On the Optimal Design of Unfair Contests
27 Pages Posted: 30 Oct 2002
Date Written: October 3, 2002
Contests are often unfair in the sense that outperforming the rival may not be enough to be the winner, because one contestant is favored by the allocation rule, while the other one is handicapped. We consider a discriminatory contest with handicaps and derive the contestants equilibrium behaviour. From a social point of view, the disadvantage of handicaps is that the prize may be awarded to an inferior contestant. However, there is also an advantage of handicaps, since the overall effort exerted to win the prize is decreasing in the degree of unfairness. We characterize situations in which it is optimal for an authority to either stipulate a fair contest, an interior degree of unfairness or even an infinitely unfair contest by awarding the prize directly to the favored contestant.
Keywords: Asymmetric contests, asymmetric information, contest design
JEL Classification: D44, D72, D82
Suggested Citation: Suggested Citation