Whistleblowing Bounties and Informational Effects

Abstract

In this paper, we examine the impact of increasing whistleblowing bounties on whistleblowers' strategy, the information regulators can extract from the whistleblowing program and the regulators' efficiency in detecting fraud. We find that, with a larger bounty, the regulator's information upon receiving a whistleblowing report deteriorates, while, perhaps surprisingly, the regulator's information upon no whistleblowing improves. Ex ante, when the concern about the fraud is sufficiently severe and the whistleblowing program is of high quality, increasing the bounty leads to a positive informational effect, and thus the optimal bounty is at a high level; otherwise, increasing the bounty has a negative informational effect and an intermediate level of bounty is optimal. Our analysis generates both policy and empirical implications for designing and studying the whistleblowing program.