Whistleblower Protection: Theory and Experimental Evidence

Abstract

Whistleblowing by employees plays a major role in uncovering corporate fraud. Recent laws and global policy recommendations aim at facilitating whistleblower protection to enhance the willingness to report and to increase deterrence. We study these issues in a theory-guided lab experiment. Whistleblower protection indeed leads to more reporting of misbehavior. However, our experimental findings suggest that non-meritorious claims are an issue, as they reduce prosecutors' incentive to investigate, which hampers the intended improvement of deterrence.