‘Having the Lead’ vs. ‘Lagging Behind’: The Incentive Effect of Handicaps in Tournaments

Abstract

We seek to answer whether handicaps can restore optimal effort provision by agents in heterogeneous contests. To this end, we study data from swimming relay competitions where swimmers with heterogeneous abilities inherit leads or lags from their previous team members. Inheriting a lead or lag corresponds to a head start or handicap affecting the effective level of heterogeneity in races. Our results suggest that as predicted by theory appropriately chosen handicaps can restore optimal effort provision: In our data, swimmers who receive a lead (lag) that compensates for their ability disadvantage (advantage) exert the same effort as swimmers in balanced races. This implies that unbalanced contests are equally likely to induce optimal effort provision, given that head starts and handicaps are appropriately chosen to compensate for ability differences between contestants.

Keywords: Heterogeneity Contest Tournament

JEL Classification: D23