To see, or not to sea: Differing performance outcomes from visible and private health inspections in the U.S. cruise travel industry

Abstract

Regulators and rating agencies can reassure consumers by monitoring firms and by publicizing these efforts and their results. However, consumers are not always uniformly aware of these monitoring efforts. I adapt theory about reputational mechanisms to predict that organizations will perform better in response to monitoring that is visible to market participants, versus monitoring that is conducted privately. I also examine two moderators, each involving the theorized mechanisms driving this effect, that could strengthen the relationship between visible inspections and performance. I test associated hypotheses using a natural experiment that randomly allocated health inspections across cruise ships within and outside of passenger sailings. Findings contribute to the literature on organizational reputation, by revealing differences driven by the visibility of information about organizations in the marketplace.