ABSTRACT
I analyze the economic value of whistleblowers for product safety. Only workers can observe cost-cutting production processes that increase the likelihood of defective products that inflict damage to the buyer. The possible emergence of whistleblowers incentivize the manufacturer to avoid cost-cutting production if the regulator reacts and forces the manufacturer to reproduce. This incentive is further magnified if the manufacturer is also required to pay compensation if a damage is inflicted to a buyer. However, these two policies are different: Whistleblowers can (ex-ante) reduce the probability of a damage whereas compensation is paid after a damage in inflicted (ex-post).
Shy, Oz, Whistleblowers and Product Safety (January 2, 2025).
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