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On the Incentive Structure of Tournaments: Evidence from the National Basketball Association’s Draft Lottery

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  • Martin B. Schmidt

    (William & Mary)

Abstract

Tournament theory analyzes labor market outcomes where rewards are distributed on the basis of relative rank. An important factor in these outcomes is the likely return to additional effort. Using National Basketball Association game event data across two seasons, we estimate each team’s game player portfolio and find that teams who were in contention to win the draft lottery reduce their portfolio’s return differential during the 2017–2018 season but not for the 2018–2019 season. We attribute the change to the reduction in the probability of obtaining a higher pick for the 2019 draft.

Suggested Citation

  • Martin B. Schmidt, 2024. "On the Incentive Structure of Tournaments: Evidence from the National Basketball Association’s Draft Lottery," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 50(3), pages 400-429, June.
    • Handle: RePEc:pal:easeco:v:50:y:2024:i:3:d:10.1057_s41302-024-00272-7
    DOI: 10.1057/s41302-024-00272-7
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    More about this item

    Keywords

    Tournament theory; Expected return; Uncertainty; Portfolio; Shirking; Tanking; National Basketball Association;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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