Whistle Blowing

27 Pages Posted: 9 Dec 2004

See all articles by Ben Depoorter

Ben Depoorter

UC Hastings Law; Ugent - CASLE; Stanford Law School Center for Internet & Society

Jef De Mot

Ghent University - Faculty of Law


For law enforcement purposes corruption and fraud are hard battles. Because of the highly secretive and premeditated nature of these crimes, prime witnesses are themselves often implicated in the fraudulent transaction. Promises of immunity and whistle blowing rewards are often required to resolve these information asymmetries. These insights have set a trend, both in scholarship and law enforcement practice, towards reward-based approaches (carrots), as an alternative or complement to punishment based deterrence (sticks).

Applying the U.S. False Claims Act (FCA) as an analytical framework, we provide a critical review of the efficiency limitations of whistle blowing. More specifically, the formal model developed in this contribution, reveals a gap between social and private incentives in whistle blowing, both with regard to the decision to pursue litigation and the timing of whistle blowing. First, while an insider will blow the whistle whenever his expected recovery exceeds the expected costs of litigation, enforcement agencies seek to optimize enforcement in the long run. The autonomy of whistle blowers to pursue claims without government involvement, weakens the government's bargaining position and obstructs the government's ability to weigh in wider factors of enforcement (the effect of an individual case on a multiple claim suit, etc.). Second, whenever rewards are tied to recovery, bounty awards create a perverse incentive whereby fraudulent practices are not terminated at a socially optimal point in time. The potential race among whistle blowers cannot mitigate this effect fully because the stigma and loss of opportunities on the job market act as internal constraints on whistle blowing.

Keywords: whistle blowing, False Claims Act, law and economics

JEL Classification: K10, K42

Suggested Citation

Depoorter, Ben and De Mot, Jef, Whistle Blowing. Supreme Court Economic Review, Vol. 13, 2005, George Mason Law & Economics Research Paper No. 04-56, Available at SSRN: https://ssrn.com/abstract=622723 or http://dx.doi.org/10.2139/ssrn.622723

Ben Depoorter (Contact Author)

UC Hastings Law ( email )

200 McAllister Street
San Francisco, CA 94102
United States

Ugent - CASLE ( email )

Universiteitstraat 4

Stanford Law School Center for Internet & Society ( email )

559 Nathan Abbott Way
Stanford, CA 94305-8610
United States

Jef De Mot

Ghent University - Faculty of Law ( email )

Universiteitstraat 4
Ghent, B-9000

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