Contests for control, contests for consumption: Empirical evidence from professional sports on contest theory

Abstract

Contests pervade economic, cultural, and political life. Why is this so? Research in economics and accounting shows that contests can serve as efficient mechanisms for resolving agency problems. In practice, there is also a diverse and economically-significant class of contests designed to serve an additional purpose: to be consumed as entertainment by non-contestants. In my dissertation, I employ observational data from professional sports to study how organizations design and administer contests for the purposes of both ‘control’ and ‘consumption’. In my first essay, I use a regression discontinuity design that compares the performance ratings and contracting outcomes of professional football players involved in narrow victories (‘lucky’ outcomes) to those of players involved narrow defeats (‘unlucky’ outcomes) to show that managers' subjective performance evaluations and personnel decisions fail to distinguish between effects of luck and effort on employees' performance outcomes. This finding extends research on the conditions under which firms’ use of contests and subjectivity in evaluating and rewarding employees can effectively reduce incentive problems in practice. In my second essay, co-authored with Karim Lakhani, I look to professional sports and exploit injury-induced changes to teams' line ups to show that spectators strongly prefer to consume contests that have more uncertain outcomes. This finding highlights that contest designers need to consider both the incentive and consumption effects of outcome uncertainty.