Comments by Chloé Le Coq on paper "Corruption, Intimidation and Whistleblowing" presented by Sylvain Chassang at the SITE Corruption Conference, 31 August 2015. Find more at: https://www.hhs.se/site

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. 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. 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. 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. 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. 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. 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. 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. 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