(Joint with Rakesh Vohra)

We study a model in which agents undertake investment for skills and then participate in an auction for a productive opportunity (e.g. a spot in college). Investment increases an agent's value for the opportunity. The disadvantaged ``targeted'' group has higher marginal costs of investment than the ``regular'' group. The constrained efficient mechanism for a social planner with a preference for diversity involves a flat subsidy to the targeted group. A subsidy always increases investment by the targeted group relative to the efficient auction. A planner concerned with incentivizing investment by the targeted group may prefer to use a quota.