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Is the Reward System in NASCAR Efficient?

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  • Peter Von Allmen

    (Moravian College)

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    Abstract

    This article provides an overview of compensation and reward schemes in professional automobile racing (NASCAR). Data from the 1998 and 1999 racing seasons show that although end-of-season rewards are highly nonlinear, individual races offer rewards that are more linear. Given that the general conditions for a rank order tournament do exist, this may indicate that the reward scheme is inefficient. Several hypotheses are suggested to explain why NASCAR would create such a reward structure. Vital to the investigation is the fact that teams attempt to maximize a profit function more complex than those in other individual sports. In addition, drivers may exhibit excessively aggressive behavior that would be exacerbated by nonlinear compensation, as described by Lazear. Analysis shows that the need to maintain sponsorship exposure, combined with drivers’ willingness to take risks (and the possible catastrophic result of negative outcomes), creates a competitive environment where winner-take-all would be inefficient.

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    File URL: http://jse.sagepub.com/content/2/1/62.abstract
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    Bibliographic Info

    Article provided by in its journal Journal of Sports Economics.

    Volume (Year): 2 (2001)
    Issue (Month): 1 (February)
    Pages: 62-79

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    Handle: RePEc:sae:jospec:v:2:y:2001:i:1:p:62-79

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    Cited by:
    1. Frick, Bernd & Humphreys, Brad, 2011. "Prize Structure and Performance: Evidence from NASCAR," Working Papers 2011-12, University of Alberta, Department of Economics.
    2. Lallemand, Thierry & Plasman, Robert & Rycx, Francois, 2005. "Women and Competition in Elimination Tournaments: Evidence from Professional Tennis Data," IZA Discussion Papers 1843, Institute for the Study of Labor (IZA).

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