Ethical Spillovers in Firms: Evidence from Vehicle Emissions
Testing
Lamar Pierce
Olin Business School, Washington University in St. Louis, St. Louis, MO 63130, pierce@olin.wustl.edu
Jason Snyder
Anderson School of Management, UCLA, Los Angeles, CA90095, jason.snyder@anderson.ucla.edu
In this paper we explore how organizations influence the unethical behavior of their employees. Using a
unique dataset of over 3 million vehicle emissions tests, we find strong evidence of ethical spillovers from
firms to individuals. When inspectors work across different organizations, they adjust the rate at which
they pass vehicles to the norms of those with whom they work. These spillovers are strongest at large
facilities and corporate chains, and weakest for the large-volume inspectors. These results are consistent
with the economics literature on productivity spillovers from organizations and peers and suggest that
managers can influence the ethics of employee behavior through both formal norms and incentives. The
results also suggest that employees have persistent ethics that limit the magnitude of this influence. These
results imply that if ethical conformity is important to the financial and legal health of the organization,
managers must be vigilant in their hiring, training, and monitoring in order to ensure that employee
behavior is consistent with firm objectives.
Key words: peer effects, spillovers, fraud, corruption, productivity, ethics
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1. Introduction
The influence of organizations on individual behavior has been broadly studied in the economics,
sociology, and management literatures. Both theoretical work and empirical research have examined how
organizations influence the behavior of individual workers through incentives, monitoring, acculturation,
and training. The economics and economic sociology literatures have focused primarily on understanding
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how organizations influence the