Testing the incentive effects in tournaments with a superstar

https://doi.org/10.1016/j.jjie.2012.05.001Get rights and content

Abstract

This paper studies the effects of the levels and the structure of prizes on the efforts of agents with heterogeneous ability in a tournament model. In particular, we examine how the presence of a highly able agent affects the effort levels of other agents as well as the effects of the total and the marginal prizes. Using panel data from the Japan Golf Tour, we estimate the effects of the presence of a superstar, and the size of the total and marginal prizes on the scores of professional golfers. We find that the presence of a superstar adversely affects the scores of the other players; that the larger the size of the total prize, the better are the scores; and that the larger the marginal prizes that players face at the end of the third round, the better the scores they achieve in the final round.

Highlights

► We study the effects of the levels and the structure of prizes on the efforts of agents in tournaments. ► We investigate the determinants of scores of golfers using data from the Japan Golf Tour. ► We find that the presence of a superstar adversely affects the scores of the other players. ► The larger the size of the total prize, the better are the scores. ► The larger the marginal prizes after the third round, the better the scores in the final round.

Introduction

One of the most important questions in labor economics is how to improve the incentives of workers in places of employment. As long as people work for pecuniary benefits from their jobs, to some extent, the level of wage compensation is one of the most important determinants of the incentives of workers. However, not only the wage level but also its distribution across workers within firms and organizations matter for the incentives of workers. If workers are asked to compete with each other over a distribution of wages, this competition creates incentives that stimulate efforts of workers. In many firms and organizations, the wage structure is determined, to a large extent, by its job-ranking system, and a typical one is hierarchical: the higher the rank, the higher the wage payment. Since this hierarchical wage structure can be considered as a tournament played by workers, many researchers attempt to study its characteristics, both theoretically and empirically, using tournament models.

Theoretical investigations of tournament models have been carried out by many authors (e.g., Lazear and Rosen, 1981, Green and Stokey, 1983, Nalebuff and Stiglitz, 1983, Dixit, 1987, Moldovanu and Sela, 2001, Stein, 2002, Szymanski, 2003, Szymanski and Valletti, 2005). According to Lazear and Rosen (1981), a tournament model is characterized by the following two elements: (1) the reward is fixed and unaffected by the absolute performance of players; and (2) the evaluation is based fully on the relative performances of players. These papers in this literature study the effects of the total amount of rewards, and the distributions of rewards and the ability of the players on the effort levels of players in a tournament model under various settings.

Stein (2002) studies a rent-seeking contest model with multiple players competing for a single prize, and Szymanski and Valletti (2005) study a tournament model of multiple rewards with three players, one with outstanding ability. They show that it is possible to maximize the total effort of the players by setting an optimal reward structure different from a winner-take-all one, and the optimal reward structure depends on the distribution of the abilities among the players.

Theoretically, it is natural that wage structure affects the incentives of workers and, thus, their performance in their place of employment. However, as discussed in Lazear (1997), it is not an easy task to quantify the effect of wage structure on the incentives and performances of the workers, because the relationship between the effort and performance of workers is not perfectly observable. Because of this empirical difficulty, the empirical test of tournament models is mainly done using data from professional sports, such as golf and tennis, in which the relationship between the incentives and the performance of the players is relatively easy to observe.1

Empirical tests of tournament models using data of professional golf tournaments were done by, for example, Ehrenberg and Bognanno, 1990a, Ehrenberg and Bognanno, 1990b, Orszag (1994), and Brown (2011). Ehrenberg and Bognanno (1990a) use data from American professional golf tournaments in 1984 to test the incentive effect in a tournament model. They find that the marginal increase in a reward has a positive effect on the performance of golfers. Orszag (1994) used the same data and discussed the robustness of the findings of Ehrenberg and Bognanno (1990a). In these papers, their ability to control for player- and course-level fixed effects might be limited by the fact that they used only one year of data, although they include many controls for course and individual characteristics.2

Brown (2011) studies the incentive effects in tournaments with data from American professional golf tournaments from 1999 to 2006 and tests whether the participation of a superstar in a tournament affects the performance of the other participants. Taking Tiger Woods as a superstar and controlling for player-fixed effects, she finds that the participation of the superstar increases the scores of the other players. At the same time, however, she finds a negative effect of the total amount of prizes on the performance of the other players, which is inconsistent with the theoretical prediction of most of the tournament models and the empirical findings by Ehrenberg and Bognanno, 1990a, Ehrenberg and Bognanno, 1990b. Furthermore, she does not study the effects of the marginal prize on the performance of players.3

This paper studies the effects of the level and the structure of prizes on the efforts of agents with heterogeneous abilities in a tournament model. In particular, we examine both the disincentive effect of the presence of a superstar and the effects of marginal prizes on the effort level of other players in a comprehensive way. To do so, we first characterize numerically the equilibrium of the theoretical model by Szymanski and Valletti (2005) in terms of the relationship between the distribution of rewards, the abilities of the players, and the efforts of the players. Then, we test the theoretical prediction using panel data from Japanese professional golf tournaments.

We use data from the Japan Golf Tour, not only because we can provide another piece of evidence on the incentive effects in tournaments, but also because we believe that the Japan Golf Tour provides a good set of data for testing for the disincentive effect of a superstar, as explained in the next section. In our exercise, we take Masashi Ozaki, known as “Jumbo Ozaki”, the superstar. As we discuss in detail in the next section, his performance during the period from 1994 to 1996 was outstanding.

Using panel data from the Japan Golf Tour from 1994 to 1996, we find that the participation of Jumbo Ozaki affected adversely the scores of the other players; that the larger the size of the total prize, the better the scores of the other players; and that the larger the marginal prize that players face at the end of the third round, the better the scores they achieve in the final round. To our knowledge, this is the first paper to test incentive effects using the data from the Japan Golf Tour. This is also the first paper to test the effects of the total prize, marginal prize, and superstar effect simultaneously and obtain results that are consistent with the theoretical predictions.

The rest of the paper is organized as follows. In Section 2, we explain briefly the basics of the Japan Golf Tour tournaments and why we choose Jumbo Ozaki as the superstar. In Section 3, we discuss the testable implications of a theoretical model of a tournament with heterogeneous ability. In Section 4, we explain the data, and we report the empirical results in Section 5. Section 6 concludes.

Section snippets

Japan Golf Tour

In this section, we first explain briefly the basic rules of professional golf tournaments in Japan, which are almost identical to those in the US and Europe. Then we introduce Masashi “Jumbo” Ozaki as the superstar for our study and discuss why we choose him for our empirical analysis.

The model

In this section, we discuss the testable implications of a theoretical model of a tournament with heterogeneous ability. Then, we describe our econometric model for the empirical analysis.

Data

We use panel data from Japan Golf Tour events from 1994 to 1996. With data from multiple years, we can control not only player-specific but also course-specific effects in the empirical analysis. Our data are taken from the Web page of the Japan Golf Tour Official Homepage (http://www.jgto.org/). From this data source, we obtained the scores for each round and other characteristics such as weather conditions (e.g., wind and temperature), total yards, etc.

We dropped from our sample amateur

Results

In this section, we first report the empirical results of the effect of a superstar and the size of the total prize. We then report the results on the effect of the marginal prize on the score in the final round.

Concluding remarks

This paper comprehensively analyzes the effects of the level and the structure of prizes on the efforts of agents with heterogeneous abilities in a tournament model. In particular, we examine how the presence of a superstar affects the effort level of other agents. Controlling for player-fixed effects as well as course-fixed effects using panel data from the Japan Golf Tour, we obtain three findings: (1) the presence of a superstar affects adversely the scores of the other players; (2) the

Acknowledgments

We are grateful to Takao Asano, Yoichiro Higuchi, Junichiro Ishida, Ayako Kondo, Ryo Nakajima, Fumio Ohtake, Hiroko Okudaira, Masaru Sasaki, Kei Sakata, Sinpei Sano, Tetsuya Shimane, Atsushi Yoshida, Tateo Yoshida, and two anonymous referees as well as the participants of a seminar at Okayama University, the Microeconometrics Workshop in Kanazawa, and the Kansai Labor Workshop for their very helpful comments. Tanaka is grateful for financial support from JSPS (Young Researcher B). Of course,

References (18)

  • Jonathan M. Orszag

    A new look at incentive effects and golf tournaments

    Econ. Lett.

    (1994)
  • Stefan Szymanski et al.

    Incentive effects of second prizes

    Europ. J. Polit. Economy

    (2005)
  • Jennifer Brown

    Quitters never win: the (adverse) incentive effects of competing with superstars

    J. Polit. Economy

    (2011)
  • Clive Bull et al.

    Tournaments and piece rates: an experimental study

    J. Polit. Economy

    (1987)
  • Avinash K. Dixit

    Strategic behavior in contests

    Amer. Econ. Rev.

    (1987)
  • Robert Drago et al.

    Incentives for helping on the job: theory and evidence

    J. Lab. Econ.

    (1998)
  • Ronald G. Ehrenberg et al.

    Do tournaments have incentive effects?

    J. Polit. Economy

    (1990)
  • Ronald G. Ehrenberg et al.

    The incentive effects of tournaments revisited: evidence from the European PGA tour

    Ind. Lab. Relat. Rev.

    (1990)
  • Jerry R. Green et al.

    A comparison of tournaments and contracts

    J. Polit. Economy

    (1983)
There are more references available in the full text version of this article.

Cited by (15)

  • Conflict in the pool: A field experiment

    2023, Journal of Economic Behavior and Organization
View all citing articles on Scopus
View full text