Makowsky, Michael D. and Wang, Siyu, Embezzlement, Whistleblowing, and Organizational Structure (February 12, 2015). Available for download at SSRN: http://ssrn.com/abstract=2563849

“We build and test a theoretical framework which captures the key features of embezzlement and whistleblowing within different organizational structures. The model is a synthesis of an inverted public goods game and an ultimatum game (“a group ultimatum game”). In both the model and laboratory experiment, individuals are given access to a public resource pool, from which each can withdraw varying amounts. A fraction of individuals are also given the option to act as whistleblowers, relegating all group members to returns of zero. Organizational structures vary in their mixture of sequential and simultaneous decision-making, resulting in differing allocations of heterogeneous player information, resource access, and monitoring power. We find that both embezzlement and whistleblowing are increasing with the number of levels in the structure, while also varying with the location leaders in the sequence of decision-making. Our results highlight the role that organizational structure can play in mitigating embezzlement.“