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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
    DOI: 10.1177/152700250100200106
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    References listed on IDEAS

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    1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
    2. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-580, June.
    3. Ehrenberg, Ronald G & Bognanno, Michael L, 1990. "Do Tournaments Have Incentive Effects?," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1307-1324, December.
    4. O'Keeffe, Mary & Viscusi, W Kip & Zeckhauser, Richard J, 1984. "Economic Contests: Comparative Reward Schemes," Journal of Labor Economics, University of Chicago Press, vol. 2(1), pages 27-56, January.
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    Citations

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    Cited by:

    1. Thierry Lallemand & Robert Plasman & François Rycx, 2008. "Women and Competition in Elimination Tournaments," Journal of Sports Economics, , vol. 9(1), pages 3-19, February.
    2. Brad Humphreys & Bernd Frick, 2019. "Prize Structure and Performance: Evidence from NASCAR," Economies, MDPI, vol. 7(4), pages 1-13, October.
    3. Chris Judde & Ross Booth & Robert Brooks, 2013. "Second Place Is First of the Losers," Journal of Sports Economics, , vol. 14(4), pages 411-439, August.
    4. 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.
    5. David M. Yaskewich, 2017. "Heterogeneous Ability and Risk Taking in a Rank-Order Tournament," Journal of Sports Economics, , vol. 18(8), pages 803-830, December.
    6. Craig A. Depken II & Matthew Hood & Ernest King, 2017. "Consistency and Momentum in NASCAR," Journal of Sports Economics, , vol. 18(6), pages 601-621, August.
    7. XiaoGang Che & Brad R. Humphreys, 2013. "Earnings and performance in women’s skiing," Chapters, in: Eva Marikova Leeds & Michael A. Leeds (ed.), Handbook on the Economics of Women in Sports, chapter 6, pages 115-131, Edward Elgar Publishing.
    8. Bernd Frick, 2003. "Contest Theory and Sport," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 19(4), pages 512-529, Winter.
    9. Alan Deck & Cary Deck & Zhen Zhu, 2014. "Decision Making in a Sequential Game," Journal of Sports Economics, , vol. 15(2), pages 132-149, April.
    10. Jason P. Berkowitz & Craig A. Depken II & Dennis P. Wilson, 2011. "When Going in Circles is Going Backward: Outcome Uncertainty in NASCAR," Journal of Sports Economics, , vol. 12(3), pages 253-283, June.
    11. Russell S. Sobel & Todd M. Nesbit, 2007. "Automobile Safety Regulation and the Incentive to Drive Recklessly: Evidence from NASCAR," Southern Economic Journal, John Wiley & Sons, vol. 74(1), pages 71-84, July.
    12. Matthew S. Bothner & Young-Kyu Kim & Edward Bishop Smith, 2012. "How Does Status Affect Performance? Status as an Asset vs. Status as a Liability in the PGA and NASCAR," Organization Science, INFORMS, vol. 23(2), pages 416-433, April.

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