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CORRUPTION, INTIMIDATION, AND WHISTLEBLOWING:
A THEORY OF INFERENCE FROM UNVERIFIABLE REPORTS
SYLVAIN CHASSANG AND GERARD ...
BIG PICTURE
•  How to design a regulatory process?
•  The regulatory process involves
•  many actors: executives, legislat...
THIS PAPER
FOCUS: Agent can retaliate/punish the monitor for reporting him
CONCERN: Due to the threat of retaliation, the ...
HOW TO DESIGN AN INTERVENTION STRATEGY
GIVEN POSSIBLE RETALIATION?
REACTIVE STRATEGY : intervention only if the monitor re...
HOW TO DESIGN AN INTERVENTION STRATEGY
GIVEN POSSIBLE RETALIATION?
PROACTIVE STRATEGY : intervention with positive probabi...
COMMENT 1: HETEROGENEOUS AGENTS
•  Multiple agents with heterogeneous characteristics
–  Different benefits from corruptio...
COMMENT 2: CREATING NOISE IN THE REGULATOR PROCESS
•  Noise must be sufficiently large to lower the
intervention’s informa...
COMMENT 3: THE AGENT’S COMMITMENT
•  The agent being able to commit to costly
retaliation is important to render reactive ...
CORRUPTION, INTIMIDATION, AND WHISTLEBLOWING:
A THEORY OF INFERENCE FROM UNVERIFIABLE REPORTS
SYLVAIN CHASSANG AND GERARD ...
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Comments on "Corruption, Intimidation and Whistleblowing"

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Comments by Chloé Le Coq on paper "Corruption, Intimidation and Whistleblowing" presented by Sylvain Chassang at the SITE Corruption Conference, 31 August 2015.

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Comments on "Corruption, Intimidation and Whistleblowing"

  1. 1. CORRUPTION, INTIMIDATION, AND WHISTLEBLOWING: A THEORY OF INFERENCE FROM UNVERIFIABLE REPORTS SYLVAIN CHASSANG AND GERARD PADRO I MIQUEL Comments by Chloé Le Coq, Stockholm School of Economics_SITE SITE Corruption conference, August 31 - September 1, 2015
  2. 2. BIG PICTURE •  How to design a regulatory process? •  The regulatory process involves •  many actors: executives, legislature, supervisors, auditors, regulated firms or industries, customers, taxpayers, trade unions •  complex information processing (Political) decision makers PRINCIPAL Supervisor, Regulatory Agency MONITOR Customers, taxpayers or regulated firm AGENT REPORT REGULATION
  3. 3. THIS PAPER FOCUS: Agent can retaliate/punish the monitor for reporting him CONCERN: Due to the threat of retaliation, the monitor may choose not to report even if the agent is corrupted (Political) decision makers PRINCIPAL Supervisor/Regulatory Agency MONITOR Interest groups AGENT REPORT REGULATION RETALIATION
  4. 4. HOW TO DESIGN AN INTERVENTION STRATEGY GIVEN POSSIBLE RETALIATION? REACTIVE STRATEGY : intervention only if the monitor reports a case of corruption Optimal when messages are exogenous BUT exogenous messages essentially assumes away the incentive problem between the agent and the monitor When messages are endogenous, the reactive strategy triggers costly retaliation from the agent ⇒ The monitor never reports as the agent is committed to the costly retaliation ⇒ In equilibrium the costly retaliation never occurs as the monitor does not report Endogenous messages + reactive strategy => generate an equilibrium in which the agent is corrupted
  5. 5. HOW TO DESIGN AN INTERVENTION STRATEGY GIVEN POSSIBLE RETALIATION? PROACTIVE STRATEGY : intervention with positive probability even when the monitor reports that the agent is honest ⇒ Committing to very costly retaliation in case of intervention may not be optimal as the agent will incur this large cost with positive probability ⇒ The noise reduces the agent’s possibility to provide the monitor with incentives Endogenous messages + proactive strategy => generate an equilibrium in which the agent is not corrupted The proactive strategy is superior to the reactive strategy
  6. 6. COMMENT 1: HETEROGENEOUS AGENTS •  Multiple agents with heterogeneous characteristics –  Different benefits from corruption –  Different cost of retaliation •  Should the Principal adapt its intervention to each agent ?
  7. 7. COMMENT 2: CREATING NOISE IN THE REGULATOR PROCESS •  Noise must be sufficiently large to lower the intervention’s informational content •  But noise generates opacity •  Could there be a trade off ? –  Opacity may deter new comers/investors –  Opacity may create distrust between monitors and regulator and reduce the efficiency of the regulatory process
  8. 8. COMMENT 3: THE AGENT’S COMMITMENT •  The agent being able to commit to costly retaliation is important to render reactive strategy inefficient. •  What type of mechanisms behind this commitment technology?
  9. 9. CORRUPTION, INTIMIDATION, AND WHISTLEBLOWING: A THEORY OF INFERENCE FROM UNVERIFIABLE REPORTS SYLVAIN CHASSANG AND GERARD PADRO I MIQUEL Comments by Chloé Le Coq, Stockholm School of Economics_SITE SITE Corruption conference, August 31 - September 1, 2015

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