Does Affirmative Action Reduce Effort Incentives? – A Contest Game Analysis

This paper analyzes the incentive effects of affirmative action in competitive environments modeled as contest games. Competition is between heterogeneous players where heterogeneity might be due to past discrimination. Two policy options are analyzed that tackle the underlying asymmetry: Either it is ignored and the contestants are treated equally, or affirmative action is implemented which compensates discriminated players. It is shown in a simple two-player contest game that a tradeoff between affirmative action and high effort exertion does not exist. Instead, the implementation of affirmative action fosters effort incentives. Similar results hold in the n-player contest as well as under imperfect information if the heterogeneity between contestants is moderate.