DP11898 Whistle-Blower Protection: Theory and Experimental Evidence
|Author(s):||Lydia Mechtenberg, Gerd Muehlheusser, Andreas Roider|
|Publication Date:||March 2017|
|Keyword(s):||Business Ethics, Cheap-Talk Games, Corporate Fraud, Corruption, Lab Experiment, Whistle-Blowing|
|JEL(s):||C91, D73, D83, K42, M59|
|Programme Areas:||Labour Economics, Public Economics, Financial Economics, Industrial Organization|
|Link to this Page:||www.cepr.org/active/publications/discussion_papers/dp.php?dpno=11898|
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.