On Cheating and Whistle-Blowing

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

No iewwp153, IEW - Working Papers from Institute for Empirical Research in Economics - IEW

Abstract: We study the role of whistleblowing in the following inspection game. Two agents who compete for a prize can either behave legally or illegally. After the competition, a controller investigates the agents’ behavior. This inspection game has a unique (Bayesian) equilibrium in mixed strategies. We then add a whistleblowing 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. Whistleblowing 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 suffciently large.

Keywords: Whistleblowing; leniency; inspection games; signalling (search for similar items in EconPapers)
JEL-codes: C72 D82 K42 K21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth and nep-law
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Related works:
Working Paper: On Cheating and Whistle-Blowing (2003)
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