Road Warrior Booty: Prize Structures In Motorcycle Racing
description
Transcript of Road Warrior Booty: Prize Structures In Motorcycle Racing
![Page 1: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/1.jpg)
Road Warrior Booty: Prize Structures Road Warrior Booty: Prize Structures In Motorcycle RacingIn Motorcycle Racing
M.T. Maloney & Kristina Terkun
Contributions to Economic Analysis & Policy: 2002, vol. 1: No. 1, Article 3.
![Page 2: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/2.jpg)
Tournament Literature
• Q: Do workers/players respond to prizes and prize structure?
• A: Seem to
• Q: Do firms/organizers rationally structure tournaments?
• A: ?????
![Page 3: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/3.jpg)
Motorcycle Racing
• Offers Empirical Possibilities
• Multiple Independent Sponsors – Vary level and structure of prizes – Direct, simultaneous competition for racers – When a racer chooses one sponsor, the prizes
paid by sponsors of similar products are foregone
![Page 4: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/4.jpg)
Theory – Lazear & Rosen
• Two Identical Risk-neutral Competitors
• Two Prizes Paid by Firm/organizer
• Competing takes effort
• Expected prize depends on purse
• Effort determined by prize spread
![Page 5: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/5.jpg)
From players' perspective:–Given prize spread, determine optimal level of effort–Given optimal effort, is expected payoff enough?Two-fold process
From organizer's perspective:–Bigger prize spreads generate more effort–More effort requires higher purse in compensation
![Page 6: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/6.jpg)
Prior Empirical Work
• Bull, Schotter, and Weigelt (1987)– experimental evidence
• Ehrenberg and Bognanno (1990)– golf
• Knoeber and Thurman (1994)– chickens
![Page 7: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/7.jpg)
Application of Model
• Competition among heterogeneous tournament organizers
• Different levels of brand name
• Tournament sponsorship is advertising
• Objective: Enhance b/n value
• Winning is best
![Page 8: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/8.jpg)
Differences in Brand Name Value
• Higher value of brand name means more value in winning
• Firm sets higher prize spread to optimally induce more effort
• Firm must pay more to compensate for the extra pain
• See Figure 1
![Page 9: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/9.jpg)
![Page 10: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/10.jpg)
Figure 1
• Comes from the three behavior equations in L&R model:– Player/workers choose effort based on spread– Tournament organizer chooses spread based on
value of output– Organizer must pay competitive purse
![Page 11: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/11.jpg)
Tournament organizers wish to elicitmaximum effort
• Load prize money on the highest finishing places
• However, this imposes costs on players
• Thus, must increase the purse along with the spread of prizes to be competitive
![Page 12: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/12.jpg)
Purse and Spread
• Unrelated outside of competition
• Purse does not directly affect behavior of worker/players– evidence from chicken farming
• Across non-competing motorcycle sponsors, any relation is possible
![Page 13: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/13.jpg)
Field Tournaments
Two Problems:
• Prizes paid to overall winners
• Definition of prize spread
![Page 14: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/14.jpg)
Overall Winners
• Sponsors pay 1st prize to 1st place overall
• Nonetheless, some riders will race for lower prizes/purse
• If prize spread is lower, less work required
• Creates same effect as heterogeneous talent
![Page 15: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/15.jpg)
Payoff to Overall Winner
• Does not change the basic prediction of Figure 1
• More b/n value=>higher purse
• Higher purse =>higher spread
![Page 16: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/16.jpg)
Measurement of Prize Spread
• Ladder of Prizes
• Some contentiousness in literature
• We measure this characteristic in several different ways – Gini Coefficient– Difference between top prizes
![Page 17: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/17.jpg)
The American Motorcyclist Association
• Founded in 1924
• AMA Pro Racing is the largest motorcycle racing sanctioning body in the world
• The MBNA Superbike Tour main pro series
• Classes: Superbike, 600 Supersport, 750 Supersport, 250 Grand Prix (GP), Formula Xtreme, and Pro Thunder.
![Page 18: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/18.jpg)
Riders are eligible for a track purse and industry bonus awards.
• Rider must use the sponsor’s products, display sponsor decals
• Many of the industry bonus award sponsors are in direct competition.– Sponsor purses can vary dramatically across
sponsors within the same product category.
![Page 19: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/19.jpg)
Table IIndustry Bonus Awards
ClassSponsors inEach Class
Bonus Award Totalfor Each Class
Sum of Top 1st
Place MoneySuperbike 17 $34,540 $7,800250 GP 11 9,175 2,100Pro Thunder 10 10,775 3,300Formula Xtreme 19 30,690 2,550600 Supersport 30 88,210 3,800750 Supersport 25 31,315 3,650Total 112 $204,705 $23,200
![Page 20: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/20.jpg)
Table II
• Sponsor Purse is the sum of the prizes paid to each place
• Class Purse is the sum of the sponsor purses across the entire racing class.
• Product Purse is the sum of the sponsor purses within a product group.
![Page 21: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/21.jpg)
Table IIStatistics on Purses
Mean StandardDeviation
Minimum Maximum
Sponsor Purse $ 1,832 $ 3,730 $ 225 $ 32,550Product Purse 8,140 10,142 225 50,600 with rivals 11,292 10,734 1,600 50,600Class Purse 43,041 28,713 9,175 88,210
![Page 22: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/22.jpg)
Prize structures
• Vary greatly across sponsors
• A rider can receive anywhere from $150 to $600 on helmets
• Sponsors also vary the number of places that they pay out
![Page 23: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/23.jpg)
Table III: Places Paid
Prizes Sponsors3 295 5110 2520 7
![Page 24: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/24.jpg)
AvonTyres
Michelin DunlopTire Corp.
Place Prizes1 $ 800 $ 500 $ 10002 500 300 5003 350 200 2504 200 100 505 150 50 506 1007 1008 1009 100
10 100
SponsorPurse
$2500 $1150 $1850
Table IV: Tire Sponsors
![Page 25: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/25.jpg)
Incentive Intensity
• Measures of incentives created by the prizes– Spread of Top Prizes– Gini Coefficient
DP P
( )1 3
2
![Page 26: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/26.jpg)
Incentive Intensity forTire Sponsors
Avon Tyres Michelin Dunlop
Sponsor Purse $2500 $1150 $1850
D $225 $150 $375G 0.750 0.620 1.033
![Page 27: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/27.jpg)
Test of the Theory
• Ratio of Sponsor's Prize Spread to Rival’s
• Should be positively related to ratio of sponsor’s purse to rival’s
• From Figure 1:
ln( ) ln( ) (ln( ), ln( ))S S f A Ba b
![Page 28: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/28.jpg)
![Page 29: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/29.jpg)
Specification
Dependent Variable: Incentive Intensity of PrizesIndependent Variables Predicted SignsSponsor Purse (+)Sponsor Purse in Absence of Rivals (?)Average Purse of Rivals (-)Sum of Average Purses for other Products (?)Average Track Purse for the Racing Class (?)
![Page 30: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/30.jpg)
Table VISummary Statistics
# ofObs.
Mean StandardDeviation
Minimum Maximum
Dependent Variables:
Gini Coefficient (G) 112 .53 .33 .14 2.01
(for sponsors with rivals) 77 .61 .33 .24 2.01Top-Prize Gaps (D) 112 $164 $210 $5 $1500
(for sponsors with rivals) 77 $186 $177 $25 $1000
Independent Variables:
Sponsor Purse 112 $1832 $3730 $225 $32,550(for sponsors with rivals) 77 $2115 $4152 $275 $32,550
Average Purse of Product Rivals in Racing Class
77 $2115 $3328 $500 $22,625
Summed Average Purse of Other Product Sponsors
112 $14,606 $8001 $3508 $25,901
![Page 31: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/31.jpg)
Table VII Regressions
Gini Coefficient Top-Prize Gaps
SpecificationsIndependent Variables (a) (b) (c) (d)
-4.0E-5 -0.47 -5.7E-5 -0.91Average Purse of Product Rivals in Racing Class (-2.58) (-5.33) (-2.32) (-10.70)
0.45 0.53 0.86 0.98Sponsor Purse(9.53) (7.62) (11.45) (14.61)
-0.06 -0.09Sponsor Purse Dummy forAbsence of Rivals (-4.28) (-4.48)
-0.10 -0.03 -0.12 0.04Summed Average Purse ofOther Product Sponsors (-1.54) (-0.36) (-1.22) (0.49)
0.01 -0.01 0.04 -0.01Average Track Purse in RacingClass (0.46) (-0.25) (0.90) (-0.18)
Intercept -2.92 -0.06 -0.19 -0.10(-4.08) (-0.05) (-0.17) (-0.10)
R-squared 0.55 0.47 0.64 0.77
# of Obs. 112 74 112 74
![Page 32: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/32.jpg)
Estimated Effects
• Doubling Sponsor’s to Product Purse
• Allows firm to double the prize intensity
![Page 33: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/33.jpg)
Conclusions
• Firms that pay lower expected prizes must pay less incentive oriented prizes
![Page 34: Road Warrior Booty: Prize Structures In Motorcycle Racing](https://reader036.fdocuments.us/reader036/viewer/2022062422/56813b84550346895da4acd1/html5/thumbnails/34.jpg)
Importance of Finding
• Tournament theory is based on the premise that workers respond to prize incentives by working harder, and working harder is not free.
• This is confirmed by observing that firms recognize this response and anticipate this behavior when making their wage offers.