Cheating and Enforcement in Asymmetric Rank‐Order Tournaments

[Author Affiliation]C Jill Stowe, Department of Agricultural Economics and Department of Economics, University of Kentucky, 307 C.E. Barnhart Building, Lexington, KY 40506-0276, USA, jill.stowe@uky.edu (corresponding author)Scott M Gilpatric, Department of Economics, University of Tennessee, 520 Stokely Management Center, Knoxville, TN 37996, USA, sgilpatr@utk.edu[Acknowledgment]The authors would like to thank participants at the Tournaments, Contests, and Relative Performance Evaluation (March 2008) meetings, the Fuqua Summer Brown Bag Series, Leslie Marx, Luca Rigotti, and anonymous referees for helpful comments. All remaining errors, of course, are our own.Gilpatric received support from The U.S. Environmental Protection Agency (EPA) which provided funding for this research under STAR grant R832847. The research has not been subjected to EPA review and therefore does not necessarily reflect the views of the Agency, and no official endorsement should be inferred.1. IntroductionAmong the many issues surrounding incentives to cheat in rank-order tournaments and contestants' behavior when cheating is possible, one of the most important is the effect of asymmetry in the position of the contestants. If two contestants are competing for a prize but one has an advantage over the other (such as greater ability or talent, or simply being "ahead" because of the history of play up to that point in the contest), will the trailing player necessarily be more likely to cheat because he needs to close the gap and has less to lose from possible disqualification? Might there be circumstances under which the leader cheats to maintain her advantage, because if she does not, the trailing player can close the gap by cheating? This article presents a model to provide insights into how positional concerns influence cheating in rank-order tournaments.1Rank-order tournaments present an environment in which the incentive to cheat may be particularly strong for a few reasons.2 First, tournaments are generally used in environments in which actions are difficult to monitor. Second, a small increase in a contestant's output can dramatically change his payoff if it increases his rank. Cheating in various forms has been observed in important competitive settings, such as corporate promotion tournaments and sports competitions, which can be broadly characterized as taking place in contests and can be modeled as rank-order tournaments of the sort first introduced by Lazear and Rosen (1981).In this article, we consider a game in which two heterogenous players simply choose whether or not to cheat. This can be thought of as the final stage of a tournament in which players have previously chosen effort and now find themselves having an opportunity to cheat while knowing their current position relative to each other. Or it can be considered as the final round of a multistage tournament in which one player is ahead of the other entering the last phase of competition. Our focus is on how equilibrium cheating behavior is affected by varying the intensity of enforcement, represented by the probability that contestants are audited to detect cheating, and on the conditions required to achieve complete deterrence of cheating and thus a "clean" contest. Consistent with intuition we find that the trailing player has a strong incentive to cheat, but in some circumstances, it is the leading player who is more likely to cheat.In addition, we explore how differences in the auditing regime affect cheating behavior. We find that employing "correlated" audits (both contestants are audited simultaneously with some probability and otherwise neither is) yields less frequent cheating in the mixed-strategy equilibrium of the game than if the two contestants are audited with an equal probability but as a result of independent random draws. Using a correlated audit regime achieves more effective deterrence of cheating than independent audits for any given expenditure of resources when resources are not sufficient to achieve full deterrence. …