Preferential Treatment may Hurt: Another Application of the All-Pay Auction

In many contests a subset of contestants is granted preferential treatment which is presumably intended to be advantageous. Examples include a ¢ rmative action and biased procurement policies. In this paper, however, I show that some of the supposed bene ciaries may in fact become worse o ¤ when the favored group is diverse. The rea-son is that the other favored contestants become more aggressive, which may outweigh the advantage that is gained over contestants who do not receive preferential treat-ment. The contest is modelled as an incomplete-information all-pay auction in which contestants have heterogenous and non-linear cost functions. A source of uncertainty, such as incomplete information, is crucial for the results