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On Cheating and Whistle-Blowing


Berentsen, Aleksander; Brügger, Esther; Lörtscher, Simon (2003). On Cheating and Whistle-Blowing. Working paper series / Institute for Empirical Research in Economics No. 153, University of Zurich.

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.

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.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
Dewey Decimal Classification:330 Economics
Language:English
Date:December 2003
Deposited On:29 Nov 2011 22:32
Last Modified:12 Aug 2017 12:54
Series Name:Working paper series / Institute for Empirical Research in Economics
ISSN:1424-0459
Official URL:http://www.econ.uzh.ch/wp.html

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