CHEATING IN CONTESTS

I. INTRODUCTION Competition to win the rewards attendant to ranking first in a contest motivates effort or performance by agents in all manner of tasks. Of course, competition is also often valued for its own sake as well as for eliciting output from the contestants, as evidenced by the popularity of activities as diverse as sports, poker tournaments, singing contests, and the plethora of "reality" television programs featuring a contest to be the last contestant standing at the end of the season. Virtually every contest is characterized by rules (sometimes implicit) regarding acceptable and unacceptable behavior. Executives within a firm compete for promotion based on their performance, but accounting fraud, violation of government regulations, or simply unprofessional or unethical business conduct unacceptable to the firm may disqualify an individual. Athletes may cheat by using performance-enhancing drugs or banned equipment (e.g., a corked baseball bat). Firms in a rent-seeking contest may go beyond legal forms of buying political influence (lobbying) to unacceptable bribery. Wherever competition motivates a desirable activity or productive effort, it may also motivate undesirable and therefore prohibited behavior--that is, cheating--that the organizer of the contest must attempt to police. If enforcement is sufficiently costly and imperfect, cheating will play a role. In this article, we model cheating behavior in a symmetric rank-order tournament contest. We ask how the degree of cheating responds to the parameters of the tournament (e.g., the payoff spread, the distribution of the random component of output, the probability of being caught cheating, and the number of contestants), and we identify how particular aspects of the design of contests affect cheating. Since the pioneering work of Lazear and Rosen (1981), Nalebuff and Stiglitz (1983), O'Keeffe, Viscusi, and Zeckhauser (1984) and others, a large body of literature has modeled the incentives of agents in contests or rank-order tournaments. The distinguishing features of these models are that contestants are compensated based on the rank of their output compared with others rather than the level of output, compensation levels (or prizes) are set in advance, and output or rank is determined by a combination of costly effort and random noise. The somewhat distinct literature on all-pay auctions differs in that no random component contributes to the outcome and therefore equilibrium behavior may be characterized by mixed strategies (see, e.g., Baye, Kovenock, and de Vries 1996). Baye and Hoppe (2003) discuss the strategic equivalence of rent seeking, innovation, and patent-race games, which are all essentially contests in which each player expends resources in an attempt to win a prize, However, to our knowledge, there have been only limited efforts (discussed below) to model contestants' incentives to cheat in models of contests. In our model, cheating is deterred through a random audit or inspection process. Cheating increases a contestant's output, but the more a contestant cheats, the more likely his cheating will be detected in the event an audit occurs. Many of the results of our model are quite intuitive: the extent of cheating decreases as the probability of detection grows, the degree of the randomness increases, or the penalty if caught cheating increases. However, several results are surprising. We find that although increasing monitoring intensity drives down the level of cheating, it may decrease productive effort in the contest. This occurs because effort falls if it becomes more likely that the effort will not determine the outcome, and when monitoring is increased from a low level, this increases the probability that the outcome of the contest is determined by disqualification. We find that the level of cheating is reduced when a contestant can win by default. That is, if the discovery of cheating on the part of the contestant who finished first results in the next highest ranking contestant winning by default, the incentive to cheat is weaker than if no prize is awarded when the top-ranked contestant is found to have cheated. …