Collusion and biased tournaments

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Abstract

Tournaments are vulnerable to collusion. This paper finds that biased tournaments can be more effective at preventing collusion than unbiased ones. When agents can collude to exert low effort, introducing some bias into tournaments generates opposite effects on favored and disfavored agents[U+05F3] respective incentives to exert high effort and provides strong incentives for the favored agent to deviate from collusion. Introducing an adequate degree of bias reduces the principal[U+05F3]s incentive cost for preventing collusion; however, granting excessive bias instead increases the incentive cost. We show that the optimal level of bias can be endogenously determined.
Original languageEnglish
Pages (from-to)127-143
Number of pages17
JournalEuropean Economic Review
Volume85
DOIs
Publication statusPublished - 1 Jun 2016

Keywords

  • Bias
  • Collusion
  • Tournament

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