Discussion Paper Details

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Title: Whistle-Blower Protection: Theory and Experimental Evidence

Author(s): Lydia Mechtenberg, Gerd Muehlheusser and Andreas Roider

Publication Date: March 2017

Keyword(s): Business Ethics, Cheap-Talk Games, Corporate Fraud, Corruption, Lab Experiment and Whistle-Blowing

Programme Area(s): Financial Economics, Industrial Organization, Labour Economics and Public Economics

Abstract: Whistle-blowing by employees plays a major role in uncovering corporate fraud. Various recent laws aim at improving protection of whistle-blowers and enhancing their willingness to report. Evidence on the effectiveness of such legislation is, however, scarce. Moreover, critics have raised worries about fraudulent claims by low-productivity employees. We study these issues in a theory-guided lab experiment. Easily attainable ("belief-based") protection indeed leads to more reports, both truthful and fraudulent. Fraudulent claims dilute prosecutors' incentives to investigate, and thereby hamper deterrence. These effects are ameliorated under more stringent ("fact-based") protection.

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Bibliographic Reference

Mechtenberg, L, Muehlheusser, G and Roider, A. 2017. 'Whistle-Blower Protection: Theory and Experimental Evidence'. London, Centre for Economic Policy Research.