Collusion and biased tournaments

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. (C) 2016 Elsevier B.V. All rights reserved.