Categorical Redistribution in Winner-Take-All Markets∗

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 aggresiveness of the redistribution goal. ∗This paper was inspired by many stimulating discussions with Sherwin Rosen. We are grateful to Edward Glaeser, Jerry Green, and Bart Lipman for helpful comments and suggestions. Correspondence can be addressed to Fryer at Littauer Center, Harvard University, Cambridge MA, 02138 (e-mail: [email protected]); or Loury at Department of Economics, Boston University, 270 Bay State Road, Boston MA, 02215 (email: [email protected]).