Horizontal and Vertical Social Preferences in Tournaments

Most studies find no collusion in tournaments. This result suggests that social preferences are irrelevant in this context. We investigate the impact of social preferences in a tournament using data from a laboratory experiment with two treatments. In a conentional tournament, an agent receives either the full prize or no prize at all. The other tournament provides the same incentives but the actual payment of an agent equals her expected payment. In both treatments the principal chooses between a fair and an unfair contract. Standard economic theory predicts the same effort provision in all situations. Our results show instead that envy between agents and the fairness of the principal determine the effectiveness of tournaments. Moreover, we observe that collusion between the agents and reciprocity towards the principal are mutually exclusive.