Whistle-Blower Protection: Theory and Experimental Evidence

61 Pages Posted: 26 Mar 2017

See all articles by Lydia Mechtenberg

Lydia Mechtenberg

University of Hamburg

Gerd Muehlheusser

University of Hamburg; IZA Institute of Labor Economics

Andreas Roider

University of Regensburg - Department of Economics and Econometrics; IZA Institute of Labor Economics

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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.

Keywords: corporate fraud, corruption, whistle-blowing, business ethics, cheap-talk games, lab experiment

JEL Classification: C91, D83, D73, K42, M59

Suggested Citation

Mechtenberg, Lydia and Muehlheusser, Gerd and Roider, Andreas, Whistle-Blower Protection: Theory and Experimental Evidence. IZA Discussion Paper No. 10607. Available at SSRN: https://ssrn.com/abstract=2940597

Lydia Mechtenberg (Contact Author)

University of Hamburg ( email )

Allende-Platz 1
Hamburg, 20146
Germany

Gerd Muehlheusser

University of Hamburg ( email )

Von Melle Park 5
Hamburg, 20146
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Andreas Roider

University of Regensburg - Department of Economics and Econometrics ( email )

Universitaetsstrasse 31
D-93040 Regensburg
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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