Date Added: Jan 2011
Governments and other organizations often outsource activities to achieve cost savings from market competition. Yet such benefits are often accompanied by poor quality resulting from moral hazard, which can be particularly onerous when outsourcing the monitoring and enforcement of government regulation. In this paper, they argue that the considerable moral hazard associated with private regulatory monitoring can be mitigated by the scope of the monitoring organizations' product/service portfolios and by their private governance mechanisms. These organizational characteristics affect the stringency of monitoring through reputation, customer loyalty, differential impacts of government sanctions, and the standardization and internal monitoring of operations.