Corruption, Intimidation, and Whistle-blowing: a Theory of Inference from Unverifiable Reports

Abstract

We are grateful to Johannes H\H orner for a very helpful discussion. We are indebted to Nageeb Ali, Abhijit Banerjee, Michael Callen, Yeon Koo Che, Hans Christensen, Ray Fisman, Matt Gentzkow, Bob Gibbons, Navin Kartik, David Martimort, Andrea Prat, Jesse Shapiro, as well as seminar audiences at Berkeley, Columbia, Essex, Hebrew University, the Institute for Advanced Study, the 2013 Winter Meeting of the Econometric Society, MIT, MIT Sloan, the Nemmers Prize Conference, NYU, NYU IO day, Paris School of Economics, Pompeu Fabra, ThReD, and the UCSD workshop on Cellular Technology, Security and Governance for helpful conversations. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.© 2014 by Sylvain Chassang and Gerard Padró i Miquel. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. ABSTRACTWe consider a game between a principal, an agent, and a monitor in which the principal would like to rely on messages by the monitor to target intervention against a misbehaving agent. The difficulty is that the agent can credibly threaten to retaliate against likely whistleblowers in the event of an intervention. In this setting intervention policies that are very responsive to the monitor's message provide very informative signals to the agent, allowing him to shut down communication channels. Successful intervention policies must garble the information provided by monitors and cannot be fully responsive. We show that even if hard evidence is unavailable and monitors have heterogeneous incentives to (mis)report, it is possible to establish robust bounds on equilibrium corruption using only non-verifiable reports. Our analysis suggests a simple heuristic to calibrate intervention policies: first get monitors to complain, then scale up enforcement while keeping the information content of intervention constant.

Credibility of Crime Allegations

“…This article is also related to Chassang and Miquel (2014), a study of unverifiable reporting by whistle-blowers. That study takes a mechanism design approach, in which the cost of reporting arises endogenously as retaliation from the accused.…”

Delegating Relational Contracts to Corruptible Intermediaries

“…erences are known, but in reality there is uncertainty as to 'how corrupt' any individual is. Removing this assumption, possibly in a similar way to Chassang (2010) or Chassang and Padró i Miquel (2014), may reveal insights into how corruption and effort evolve over time. We may also ask whether corrupt relational contracts make supervisors more likely to stick with the same firm over time.…”

“…The assumption that α is chosen by the principal may be reasonable in contexts where the principal designs the supervisor's contract, but unreasonable in others. For instance, Chassang and Padró i Miquel (2014) argue that payoff functions are rarely available as policy instruments in settings with corruption. An important situation where α may be exogenous is when it represents the supervisor's intrinsic motivations.…”

Crime Aggregation, Deterrence, and Witness Credibility

“…2. As L goes to +∞ and the fraction of behavioral agents 1 − δ goes to 0, 15 The informativeness ratio I goes to +∞ and the prior probability of offense Pr(θ = 1) goes to 0.…”