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Austensmith Feddersen (2008) - Public Disclosure Private Revelation Or Silence (view source)
Revision as of 19:14, 29 September 2020
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{{Article
|Has page=Austensmith Feddersen (2008) - Public Disclosure Private Revelation Or Silence
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|Has article title=Public Disclosure Private Revelation Or Silence
|Has author=Austensmith Feddersen
|Has year=2008
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|In number=
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*This page is referenced in [[BPP Field Exam Papers]]
==Reference(s)==
Austen-Smith, D. and T. Feddersen (2008), Public Disclosure, Private Revelation or Silence: Whistleblowing Incentives and Managerial Policy, Kellogg School of Management Working Paper. [http://www.edegan.com/pdfs/AustenSmith%20Feddersen%20(2008)%20-%20Public%20Disclosure%20Private%20Revelation%20or%20Silence.pdf pdf] ([http://www.edegan.com/repository/AustinSmith%20Feddersen%20(2008)%20-%20Whistleblowing%20--%20Handout.pdf Class Handout] and [http://www.edegan.com/repository/AustinSmith%20Feddersen%20(2008)%20-%20Whistleblowing%20--%20Slides.ppt Class Slides], © Bo Cowgill and Tarek Ghani)
==Abstract==
The public revelation of organizational wrongdoing by insiders, whistleblowing, is widely reported, economically signi?cant significant and can be extremely costly to the whistleblowers. We develop a model of whistleblowing involving a manager and an employee. Each has a privately known type that specifes the relative weight placed on social rather than personal payoffs. The manager chooses a whistleblowing policy consisting of conditional penalties for various employee actions; the employee observes the policy and chooses between saying nothing, revealing a (privately observed) socially costly violation to the manager, or whistleblowing. Given common knowledge of manager types we characterize equilibrium whistleblowing policies and employee behavior. We show that there may be a nonmonotonic relationship between the severity of the violation and the likelihood of whistleblowing. When manager types are private information we provide suffcient conditions for a separating equilibrium. Managerial choice of whistleblowing policies thus serves a dual purpose: providing incentives for reporting violations and providing information to employees regarding the willingness of the manager to fix violations that are privately reported.
==The Model==
*A type <math>t\,</math> employee chooses from <math>a_e(v,t) \in \{\phi,p.w\}\,</math>
**If <math>\phi\,</math> then nature reveals the violation with probability <math>q_{\phi}v\,</math>, where <math>q_{\phi} \in \left [0,1\right)\,</math>. The revelation of the information by nature is modelled as <math>\Omega_{\phi} \in \{0,1\}\,</math>
**If <math>p\,</math> then the manager chooses whether or not to fix the violation. Fixing costs the firm <math>\alpha v\,</math>, <math>\alpha >0\,</math>. Let <math>a_m(v,s) \in \{f,\sim f\}\,</math>. If not fix (<math>\sim f\,</math>), then nature chooses to reveal the violation with probability <math>q_pv\,</math>, where <math>q_p \in (q_{\phi},1)\,</math>, and again the revelation is modelled as <math>\Omega_{p} \in \{0,1\}\,</math>. If the violation is fixed it is never revealed.
**If <math>w\,</math>, then <math>v\,</math> becomes common knowledge (denoted <math>\Omega_{w} \equiv 1\,</math>).
The solution concept is Perfect Bayesian equilibria in (weakly) undominated strategies.
==Three Benchmark Cases==
\end{cases}
\,</math>
===Whistleblowing Under a Type 0 Manager===
*For any violation <math>v \in \left[\hat{v},\dot{v} \right)\,</math> the employee reports privately if his type is above a cutoff, and otherwise stays silent
*For any violation <math>v \in \left(0,\hat{v}\right)\,</math> and <math>c \ge \tilde{c}(v)\,</math> as a punishment for reporting privately, the employee stays silent if his type is below a cutoff, and otherwise blows the whistle.
==Seperating Equilibria==
