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  5. Predictably Unpredictable Inspections

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Predictably Unpredictable Inspections

  • Ashvin Gandhi
  • Andrew Olenski
  • Maggie Shi
American Economic Review (Forthcoming)

Abstract

Inspections are a common tool for acquiring information and incentivizing compliance. Though typically unannounced, they often follow a predictable schedule. We study how this predictability shapes firm effort and patient outcomes in U.S. nursing homes. Nursing homes “slack” in the low-risk period following an inspection and ramp up effort as their next inspection approaches. Patient survival mirrors this pattern, suggesting meaningful consequences for care quality. We embed these estimates in a dynamic model capturing how inspection regimes incentivize effort and reveal quality. Unpredictability induces as much additional effort as increasing inspection frequency by 10 percent, with minimal loss of informational value.

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