Regulation, Compliance, and Proximity: Evidence from Nuclear Safety

Effective regulation relies on monitoring the compliance of regulated firms. Using data on regulatory inspections and employees’ emergency training in the universe of US nuclear plants, we investigate how regulatory monitoring drives compliance with nuclear safety procedures. We find that nuclear plants farther from the regulator’s regional office exhibit more safety incidents, and their employees are less trained to deal with emergencies. These spatial differences exist despite regulatory monitoring is conducted daily through resident inspectors (i.e., monitoring is continuous and decen- tralized). The matching between resident inspectors and nuclear plants helps to explain why differences in safety exist: less experienced inspectors are assigned to more dis- tant nuclear plants, and this assignment leads to a decline in employees’ emergency training. Hence, attaining safety through decentralized monitoring requires assigning experienced inspectors to plants that are insulated from the regulator.