Measurement for Dummies? Exploring the Role of Regulatory Metrics and Firm Strategy

Most regulations are operationalized through metrics: numerical thresholds, targets, or test procedures that translate broad policy objectives into enforceable rules. Yet we know little about how these metrics shape firms’ strategic behavior. This paper aims to fill this gap by studying the introduction of the side impact dummy (SID) in U.S. automotive regulation, which established a regulatory metric based on the average male-sized body. Using detailed data on U.S. vehicular accidents, I find that the regulation led to large reductions in side-impact fatalities, but there were disproportionate benefits for occupants whose body sizes resembled SID. Furthermore this pattern is driven by heterogeneous firm behavior: Some firms delivered safety improvements across all occupants, whereas others focused narrowly on meeting the metric. This was moderated by two factors: firms’ strategic alignment with safety and their metric-based capabilities. Only firms with both dimensions were able to make broad improvements in line with policy objectives. These findings underscore the powerful role of regulatory metrics in channeling firm attention and effort. The ultimate impact of a regulation therefore depends not only on what policymakers measure but also which firms have the motivation and capabilities to act on them in a broad policy-consistent way.

This paper was accepted by Toby Stuart, entrepreneurship and innovation.

Supplemental Material: The online appendices and data files are available at https://doi.org/10.1287/mnsc.2023.01987.