A fresh look at whistleblower rewards

Abstract

Research on whistleblowing has increased significantly in the last decades, and so has the number of laws governing whistleblowing. Whereas the EU recently enacted a Directive (Directive 2019/1937) protecting whistleblowers, the US has gone one step further long ago, not only protecting them but also offering substantial monetary rewards for their information. More countries are now adopting reward programs, while numerous recent instances of corporate wrongdoing suggest that the central promise of these programs: increasing detection and deterrence of wrongdoing, is highly needed not only in the US. These developments warrant a review on the optimal design of these programs, based on experience and available evidence, to obtain optimal deterrence and avoid policy mistakes. In this paper, we review the evidence for the effectiveness of the US whistleblower reward programs and consider some recent novelties. We also consider objections against these programs and local factors in the US that likely contribute to their success. Finally, we voice some concerns over the EU Directive’s ability to achieve its policy objective of enhancing enforcement of Union law. We find that the evidence for the effectiveness of reward programs is significant, and that common concerns about these programs have not materialized. Whereas much of the prior literature has focused on their viability and effectiveness, further research would do well in focusing on how to effectively design these programs, what has driven their success, and what local national characteristics could hamper their effectiveness outside the US.