with new knowledge that is critical for the delivery of public services. Information asymmetry is a key concern in the relationship between regulators and regulated entities. The findings suggest that information disclosure can mitigate concern and empower regulators in the implementation of environmental regulations.

• This article is based on the paper, ‘Bureaucratic response to performance information: how mandatory information disclosure affects environmental inspections’, in Public Administration Review. 
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• Note: This article gives the views of the author, and not the position of USAPP – American Politics and Policy, nor the London School of Economics. 
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