Whistleblowing is the most costly form of institutional accountability available. Its costs fall almost entirely on the whistleblower. Its benefits fall almost entirely on the public.
The Cost Structure of Whistleblowing
The economics of whistleblowing — the disclosure of government or corporate misconduct by individuals with inside knowledge — are systematically unfavourable to the whistleblower. The direct costs of whistleblowing include the legal exposure that the disclosure creates if the disclosed information is subject to classification or confidentiality obligations, the career consequences of being identified as someone who publicly disclosed the organisation's internal problems, and the personal costs of the retaliation, isolation, and sustained legal and professional proceedings that most whistleblowers experience. The indirect costs include the opportunity costs of the years that whistleblower proceedings typically consume and the permanent change in professional reputation that whistleblower status creates regardless of the outcome of the proceedings.
The benefits of whistleblowing — the public benefit of the accountability that the disclosure enables — accrue primarily to the general public rather than to the whistleblower. The fraud that is stopped, the harm that is prevented, the accountability that is achieved — these benefits are broadly distributed in ways that the whistleblower cannot capture. The result is a classic public goods problem: the whistleblower bears concentrated private costs to produce diffuse public benefits, which systematically produces less whistleblowing than the public interest would call for.
The Legal Framework
The various federal and state whistleblower protection laws — the False Claims Act's qui tam provisions, the Whistleblower Protection Act, the Dodd-Frank whistleblower programme — represent the government's attempt to shift the cost-benefit calculus of whistleblowing by providing financial incentives and legal protections for qualifying disclosures. The financial incentives under the False Claims Act's qui tam provisions have produced significant recoveries of federal funds and significant awards to relators who brought the cases. The legal protections have been less effective at preventing the retaliation that most whistleblowers experience, in part because the legal protections are only as effective as the enforcement mechanisms that back them up.
Whistleblowing is the accountability mechanism of last resort — the mechanism that operates when all internal oversight channels have failed. The person who uses it pays a private cost to produce a public benefit. The public that benefits and the government that claims to value accountability should be investing substantially more than it currently does in making those costs less prohibitive.
Discussion