Abstract
Some affirmative action policies establish that a set of disadvantaged competitors has access to an extra prize. We analyse the effects of creating an extra prize by reducing the prize in the main competition. Contestants differ in ability and agents with relatively low ability belong to a disadvantaged minority. All contestants compete for the main prize, but only disadvantaged agents can win the extra prize. We show that an extra prize is a powerful tool to ensure participation of disadvantaged agents. Moreover, for intermediate levels of the disadvantage of the minority, introducing an extra prize increases total equilibrium effort compared to a standard contest. Thus, even a contest designer not interested in affirmative action might establish an extra prize in order to enhance competition.
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