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Wherever competition is used to motivate a desirable activity or productive effort it may also motivate undesirable and therefore prohibited behavior-that is, cheating-that the organizer of the contest attempts to police. For example, when workers compete for promotion, bonuses, or other rewards, they may misrepresent their output (i.e., commit fraud) or increase their output by unacceptable means (e.g., violate regulations). We show how the extent of cheating is determined by the payoffs at stake in the contest, the random component of output, probability of cheating being detected, number of contestants, and the penalty associated with being found to have cheated. We find that while greater enforcement reduces cheating, it may also reduce productive effort. We also identify how two particular aspects of enforcement, the awarding of default victories and use of correlated rather than independent audits, affect cheating behavior. (JEL J33, K42)

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"We study contests in which contestants choose both work effort and the variance of output (risk). Winner-take-all contests generate incentives for contestants to engage in costly risk taking, which is inefficient if the contest organizer values the aggregate output of all contestants. The addition of a penalty for ranking last (retaining a prize for ranking first) enables the organizer to independently control contestants' incentives to exert productive effort and to increase output variance. In this way, the organizer can eliminate risk-seeking behavior in settings where it is wasteful, but also control risk seeking when it is desirable, such as in research tournaments. "("JEL "J33, C72) Copyright (c) 2008 Western Economic Association International.