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Tournament performance and “Agency” problems: An empirical investigation of “March madness”

  • James McClure
  • Lee Spector

Tournaments have long been used as a resource allocation device. Regardless of the margin of victory, a tournament's champion is typically rewarded far more handsomely than are its losers. For this reason, a tournament can generally be expected to elicit spectacular levels of performance from a group of competitors; performances in professional golf tournaments are an example. Surprisingly, the analysis in this paper indicates the existence of no significant relationship between the rewards and performances of participants in the NCAA basketball tournament. To explain this finding we allude to the classic principal-agent problem.

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Article provided by Springer in its journal Journal of Economics and Finance.

Volume (Year): 21 (1997)
Issue (Month): 1 (March)
Pages: 61-68

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Handle: RePEc:spr:jecfin:v:21:y:1997:i:1:p:61-68
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  1. Armen A. Alchian & Harold Demsetz, 1971. "Production, Information Costs and Economic Organizations," UCLA Economics Working Papers 10A, UCLA Department of Economics.
  2. Jerry R. Green & Nancy L. Stokey, 1982. "A Comparison of Tournaments and Contracts," NBER Working Papers 0840, National Bureau of Economic Research, Inc.
  3. Bull, Clive & Schotter, Andrew & Weigelt, Keith, 1987. "Tournaments and Piece Rates: An Experimental Study," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 1-33, February.
  4. Rosen, Sherwin, 1986. "Prizes and Incentives in Elimination Tournaments," American Economic Review, American Economic Association, vol. 76(4), pages 701-15, September.
  5. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-80, June.
  6. Ronald G. Ehrenberg & Michael L. Bognanno, 1988. "Do Tournaments Have Incentive Effects?," NBER Working Papers 2638, National Bureau of Economic Research, Inc.
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