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Is the Reward System in NASCAR Efficient?

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  • Peter Von Allmen

    (Moravian College)

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.

Suggested Citation

  • Peter Von Allmen, 2001. "Is the Reward System in NASCAR Efficient?," Journal of Sports Economics, , vol. 2(1), pages 62-79, February.
  • 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. Thierry Lallemand & Robert Plasman & François Rycx, 2005. "Women and competition in elimination tournaments: evidence from professional tennis data," DULBEA Working Papers 05-19.RS, ULB -- Universite Libre de Bruxelles.
    3. XiaoGang Che & Brad R. Humphreys, 2013. "Earnings and performance in women’s skiing," Chapters,in: Handbook on the Economics of Women in Sports, chapter 6, pages 115-131 Edward Elgar Publishing.

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