Categorical Redistribution in Winner-Take-All Markets
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NBER Working Paper No. 10104
Issued in November 2003
NBER Program(s): LS
This paper constructs a simple model of pair-wise tournament competition to investigate categorical redistribution in winner-take-all markets. We consider two forms of redistribution: category-sighted, where employers are allowed to use categorical information in pursuit of their redistributive goals; and category-blind, where they are not. It is shown that the equilibrium category-sighted redistribution scheme involves a constant handicap given to agents in the disadvantaged category. Equilibrium category-blind redistribution creates a unique semi-separating equilibrium in which a large pool of contestants exerts zero effort, and this pool is increasing in the aggressiveness of the redistribution goal.
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