Collusion and biased tournaments |
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| Institution: | 1. SOCIUM Economics Department, University of Bremen, Mary-Somerville-Str. 5, 28359 Bremen, Germany;2. Department of Economics, George Mason University, 1D3 Carow Hall, Fairfax, VA 22030, USA;1. Department of Economics, Yeshiva University, United States;2. Department of Economics and CIREQ, McGill University, Canada;1. Department of Business Policy, National University of Singapore, 1 Business Link, Singapore, 117592, Singapore;2. Lingnan College, Sun Yat-sen University, 135 Xingangxi Road, Guangzhou, 510275, PR China;3. Department of Economics, National University of Singapore, Singapore 117570, Singapore;1. Dipartimento di Economia Marco Biagi, Università degli Studi di Modena e Reggio Emilia, Viale Berengario 51, 43 ovest, 41100 Modena, Italy;2. Dipartimento di Scienze per l?Economia e l?Impresa, Università degli Studi di Firenze, Via delle Pandette 9, 50127 Firenze, Italy |
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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? 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?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. |
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| Keywords: | Collusion Bias Tournament |
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