On the Optimal Design of Unfair Contests

27 Pages Posted: 30 Oct 2002

See all articles by Markus Walzl

Markus Walzl

RWTH Aachen University - Chair for Economics (Microeconomics)

Eberhard Feess

Frankfurt School of Finance & Management gemeinnützige GmbH

Gerd Muehlheusser

University of Hamburg; IZA Institute of Labor Economics

Date Written: October 3, 2002

Abstract

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

Walzl, Markus and Feess, Eberhard and Muehlheusser, Gerd, On the Optimal Design of Unfair Contests (October 3, 2002). Available at SSRN: https://ssrn.com/abstract=338040 or http://dx.doi.org/10.2139/ssrn.338040

Markus Walzl (Contact Author)

RWTH Aachen University - Chair for Economics (Microeconomics) ( email )

Aachen, 52056
Germany
0049 241 809 6157 (Phone)
0049 241 809 2345 (Fax)

Eberhard Feess

Frankfurt School of Finance & Management gemeinnützige GmbH ( email )

Sonnemannstraße 9-11
Frankfurt am Main, 60314
Germany

Gerd Muehlheusser

University of Hamburg ( email )

Von Melle Park 5
Hamburg, 20146
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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