Economists at MIT have co-authored a study that underscores a troubling aspect of the auditing industry, in which auditors, because they’re paid by the companies they scrutinize, have an incentive to not deliver bad reviews. The study looked at about 500 industrial plants in a western Indian state and found that when auditors were randomly assigned to plants and paid from central funds, their results were very different. For example, auditors in the study found that nearly 60% of the plants were violating India’s particulates emissions laws; previous audits had cited only 7%. The state is now using this information to help enforce pollution laws.
“There is a fundamental conflict of interest in the way auditing markets are set up around the world,” said Professor Michael Greenstone, an author on the paper with his colleague Esther Duflo. “The ultimate hope with the experiment was definitely to see pollution at the firm level drop,” said Duflo.
Since the MIT faculty established their Open Access Policy in March 2009 they have made thousands of research papers freely available to the world via DSpace@MIT. To highlight that research, we’re offering a series of blog posts that link news stories about scholars’ work to their open access papers in DSpace.