Edited by Eva Marikova Leeds and Michael A. Leeds
Economic research on the performance of individual professional athletes has grown substantially over the last 20 years. The first reason for the growth is the substantial increase in the earnings of professional athletes. In 1968, the first prize for winning the US Open tennis tournament was $14,000, or about $91,200 in 2011 dollars. The winner, US Army Lt. Arthur Ashe, was an amateur and could not collect the check. Virginia Wade won the women’s title and earned $6,000, about $39,000 in 2011 dollars. In 2011 Novak Djokovic and Samantha Stosur each collected $1.8 million dollars for winning this tournament. The second reason for the increase in research on the performance of individual professional athletes is the seminal work on the effects of rank tournaments on labor supply and effort by Lazear and Rosen (1981). They show that rank-order tournaments, where only the order of finish affects earnings, coupled with a nonlinear payoff in the tournament, can produce the same level of profit as a compensation mechanism that pays all workers their marginal revenue products. The crucial advantage of the Lazear and Rosen framework is that the employer does not have to observe the marginal product of the worker. Lazear and Rosen set out to explain observed compensation in corporations, envisioning the firm’s managers as competitors in a tournament for the position of CEO, a position that typically pays much more than other corporate positions.
You are not authenticated to view the full text of this chapter or article.