The Hidden Costs of Whistleblower Protection

Abstract We conduct a laboratory experiment to analyze the influence of whistleblower protection on the cooperative behavior between a manager and an employee. Before taking part in a trust game with her employee, a manager has the opportunity to embezzle money at the expense of a third party. The employee observes her decision and may trigger an investigation by blowing the whistle. The treatments vary with respect to immunity and anonymity for the whistleblower. We compare misbehavior, reporting, and cooperative behavior across the treatments. The results suggest that whistleblower protection could deter wrongdoing, but could also have a detrimental effect on cooperation in organizations if it increases the probability for whistleblowing.