New evidence of the competing influences of prize money and strength of opposition
Contests with the highest prizes do not necessarily attract the most talented competitors, according to a study of professional marathon runners by Ghazala Azmat and Marc Möller, published in the March 2018 issue of the Economic Journal.
Their research shows that a runner''s likelihood of participating in a given race increases along with the average prize money, but it falls with a rise in the expected number of high-ability runners taking part. It turns out that the participation of one additional high-ability runner must be compensated for by an increase of $2,583 in a marathon''s average prize to keep the race equally attractive.
These findings have further implications for event organisers'' decisions about prize money: when a contest competes with other contests for the participation of the most talented contestants, the principle of ''winner-takes-all'' – offering all the prize money to the winner – might not be the most sensible rule to follow. While offering most of the prize money to the winner has a positive effect on competitors'' efforts, it can have a negative effect on the contest''s ability to attract talented participants.
The researchers investigate a problem that is central to a wide range of competitive environments: the choice between a contest for a small number of high prizes and a contest for a large number of low prizes.
Time and energy are precious, they note, and in a variety of settings, contestants must decide which contest to enter. Should they enter the contests with the highest stakes where it is likely that the contests will also attract the strongest competition? Examples abound:
• Should a pharmaceutical company compete for the development of a medical blockbuster or instead target less profitable drugs for which they would face less competition?
• Should a university graduate join a prestigious firm offering a short-term contract with a 50-50 chance of being made permanent after some time or a less prestigious firm offering a permanent contract upfront?
• And should a professional marathon runner enter the London Marathon and face the best-of-the-rest or compete for smaller stakes in the Brighton Marathon?
Analysing race choice data for professional marathon runners in international contests over the last three decades, the researchers test an analytical framework which predicts the following: talent repels talent to the extent that the contests with the highest prizes do not necessarily attract the most talented competitors.
In other words, the researchers'' model predicts that the ''best'' contestants will sort into the ''best'' contests when talent is relatively rare, but sorting will be reversed when talent abounds.
This insight is important because it establishes that in the design of contests, incentive effects (such as inducing maximum efforts) and selection effects (such as attracting the most able contestants) might be diametrically opposed.
As in many professional situations, optimising on contest selection is key for professional marathon runners – even the very best. Since they typically enter only two or three races a year, to maximise prize money they must think about both the money at stake and whom they will face in competition.
International marathon data have two important features that make them ideal for testing the model''s predictions:
• First, a distinction can be made between ''stronger'' and ''weaker'' contests.
• Second, the distribution of high-ability runners can be established using past race time, as well as ethnic origin.
In recent years, marathon running has become dominated by runners from East Africa, mainly Kenya and Ethiopia, a dominance that is unparalleled in other sports. The researchers use these changes to identify how contestants make their race choices.
The researchers show that a runner''s likelihood of participating in a given race is increasing in its average prize but decreasing in the (expected) number of high-ability runners.
This makes is possible to calculate the ''price'' of opposition: the participation of one additional high-ability runner must be compensated for by a $2,583 increase in a marathon''s average prize to keep the race equally attractive.
''The Distribution of Talent Across Contests'' by Ghazala Azmat and Marc Möller is published in the March 2018 issue of the Economic Journal. Ghazala Azmat is in the Department of Economics at Sciences Po. Marc Möller is at the University of Bern.
