Mitigating ingroup bias in regulatory firms: The role of inspector professionalism

Abstract This article adopts the lens of ingroup bias to study why regulatory firms tasked with enforcing regulatory compliance may underperform in their duties. We theorize that ingroup bias can lead regulatory agents to grant unwarranted trust to ingroup clients with whom they share salient characteristics, resulting in less stringent inspections for these clients compared to outgroup clients. We further examine how this effect is moderated by inspectors' professionalism, a human capital dimension reflecting an individual's engagement with their profession and internalization of its norms and standards. Using a difference‐in‐differences approach on micro‐data tracking 86 inspectors across 24,650 inspections of 462 vessels at a marine inspection firm, we find compelling evidence of ingroup bias and show that inspectors' professionalism mitigates its impact on regulatory enforcement stringency.