TITLE:
On Optimal Favoritism in Asymmetric Competitions
AUTHORS:
David Lu
KEYWORDS:
Affirmative Action, All-Pay Auction, Asymmetric Contest, Favoritism
JOURNAL NAME:
Theoretical Economics Letters,
Vol.11 No.1,
February
10,
2021
ABSTRACT: Favoritism towards a relatively weaker competitor is
widely adopted as an effective instrument to enhance productive effort
provision in asymmetric competitions. In this paper, we investigate the
effort-maximizing favoritism rule in asymmetric two-player contests with
all-pay auction technology, while accommodating fully flexible (nonlinear)
favoritism rules. We assume that the players’ competencies (measured by their
values of winning the competition, or marginal effort costs) are public
information. We find that at the optimum, the weaker player is extremely
favored; however his/her winning chance converges to zero. This finding
illustrates that the effort-maximizing extreme favoritism rule perversely
decreases winner diversity.