On Cheating and Whistle-Blowing

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.

[1]  Robert Innes,et al.  Remediation and self-reporting in optimal law enforcement , 1999 .

[2]  U. Fischbacher,et al.  Journal of Economic Behavior & Organization Fairness, Errors and the Power of Competition , 2022 .

[3]  Reto Foellmi,et al.  Who Gains from Non-Collusive Corruption? , 2003 .

[4]  Simon Luechinger,et al.  Terrorism: Deterrence May Backfire , 2002 .

[5]  J. Benoît,et al.  Why Do Good Cops Defend Bad Cops? , 2003 .

[6]  Matthias Benz,et al.  The Value of Autonomy: Evidence from the Self-Employed in 23 Countries , 2004 .

[7]  Aleksander Berentsen,et al.  The economics of doping , 2002 .

[9]  Avinash Dixit,et al.  Strategic Behavior in Contests , 1987 .

[10]  Bernhard von Stengel,et al.  Chapter 51 Inspection games , 2002 .

[11]  Lars P. Feld,et al.  Trust breeds trust: How taxpayers are treated , 2002, SSRN Electronic Journal.

[12]  Reto Foellmi,et al.  Inequality, Market Power, and Product Diversity , 2003 .

[13]  A. Malik,et al.  Self-Reporting and the Design of Policies for Regulating Stochastic Pollution , 1993 .

[14]  B. Frey,et al.  Direct Democracy for Transition Countries , 2003 .

[15]  Thorsten Hens,et al.  Soft Landing of a Stock Market Bubble. An Experimental Study , 2002 .

[16]  Bruno S. Frey,et al.  Selfish and Indoctrinated Economists? , 2005 .

[17]  B. Frey,et al.  Social Comparisons and Pro-social Behavior: Testing "Conditional Cooperation" in a Field Experiment , 2004 .

[18]  B. Frey,et al.  Corporate Governance for Crooks? The Case for Corporate Virtue , 2003 .

[19]  Armin Falk,et al.  Charitable Giving as a Gift Exchange Evidence from a Field Experiment , 2003, SSRN Electronic Journal.

[20]  Agents' Rationality and the Chf/Usd Exchange Rate Part 1 , 2003 .

[21]  Rüdiger Pethig,et al.  Conflicts and cooperation in managing environmental resources , 1992 .

[22]  Rüdiger Pethig,et al.  Illegal Pollution and Monitoring of Unknown Quality - A Signaling Game Approach , 1992 .

[23]  Matthias Benz,et al.  Being Independent is a Great Thing: Subjective Evaluations of Self-Employment and Hierarchy , 2003, SSRN Electronic Journal.

[24]  Joseph Greenberg,et al.  Avoiding tax avoidance: A (repeated) game-theoretic approach , 1984 .

[25]  Bruno S. Frey,et al.  The Economics of Museums , 2003 .

[26]  J. Laffont,et al.  The Theory of Incentives: The Principal-Agent Model , 2001 .

[27]  Bruno S. Frey,et al.  Does Marriage Make People Happy, or Do Happy People Get Married? , 2005 .

[28]  E. Fehr,et al.  The Hidden Costs and Returns of Incentives - Trust and Trustworthiness Among CEOS , 2004 .

[29]  E. Lazear,et al.  Rank-Order Tournaments as Optimum Labor Contracts , 1979, Journal of Political Economy.

[30]  Massimo Motta,et al.  Leniency Programs and Cartel Prosecution , 1999 .

[31]  J. Snyder.  Election Goals and the Allocation of Campaign Resources , 1989 .

[32]  J. Harsanyi.  Games with randomly disturbed payoffs: A new rationale for mixed-strategy equilibrium points , 1973 .

[33]  Alois Stutzer,et al.  The Role of Income Aspirations in Individual Happiness , 2003 .

[34]  Robert Gibbons,et al.  A primer in game theory , 1992 .

[35]  Robert Innes,et al.  Self‐Policing and Optimal Law Enforcement When Violator Remediation is Valuable , 1999, Journal of Political Economy.

[36]  Stephan Meier,et al.  Pro-Social Behavior, Reciprocity or Both? , 2002, SSRN Electronic Journal.

[37]  Rabah Amir,et al.  Market Selection and Survival of Investment Strategies , 2001 .

[38]  Stephan Meier,et al.  Do Business Students Make Good Citizens? , 2003 .

[39]  U. Fischbacher,et al.  A Nation-Wide Laboratory: Examining Trust and Trustworthiness by Integrating Behavioral Experiments into Representative Survey , 2003, SSRN Electronic Journal.