We talked a lot before about designing a scoring system for sports like tennis.  There is some non-fanciful economics based on such questions.  Suppose you have two candidates for promotion and you want to promote the candidate who is most talented.  You can observe their output but output is a noisy signal that depends not just on talent, but also effort both of which you cannot observe directly.  (Think of them as associates in a law firm.  You see how much they bill but you cannot disentangle hard work from talent.  You must promote one to partner where hard work matters less and talent matters more.)

How do you decide whom to promote?  The question is the same as how to design a scoring system in tennis to maximize the probability that the winner is the one who is most talented.

One aspect of the optimal contest seems clear.  You should let them set the rules.  If a candidate knows he has high ability he should be given the option to offer a handicap to his rival.  Only a truly talented candidate would be willing to offer a handicap.  So if you see that candidate A is willing to offer a higher handicap than candidate B, then you should reward A.

The rub is that you have to reward A, but give B a handicap.  Is it possible to do both?