Recipients of federal funds defraud the government of billions of dollars each year. While defrauding the government is of course illegal, asymmetric information and limited resources prevent the government from detecting and prosecuting all fraud. To increase the fraud detection rate, the government allows private citizens to serve as whistleblowers or private prosecutors in return for part of the recovery. Even given this financial incentive, however, private whistleblowers’ interests do not always align with those of the government. This disconnect causes two problems: the whistleblowers need an incentive to act, but may act even when their actions are unnecessary. To solve these problems, Congress tried three times over the past century and a half to set the right incentives such that private citizens with information act when needed, but only when needed. Some courts’ interpretations of two federal statutes, the False Claims Act and the Freedom of Information Act (FOIA) threaten to undermine the carefully constructed system. These decisions eliminate the incentives for some whistleblowers to investigate, report, and litigate fraud against the government, leading to reduced recovery and underdeterrence.
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