Whistle-Blowing and the Incentive to Hire

22 Pages Posted: 23 Aug 2018 Last revised: 15 Apr 2020

See all articles by Jef De Mot

Jef De Mot

University of Münster

Murat C. Mungan

George Mason University - Antonin Scalia Law School, Faculty

Date Written: August 22, 2018

Abstract

In this article we focus on a previously neglected cost of whistle-blower awards: employers may base their hiring decisions, on the margin, not on the productivity of an employee but rather on the probability that the employee will become a whistle-blower. We develop a three-stage model to examine how productivity losses due to distortions at the hiring stage influence optimal whistle-blower rewards. We characterize optimal rewards for whistle-blowing, and show that the size of these rewards depends on the harm from crime, the punishment for crime, and the relative responsiveness of the employer's hiring decisions and offending decisions. Moreover, when rewards can be chosen according to either the benefits of the employer from offending or the productivity of the worker being hired, productivity-based rewards are superior to benefit-based rewards.

Keywords: whistle-blowing, crime, deterrence, hiring incentives

JEL Classification: K2, K31, K42, M5, J00

Suggested Citation

De Mot, Jef and Mungan, Murat C., Whistle-Blowing and the Incentive to Hire (August 22, 2018). George Mason Law & Economics Research Paper No. 18-22, Available at SSRN: https://ssrn.com/abstract=3237035 or http://dx.doi.org/10.2139/ssrn.3237035

Jef De Mot

University of Münster

Germany

Murat C. Mungan (Contact Author)

George Mason University - Antonin Scalia Law School, Faculty ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States

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