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Whistle-Blower Protection: Theory and Experimental Evidence

Author

Listed:
  • Mechtenberg, Lydia

    () (University of Hamburg)

  • Muehlheusser, Gerd

    () (University of Hamburg)

  • Roider, Andreas

    () (University of Regensburg)

Abstract

Whistle-blowing by employees plays a major role in uncovering corporate fraud. Various recent laws aim at improving protection of whistle-blowers and enhancing their willingness to report. Evidence on the effectiveness of such legislation is, however, scarce. Moreover, critics have raised worries about fraudulent claims by low-productivity employees. We study these issues in a theory-guided lab experiment. Easily attainable ("belief-based") protection indeed leads to more reports, both truthful and fraudulent. Fraudulent claims dilute prosecutors' incentives to investigate, and thereby hamper deterrence. These effects are ameliorated under more stringent ("fact-based") protection.

Suggested Citation

  • Mechtenberg, Lydia & Muehlheusser, Gerd & Roider, Andreas, 2017. "Whistle-Blower Protection: Theory and Experimental Evidence," IZA Discussion Papers 10607, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp10607
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    References listed on IDEAS

    as
    1. Schmidt, Matthias, 2005. ""Whistle Blowing" Regulation and Accounting Standards Enforcement in Germany and Europe--An Economic Perspective," International Review of Law and Economics, Elsevier, vol. 25(2), pages 143-168, June.
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    5. Steven Kaplan & Joseph Schultz, 2007. "Intentions to Report Questionable Acts: An Examination of the Influence of Anonymous Reporting Channel, Internal Audit Quality, and Setting," Journal of Business Ethics, Springer, vol. 71(2), pages 109-124, March.
    6. Guido Friebel & Michael Raith, 2004. "Abuse of Authority and Hierarchical Communication," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 224-244, Summer.
    7. Marcia Miceli & Janet Near & Terry Dworkin, 2009. "A Word to the Wise: How Managers and Policy-Makers can Encourage Employees to Report Wrongdoing," Journal of Business Ethics, Springer, vol. 86(3), pages 379-396, May.
    8. Yasuyo Hamaguchi & Toshiji Kawagoe, 2005. "An Experimental Study of Leniency Programs," Discussion papers 05003, Research Institute of Economy, Trade and Industry (RIETI).
    9. Sandeep Kapur, 2009. "An Economic Model of Whistle-Blower Policy," Journal of Law, Economics, and Organization, Oxford University Press, vol. 25(1), pages 157-182, May.
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    More about this item

    Keywords

    corporate fraud; corruption; whistle-blowing; business ethics; cheap-talk games; lab experiment;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • M59 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Other

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