On Cheating and Whistle-Blowing

Aleksander Berentsen (), Esther Brügger and Simon Lörtscher
Authors registered in the RePEc Author Service: Simon Loertscher ()

Diskussionsschriften from Universitaet Bern, Departement Volkswirtschaft

Abstract: 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.

Keywords: Principal-two-Agents; Inspection Games; Asymmetric Information; Signalling (search for similar items in EconPapers)
JEL-codes: C72 D82 K42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth and nep-law
Date: 2003-04
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Persistent link: http://EconPapers.repec.org/RePEc:ube:dpvwib:dp0302

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