Favoritism in asymmetric contests: head starts and handicaps

I examine a contest with identity-dependent rules in which contestants are privately informed and ex ante heterogenous. A contestant may suffer from a handicap or benefit from a head start. The former reduces the contestant's score by a fixed percentage; the latter is an additive bonus. Although total effort increases if the weak contestant is favored with a head start, the optimal use of handicaps is not as clear-cut. In one class of models it is profitable to handicap the strong contestant so severely that he will win less often than the weak contestant as a result. In another class of models it is profitable to handicap the weak contestant. When the contestants are sufficiently heterogenous and both instruments can be used, the weak contestant should be given a head start and a handicap. It is also possible to induce higher effort and at the same time make both contestants better off ex ante.