The Economics of Winner-Take-All Markets
Paper Session
Sunday, Jan. 8, 2017 3:15 PM – 5:15 PM
Swissotel Chicago, Zurich A
- Chair: Robert H. Frank, Cornell University
Like Mike or Like LeBron: Do the Most Able Need College to Signal?
Abstract
Do individuals with demonstrably high ability need to attend college to further signal their ability to potential employers? We examine the labor market entry decision for basketball players deciding to enter or return to college versus entering the labor market for professional basketball, specifically the National Basketball Association (NBA). Individuals in this market have significant financial incentive to forgo further schooling in order to pursue their careers immediately and therefore face a trade-off between possible immediate financial rewards and the acquisition of additional skill-related human capital or improving the signals regarding own productivity. We exploit variation in the strength of signals regarding own ability that players receive while in high school from external ratings agencies, Rivals and Scout. Players deemed to be of the highest ability in each high school graduating cohort receive both a continuous, ordinal ranking as well as a categorical, “star” rating. After providing descriptive evidence for a regression probability jump kink design (RPJK), we estimate the probability of collegiate prospects entering into the professional labor market as a function of the strength of ability signal that players receive while in high school. In our preferred specifications, a one-unit increase in ranking for players receiving the highest “star” ranking is associated with a 3.8 percentage point increase in the probability of entry for college freshman relative to comparable players at the threshold that receive the next highest ranking, which is equivalent to an increase in one-fourth of a standard deviation in the probability of entry. Our results suggest that, more generally, only a very small fraction of the most able labor market participants would forgo schooling based on the intensity of a signal of ability.Dynamic Tournaments Under Different Mechanisms: Evidence From Experiment of Fishing Contests
Abstract
We study how different mechanisms of rewarding performance affect equilibrium levels of effort. The mechanisms we consider are a winner-take-all tournament, a lottery tournament and a piece rate. We construct a dynamic model that generates equilibrium predictions. Next, we test our models in a field experiment where fishermen compete in two-stage tournaments.How Early in Life Success in Winner-Take-All Markets Influences Human Capital Investments and Predicts Adult Outcomes? Evidence From Professional Tennis
Abstract
Despite the enthusiasm displayed by parents for their athletic children to pursue professional sports careers, Rosen and Sanderson (2001) state that the odds of "making the big leagues" are "vanishingly small" even though data are not available to actually calculate the probabilities. We have assembled such a dataset for professional tennis, linking the performance of all internationally-ranked 14 & under, 16 & under, and 18 & under players from 1990 to 2003 to their subsequent professional outcomes. Only a miniscule portion earned higher net incomes than did average college graduates, namely a thin slice of the top ranked 18 & under players and top ranked players who are a year or two younger than their peers. Whereas Frank and Cook (1995) argue that long-shot efforts to become sports superstars lead to socially inefficient under-investments in education, Rosen and Sanderson (2008) conjecture that people are not reckless risk-takers but respond to feedback over time about their relative performances. We test these contesting ideas by estimating if young players decide whether to pursue a pro career based on expected future earnings.Discussant(s)
Scott Hiller
, Fairfield University
Trevon Logan
, Ohio State University
Andrew Schotter
, New York University
Lowell Taylor
, Carnegie Mellon University
JEL Classifications
- D8 - Information, Knowledge, and Uncertainty
- J3 - Wages, Compensation, and Labor Costs