Suspense

29 Pages Posted: 9 Apr 2002

See all articles by William M. Chan

William M. Chan

The University of Hong Kong - School of Economics and Finance

Pascal Courty

University of Victoria; European University Institute - Economics Department (ECO); Centre for Economic Policy Research (CEPR)

Hao Li

University of Toronto - Department of Economics; Queen's University - Department of Economics

Date Written: March 2002

Abstract

In a dynamic model of sports competition, we show that when spectators care only about the level of effort exerted by contestants, rewarding schemes that depend linearly on the final score difference provide more efficient incentives for efforts than schemes based only on who wins and loses. This result is puzzling because rank order schemes are the dominant forms of reward in sports competitions. The puzzle can be explained if one takes into account the fact that spectators also care about the suspense in the game. We define the spectators' demand for suspense as a greater utility derived from contestants' efforts when the game is closer. As the demand for suspense increases, so does the advantage of rank order schemes relative to linear score difference schemes. This relative advantage is realized by suitably increasing the winners prize in rank order schemes. When the demand for suspense is sufficiently high, the optimal rank order scheme dominates all linear score difference schemes, and in a limit case, it is optimal among all incentive schemes that reward contestants on the basis of the final score difference.

Keywords: Tournament, sports economics, incentives

JEL Classification: D80, J33, L83

Suggested Citation

Chan, William M. and Courty, Pascal and Li, Hao, Suspense (March 2002). CEPR Discussion Paper No. 3251. Available at SSRN: https://ssrn.com/abstract=306767

William M. Chan (Contact Author)

The University of Hong Kong - School of Economics and Finance ( email )

8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong
+85 2 2859 2192 (Phone)
+85 2 2548 1152 (Fax)

Pascal Courty

University of Victoria ( email )

3800 Finnerty Rd
Victoria, British Columbia V8P 5C2
Canada

European University Institute - Economics Department (ECO) ( email )

Villa San Paolo
Via della Piazzuola 43
50133 Florence
Italy
+39 055 4685 925 (Phone)
+39 055 4685 902 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Hao Li

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada
416-978-5105 (Phone)

Queen's University - Department of Economics ( email )

Dunning Hall
Kingston, Ontario K7L 3N6
Canada
613-533-2275 (Phone)
613-533-6668 (Fax)

HOME PAGE: http://www.econ.queensu.ca/pub/faculty/li/

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