A growing literature has highlighted the possibility of favorable treatment of some agents offered by principals. Such behavior can lead to inefficiency in principal-agent relationships and hence inefficiency in particular labor markets. If agents' performances in workplaces are subjectively assessed then key decisions on worker careers, such as promotions, may be biased in such a way that the most productive workers may not be optimally allocated to their best jobs and assignments within organizations. This problem has been analyzed theoretically by Prendergast (1999).
Although the theory of favoritism in principal-agent relationships is well established, testing for both the presence of favoritism and for unintended adverse effects on organizational performance is very difficult in most labor markets as the required data are simply not available. Questionnaires are unlikely to elicit honest and reliable responses to questions about favoritism. Assessing worker performance in many organizations, particularly in the service sector, is fraught with difficulties because of complexities of team production.
Hence, many researchers have turned to professional team sports as a vehicle for analyzing favoritism and its effects on organizations. Team sports offer precise, detailed, and publicly available performance data for both players and teams. In this paper, we investigate favoritism as applied by soccer referees in response to social pressure applied by crowds inside stadia. Soccer authorities are aware of the possibilities of bias when soccer referees make judgements during matches and these referees are trained to avoid such bias. In one of the competitions that we shall analyze, the pan-European Union of European Football Association (UEFA) Champions League, the organizers appoint neutral match officials from outside the countries represented by the teams in any match. We shall show that referee bias persists even in this case. In our second case, the Spanish Primera Liga, we also find evidence of referee bias. This case comprises teams that vary considerably in size and also have to travel long distances to games in a large country.
We aim to assess bias by referees in the form of awards of sanctions against players who are penalized for infractions against the rules of professional soccer. These rules are set by the world governing body of soccer, Federation Internationale de Football Association (FIFA), and not by competition organizers. The role of soccer referees is to ensure that players perform within the rules of soccer and, when rules are broken, that players are sanctioned appropriately. Sanctions vary from free kicks against the offending team to yellow cards ("cautions") to the ultimate sanction of a red card, denoting expulsion from the game without replacement. Two yellow cards awarded to a player in a match results in automatic expulsion and so can be seen as equivalent to a red card.
In team sports worldwide, referees and umpires are employed to make critical judgements about player behavior that could have consequences for game outcomes. In baseball, umpires decide whether a pitcher's ball is in a "strike zone" defined as an area within which a batter has the potential to hit the ball. In basketball, referees assess whether fouls are committed. In each of these sports, investigators have detected racial bias. In Major League Baseball, pitchers with same race or ethnicity as the umpires give up fewer hits, strike out more batters, and improve their teams' probability of winning (Parsons et al. 201 1). In the National Basketball Association, it appears that more personal fouls are called against players when the refereeing crew is opposite-race rather than own-race (Price and Wolters 2010).
In Spanish soccer, Garicano, Palacios-Huerta, and Prendergast (2005) found that referees added more discretionary "injury time" at the end of normal time when home teams were behind in score compared to when home teams were ahead in score. …