Bounty Hunting: The Limits of Financial Incentives for Reporting Corruption

Abstract

Financial incentives for exposing illegal behavior are experiencing a resurgence in popularity in the United States. These laws offer a “bounty” to the person who reports illegal behavior to government investigators or prosecutors. Bounty laws are held up by lawmakers, anti-corruption activists, and some scholars as an effective and low-cost enhancement to government investigatory and enforcement efforts. They have two primary aims: return money to government and deter future illegal behavior. This project uses an original dataset on local government corruption to present the first empirical analysis of their ability to deter corruption in the false claims context. I find that while bounty laws may be quite effective in recovering government money, we have no evidence that they actually succeed in deterring corruption. This is, in part, because they are currently aimed at very large amounts of corruption, among which there are very few cases. To the extent that lawmakers want to use the tool more broadly, they should consider two approaches. The first is to lower the currently high bar to receiving a bounty for blowing the whistle. The second is to focus on expanding the law into other forms of corruption that directly take government money, like embezzlement, rather than using them to deter non-monetary corruption, like nepotism or many kinds of bribery.