How Rewards Enhance Truthful Reporting: An Experimental Analysis

41 Pages Posted: 10 Apr 2018 Last revised: 3 Aug 2020

See all articles by Regina Betz

Regina Betz

Zurich University of Applied Sciences

Rukai Gong

Donghua University - Glorious Sun School of Business and Management

Andreas Ortmann

UNSW Australia Business School, School of Economics

Peiyao Shen

ShanghaiTech University - School of Entrepreneurship and Management

Date Written: July 16, 2020

Abstract

We assess experimentally the problem of untruthful reporting when an entity self-reports information to a regulatory authority. To enhance truthful reporting, an independent third party is involved to review the report for truthfulness. In addition, a representative of the regulatory authority may check the verified report. Most of the time, the reporting entity selects and pays the third party, which is exposed to competition with other third parties. This may lead to conflicts of interests and promote untruthful reporting. In the present study, we show that providing rewards for successful detection, and thus turning the third party or the regulatory authority into “bounty-hunters” can significantly enhance truthful reporting. In our setting, rewarding the third-party tends to be more cost-effective than rewarding the regulatory authority as the latter induces a higher rate of unnecessary inspections on truthful reporting.

Keywords: truthful reporting, self-reporting, rewards, experiment

JEL Classification: C92, D83, Q58

Suggested Citation

Betz, Regina and Gong, Rukai and Ortmann, Andreas and Shen, Peiyao, How Rewards Enhance Truthful Reporting: An Experimental Analysis (July 16, 2020). ShanghaiTech SEM Working Paper No. 2018-006, Available at SSRN: https://ssrn.com/abstract=3159737 or http://dx.doi.org/10.2139/ssrn.3159737

Regina Betz

Zurich University of Applied Sciences ( email )

Centre for Energy and the Environment (CEE)
Bahnhofplatz 12
Winterthur, CH 8401
Switzerland

Rukai Gong

Donghua University - Glorious Sun School of Business and Management ( email )

1882 Yan'an Road (West)
Shanghai, 200051
China

Andreas Ortmann

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Peiyao Shen (Contact Author)

ShanghaiTech University - School of Entrepreneurship and Management ( email )

100 Haike Rd
Pudong Xinqu, Shanghai
China

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