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On the economics of whistle-blowing behavior: the role of incentives

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  • Villena, Mauricio G.
  • Villena, Marcelo J.

Abstract

The role of whistle-blowing as a mechanism for deterring corruption has been conspicuously neglected in the economic literature. This is quite surprising given the increase in legislation aimed at preventing corruption that includes whistle-blowing clauses and the extensive literature on whistle-blowing outside economics. In fact, we know of no formal economic model that deals squarely with the analysis of the role and potential impact of whistleblowing on the persistence of corruption in organizations. Therefore, in an attempt to at least partially fill this gap, we present a theoretical model for approaching the issue, focusing specifically on the role of economic incentives to encourage whistle-blowing behaviour. We model corruption as a social norm of behaviour using elements of evolutionary game theory (EGT). We use the concept of replicator dynamics to explore the local asymptotical stability of several types of behaviour within organizations: (i) honest, corrupt, and honest whistle-blowing and (ii) honest, corrupt whistle-blowing, and honest whistle-blowing.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 35917.

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Date of creation: 24 Mar 2010
Date of revision: 24 Mar 2010
Handle: RePEc:pra:mprapa:35917

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Keywords: Corruption; whistle-blowing; social norms; evolutionary games;

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References

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  1. Tirole, Jean, 1994. ""A Theory of Collective Reputations" with Applications to the Persistence of Corruption and to Firm Quality," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 38, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. Gary S. Becker & George J. Stigler, 1974. "Law Enforcement, Malfeasance, and Compensation of Enforcers," The Journal of Legal Studies, University of Chicago Press, University of Chicago Press, vol. 3(1), pages 1-18, January.
  3. Toke S. Aidt, 2003. "Economic analysis of corruption: a survey," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 113(491), pages F632-F652, November.
  4. International Monetary Fund, 1997. "Corruption and the Rate of Temptation," IMF Working Papers 97/73, International Monetary Fund.
  5. Villena, Mauricio G. & Villena, Marcelo J., 2004. "Evolutionary Game Theory and Thorstein Veblen’s Evolutionary Economics: Is EGT Veblenian?," MPRA Paper 28889, University Library of Munich, Germany.
  6. Jain, Arvind K, 2001. " Corruption: A Review," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 15(1), pages 71-121, February.
  7. Cadot, Olivier, 1987. "Corruption as a gamble," Journal of Public Economics, Elsevier, Elsevier, vol. 33(2), pages 223-244, July.
  8. Van Damme, Eric, 1994. "Evolutionary game theory," European Economic Review, Elsevier, Elsevier, vol. 38(3-4), pages 847-858, April.
  9. Tina Søreide, 2008. "Beaten by Bribery: Why Not Blow the Whistle?," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 164(3), pages 407-428, September.
  10. Acemoglu, Daron, 1995. "Reward structures and the allocation of talent," European Economic Review, Elsevier, Elsevier, vol. 39(1), pages 17-33, January.
  11. Lui, Francis T., 1986. "A dynamic model of corruption deterrence," Journal of Public Economics, Elsevier, Elsevier, vol. 31(2), pages 215-236, November.
  12. Sandeep Kapur, 2009. "An Economic Model of Whistle-Blower Policy," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 25(1), pages 157-182, May.
  13. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1991. "The Allocation of Talent: Implications for Growth," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(2), pages 503-30, May.
  14. Mookherjee, Dilip & Png, I P L, 1995. "Corruptible Law Enforcers: How Should They Be Compensated?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 105(428), pages 145-59, January.
  15. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
  16. Andvig, Jens Chr. & Moene, Karl Ove, 1990. "How corruption may corrupt," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 13(1), pages 63-76, January.
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