An economic rationale for firing whistleblowers
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- Bac, M. Eur J Law Econ (2009) 27: 233. doi:10.1007/s10657-008-9091-5
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Organization members disclosing their superiors’ violations of duty are characterized by high ethical standards and, surprisingly often, fired for blowing the whistle. This paper provides an economic rationale for firing whistleblowers in a model where only the “ethical” type of agent can internally report the manager’s violation of duty. Revelation of an ethical type in the organization increases the perceived future probability of detecting and punishing the manager. Replacing the ethical type by an agent of unknown type restores this probability to its initial level, and this is optimal in organizations in which the standard of proof in establishing the manager’s violation of duty is low.