Corruption, Intimidation, and Whistleblowing : A Theory of Inference from Unverifiable Reports

We 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 intervention. As a result, intervention policies that are very responsive to the monitor's message can give rise to unreported corruption in which the agent dissuades informative messages. Successful intervention policies must therefore avoid full responsiveness in order to garble the information provided by monitors. 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