Deterrence in Rank-Order Tournaments
28 Pages Posted: 12 Dec 2005
Date Written: December 7, 2005
In a tournament, competitors may have the incentive to engage in undesirable activities, or cheating, in order to gain an advantage. Examples of such activities include the taking of steroids, plagiarism, and "creative accounting". This paper considers the problem of deterrence of such activities and finds that there exist special considerations that are not present in a traditional model of law enforcement. For example, an agent's decision to cheat depends on the whether others are cheating or not, and so there may exist multiple equilibria. In particular, multiple equilibria arise when prizes are simply confiscated from people found to have cheated and not re-awarded. The problem of multiple equilibria can be eliminated, however, if the first-place prize is awarded to the person that performed best without cheating. This has the effect of reducing the amount of monitoring required to generate an equilibrium in which neither agent cheats. It is demonstrated that monitoring costs can further be reduced by awarding a second-place and by monitoring the winner of the tournament more than the loser.
Keywords: Enforcement, Cheating, Tournament
JEL Classification: K42, J41
Suggested Citation: Suggested Citation