Speaker: Giancarlo Spagnolo, University of Tor Vergata, Stockholm School of Economics
Abstract: The act of exposing illegal, fraudulent or simply untoward acts committed by firms, government agencies or other individuals, i.e., “whistleblowing,” has become a central topic of debate in the US. In this paper, we experimentally investigate employees’ decisions to blow the whistle against their manager or CEO, if they acquire information on the manager’s engagement in illegal activities that benefit the firm but harm society as a whole. We are particularly interested in the role that both monetary incentives and public image concerns, and their interaction, play in the decision to blow the whistle. To this end, we conduct a specially designed laboratory experiment to investigate whether and to what extent employees’ willingness to blow the whistle responds to the presence of financial rewards and/or to the possibility of receiving social approval or disapproval from the public. Our experiment also allows us to explore whether the effectiveness of both monetary incentives and social judgment depends on the extent to which the general public feels personally affected by the fraudulent activities uncovered by the whistleblower. Our results suggest that financial rewards ubiquitously increase the likelihood of whistleblowing. On the other hand, the possibility of social judgment increases (decreases) whistleblowing only when the negative externalities generated by the manager’s illegal activities are visible (invisible) to the public.