Whistleblowing Behavior in Organizations

Abstract

We develop a game theoretical model of whistleblowing behavior in organizations, focusing speci�fically on the role of incentives aimed at encouraging this type of behavior. We also analyze the potential impacts of whistleblowing behavior on the persistence of corruption. First, we present a static game consisting of two employees with three available strategies: honest, corrupt and whistleblowing behavior. Later, we examine the pure and mixed Nash equilibrium strategies of the game. Second, we use the concept of replicator dynamics to formally explore the local asymptotic stability of whistleblowing behavior within organizations. Our main results show that whistleblowing as a mechanism to control wrongdoing is only relevant under the existence of external monitoring (if the probability of detecting wrongdoing with an external mechanism is close to zero, then in the long term, all employees will begin to behave corruptly). We also show that whistleblowers reduce the minimum wages required to avoid corruption within an organization, making it less costly for an organization to combat corruption. Finally, we claim that whistleblowing strategies seem to be less attractive for activities with very high bribery in comparison to the rewards for whistleblowers, for example, this could be the case of manufacturing or retail, but not for �nancial services in general