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Categorical Redistribution in Winner-Take-All Markets

  • Roland G. Fryer
  • Glenn C. Loury

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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File URL: http://www.nber.org/papers/w10104.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10104.

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Date of creation: Nov 2003
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Handle: RePEc:nbr:nberwo:10104
Note: LS
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  1. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. John G. Riley, 1976. "Informational Equilibrium," UCLA Economics Working Papers 071, UCLA Department of Economics.
  3. Rosen, Sherwin, 1986. "Prizes and Incentives in Elimination Tournaments," American Economic Review, American Economic Association, vol. 76(4), pages 701-15, September.
  4. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
  5. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October.
  6. Jerry R. Green & Nancy L. Stokey, 1982. "A Comparison of Tournaments and Contracts," NBER Working Papers 0840, National Bureau of Economic Research, Inc.
  7. Bulow, Jeremy & Roberts, John, 1989. "The Simple Economics of Optimal Auctions," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1060-90, October.
  8. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
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