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On Cheating and Whistle-Blowing

  • Aleksander Berentsen
  • Esther Brügger
  • Simon Lörtscher

We study the role of whistle-blowing in the following inspection game. Two agents who compete for a valuable prize can either behave legally or illegally. After the competition, a controller investigates the agents' behavior. This control game has a unique equilibrium in mixed strategies. We then add a whistle-blowing stage, where the controller asks the loser to blow the whistle. This extended game has a unique perfect Bayesian equilibrium in which only a cheating loser accuses the winner of cheating and the controller tests the winner if and only if the winner is accused of cheating. Whistle-blowing reduces the frequencies of cheating, is less costly in terms of test frequencies, and leads to a strict Pareto-improvement if punishments for cheating are sufficiently large.

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Paper provided by Universitaet Bern, Departement Volkswirtschaft in its series Diskussionsschriften with number dp0302.

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Date of creation: Apr 2003
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Handle: RePEc:ube:dpvwib:dp0302
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