TY - JOUR AU - Duflo, Esther AU - Greenstone, Michael AU - Pande, Rohini AU - Ryan, Nicholas TI - Truth-telling by Third-party Auditors and the Response of Polluting Firms: Experimental Evidence from India JF - National Bureau of Economic Research Working Paper Series VL - No. 19259 PY - 2013 Y2 - July 2013 DO - 10.3386/w19259 UR - http://www.nber.org/papers/w19259 L1 - http://www.nber.org/papers/w19259.pdf N1 - Author contact info: Esther Duflo Department of Economics, E52-544 MIT 77 Massachusetts Avenue Cambridge, MA 02139 Tel: 617/258-7013 E-Mail: eduflo@mit.edu Michael Greenstone University of Chicago Department of Economics 1126 E. 59th Street Chicago, IL 60637 Tel: 773-702-8250 Fax: 773-702-8490 E-Mail: mgreenst@uchicago.edu Rohini Pande Yale University Department of Economics 27 Hillhouse Avenue New Haven, CT 06520 Tel: 617-384-5267 Fax: 617-496-8753 E-Mail: rohini.pande@yale.edu Nicholas Ryan Department of Economics Yale University P. O. Box 208269 New Haven, CT 06520 Tel: 203/432-6227 E-Mail: nicholas.ryan@yale.edu AB - In many regulated markets, private, third-party auditors are chosen and paid by the firms that they audit, potentially creating a conflict of interest. This paper reports on a two-year field experiment in the Indian state of Gujarat that sought to curb such a conflict by altering the market structure for environmental audits of industrial plants to incentivize accurate reporting. There are three main results. First, the status quo system was largely corrupted, with auditors systematically reporting plant emissions just below the standard, although true emissions were typically higher. Second, the treatment caused auditors to report more truthfully and very significantly lowered the fraction of plants that were falsely reported as compliant with pollution standards. Third, treatment plants, in turn, reduced their pollution emissions. The results suggest reformed incentives for third-party auditors can improve their reporting and make regulation more effective. ER -