Embracing the Enemy


Two agents repeatedly compete on who can take action. A principal can partially influence this competition. Players differ in their preferences over the ideal action, and the principal is more aligned with one of the agents. We characterize the optimal contract with and without principal commitment, and show that the principal provides more support to the distant than to the close agent. In doing this, a moderately biased principal outperforms an extreme and a balanced one. If interactions are frequent, all but extreme principals prefer two agents, even if one is very distant.