Research On Whistleblower Mechanism In Securities Supervision Based On Mechanism Design Theory

The reform of the securities supervision is one of the most urgent issues in China.This paper studies the whistleblower mechanism in securities supervision base on mechanism design theory,and provide a calculation method for the reward ratio of the penalties.Whistleblower mechanism is a set of policies to motivate employees to disclose criminal or improper activities and providing them protection and rewards.Mechanism design theory,based on information economics and game theory,provides an analytical framework for this paper.Mechanism design theory regards the mechanism as a process of information exchange and adjustment.Based on this,this paper regards the key information exchange as a trading,so the bounty is the price of the information sold by the whistleblower.Prices are determined by production costs,transaction costs,and demand prices.As an internal employee,the cost of obtaining the information is generally zero.And as the identity of the whistleblower can and should be kept secret,this paper make the transaction being zero as a prerequisite for analysis.The demand price can be considered as the illegal income of the corporate violations.The deal between whistleblower and regulator is a game of one seller and one buyer without competitors.Based on these understandings and analyses,this paper uses three methods:maximizing social welfare,von Neumann-Morgenstern utility function and introducing the concept of "fair cognition" to solve the pricing issueThe proportion of whistleblowing reward is equal to the price of information divided by the penalties imposed by the regulator.This paper widely analyses the supervision system based on the punishment mechanism in the securities market,including the optimal cost of supervision,the rationality of "punishing with a penalty of more than one time and less than five times of the illegal income" in the Securities Law,the method of calculating illegal income of information disclosure and the method of calculating externalities of illegal activities based on lemon market theory,etc.We argue that penalties set for corporate wrongdoing should be based on the social consequences divided by the probability of detection,and the social consequences are the sum of the illegal income and the externalities.The conclusion is the proportion of whistleblowing reward should be from 1%to 25%.Based on this,we suggest that the whistleblower provision in securities supervision would be:when the penalties is more than 3 million yuan,whistleblower can get 1%to 25%of the penalties as reward,the amount of reward should not be more than 3 million yuan,and in significant issue should not be more than 5 million yuan.