38 Pages Posted: 13 Dec 2017
Date Written: October 23, 2017
Law-breaking activities within an organization benefiting the firm at the expense of the general public are widespread but difficult to uncover, making whistleblowing by employees desirable. We employ a novel laboratory experiment to investigate if and how monetary incentives and expectations of social approval or disapproval, and their interactions, affect the decision to blow the whistle. Experimental results show that: i) financial rewards significantly increase the likelihood of whistleblowing and do not substantially crowd out non-monetary motivations activated by expectations of social judgment; and ii) the possibility of social judgment decreases (increases) whistleblowing when the public is unaware (aware) of the negative externalities generated by fraud, suggesting that whistleblowers are at least partly motivated by a desire for social approval. Our findings suggest that whistleblowers on corporate fraud should be financially rewarded and should be shielded from public/media scrutiny when the social cost of the illegal activity is not visible or salient to the public. We also find evidence of an interesting relationship between political orientation and social judgment: while left-leaning subjects react to the possibility of receiving social approval or disapproval as expected, right-leaning people are unaffected by it.
Keywords: Whistleblowing, fraud, rewards, social judgment, experiment
JEL Classification: K42, C92, D04
Suggested Citation: Suggested Citation