Collusion under yardstick competition: an experimental study

The effectiveness of relative performance evaluation schemes, such as yardstick competition, can be undermined by collusion. The degree to which the regulated agents manage to collude will be affected by the particulars of the scheme. We hypothesize that in a repeated game setting, schemes will be more prone to collusion the smaller are the rents to the agents, in case they behave noncooperatively. We illustrate the relevance of this hypothesis by means of an economic experiment in which we compare the efficiency of two performance evaluation schemes. (C) 2004 Elsevier B.V. All rights reserved.