Affirmative action in winner-take-all markets

Abstract

Whom to hire, promote, admit into elite universities, elect, or issue government contracts to are all determined in a tournament-like (winner-take-all) structure. This paper constructs a simple model of pair-wise tournament competition to investigate affirmative action in these markets. We consider two forms of affirmative action: group-sighted, where employers are allowed to use group identity in pursuit of their diversity goals; and group-blind, where they are not. It is shown that the equilibrium group-sighted affirmative action scheme involves a constant handicap given to agents in the disadvantaged group. Equilibrium group-blind affirmative action creates a unique semi-separating equilibrium in which a large pool of contestants exerts zero effort, and this pool is increasing in the aggresiveness of the affirmative action mandate.