Empirical evidence shows that competition among firms generates steep incentives inside firms. Incentive pay stimulates productive investments but may generate inefficient rent-seeking investments. I show that competition reduces firms’ profits and thereby the inefficient investments, which...

Due to tightened safety regulation, some Italian soccer teams had to temporarily play home matches in empty stadiums in 2007. We exploit this event and find that referees exhibited home bias caused by social pressure when spectators were present.