Does joint liability reduce cheating in contests with agency problems? Theory and experimental evidence

Abstract

Contest participants often have strong incentives to engage in cheating. Sanctions serve as a common deterrent against such conduct. Often, other agents on the contestant's team (e.g., a coach of an athlete) or a company (a manager of an R\&D engineer) have a vested interest in outcomes and can influence the cheating decision. An agency problem arises when only the contestant faces the penalties for cheating. Our theoretical framework examines joint liability, i.e., shifting some responsibility from the contestant to the other agent, as a solution to this agency problem. Equilibrium analysis shows that extending liability reduces cheating if fines are harsh. Less intuitively, when fines are lenient, a shift in liability can lead to an increase in equilibrium cheating rates. Experimental tests confirm that joint liability is effective in reducing cheating if fines are high. However, the predicted detrimental effect of joint liability for low fines does not occur.