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November 13, 2008

An idea for Obama

Back in 2004 Luigi Zingales made a simple policy suggestion. Pay 10% of whatever fees and legal awards are generated by whistle blowing to the whistle blower. This is an idea that would help encourage rule compliance, increase the amount of information the public had about corporations, and counteract the enormous incentive firm insiders have to remain quiet about misdeeds.

A 1992 survey of 1,500 federal workers who reported misconduct provides a snapshot of
the consequences: Twenty-five percent experienced verbal harassment and intimidation;
20 percent were shunned by co-workers and managers; 18 percent were assigned to less
desirable duties; 11 percent were denied a promotion. A 1998 survey of 448 emergency
physicians is even more bleak: Twenty-three percent of those who complained about an
issue reported having been fired or threatened with termination.

I could see why Bush wouldn't like this idea. When anyone could be a turncoat without consequence, it creates an atmosphere of fear among insiders. It might encourage enforcement of regulations laws best left unenforced because they lack a real regulatory purpose but have very real punishments and mitigation costs. But for Obama, with a different sort of attitude towards regulations, this is the exact sort of law he should like. It gives us more bang for out buck on regulatory enforcement. It protects whistle blowers from the dismal financial future of being shunned by future employers. Finally, by providing an award to the first whistle blower (or fist group) it provides an incentive to alert the authorities early, while problems are more manageable.

Posted by OneEyedMan at November 13, 2008 5:46 PM

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