In a world where information asymmetry and moral hazard plague the efficient running of various markets, there are two very different markets which try to deal with it in similar ways. Microcredit has become the ‘wonder’ of the 21st century after it was developed by the Grameen Bank in 1976 in order to tackle the problem of world poverty. It is fascinating to see how the methodologies of such a system are (consciously or unconsciously) incorporated into a market so very different: the professional cycling peloton.
Cycling has a long and infamous record of drug use. The use of performance enhancing drugs can mean far more than simply earning more money (although this is a factor given the sports relative inferiority within salaries); it can lead to cycling immortality if a famous race is won. One can immediately see the incentive for using such drugs but what are the disincentives? To understand this one must understand how professional cycling is set up.
A peloton of professional cyclists contains a certain number of teams, all of whom have trade sponsors. There is a governing body, UCI, the organiser of a race, e.g. ASO, as well as an independent drugs testing organisation. The disincentive to cheat from UCI is a two year ban from all top-tier racing (but you can race for a continental or division one team). What makes this difficult is that as there is no one regulatory body throughout the world, a ban in Italy could mean the cyclist can race elsewhere in this division. One can clearly see that given such lax punishments the reward for cheating far outweighed the punishment of being caught.
In a desperate attempt to clean up cycling, the trade sponsors started to get involved. Their incentive was to protect their own brand image. Many trade teams today adopt the tactic of full sponsorship unless one rider is proven to have cheated and then they will withdraw completely. This has two goals: 1. to appeal to the cyclists to keep sponsorship for the sport and; 2. to decrease monitoring costs by making teammates to do it instead.
One can clearly see the similarity with microcredit where by small loans are given to each member of a kinship or group whereby to qualify for another loan, all members must pay back their loan i.e. no defaults. This saves on monitoring costs by the lender and incentives the borrower to not default (i.e. decreases information asymmetry). This method would only be successful if the transaction costs of all group members to meet was low and that they lived/worked close enough together for monitoring to occur.
Cycling teams do not have this; many do not live in the same continent let alone the same town. While there are training weeks allocated, no team member will be able to monitor every other rider perfectly. As a result cheating is likely to continue.
In developing countries there may not be a strong, all-powerful and credible state but cycling could have this in the form of a ruling governing body with a standardised drugs policy. I believe it is this which holds the key to decreasing cheating within cycling. The sponsors should not be disincentivising cheating but incentivising clean riding. For example, a proportion of salary or payment of salary for successful drugs tests approach could be used. Or indeed, an all-powerful regulatory body could pass through its own legislation for transparency – à la MP’s expenses claims – by making all blood test results publishable online.
As can be found in the microcredit methodology, not all situations can and will benefit and there may well be side-effects of such methods e.g. the male is still head of the house in Kenya while the women get given the loans; this can create domestic conflict. However cycling needs to change the way it is governed – it doesn’t have to be the ‘developing country’ sport as it has the opportunity to wield the necessary power.