Question

5) Although NASCAR is an individual sport, prize money is allocated on a more equitable basis (winners compared to other competitors) than in other individual sports such as cycling, golf, or tennis. What is the economic rationale for different payout systems between the PGA and NASCAR as shown in the graph below?

Answer 1

While the estimated parameters on the interquartile range variable are statistically significant, their relative size compared to the size of the estimated parameters on some other variables might lead readers to question the economic significance of these parameters. To illustrate the economic significance of these results, consider the estimated contribution made by the spread of the prize structure to the average speed in two races held at Talladega Superspeedway, a tri-oval racetrack.

Often sporting contests are used as a labor market laboratory to empirically test the implications of labor economics such as tournament theory (Kahn 2000). In sports, nonlinear payment structures are found in rank order tournaments such as golf (Ehrenberg andMelton andZorn 2000) and marathon running (Frick 2003). Auto racing provides an exception to the rule with a linear payment schedule paid to each race position. ...

Lynch and Zak (2000) find the higher the prize money the better the athlete that shows up to participated in the race suggesting that adverse selection can be addressed by tournament payouts. In marathon running, Frick (2003) finds that prize money and spread increase performance but it also lowers the probability of runners finishing the race when it is clear they will not win the race. He attributes the early exit to the amount of time it takes to physically recover from a marathon.