Reference no: EM132298147

QUITTERS NEVER WIN

Faced with a skilled rival, do you stand up to the challenge or concede defeat? Proponents argue that internal competition—pitting worker against worker for tenure, promotion, and rewards—leads to increased effort. Common intuition suggests that rivalry may encourage competitors to “step up their game.” But is it the case that harnessing the power of competi-tion always bolsters effort and performance? Recent research by Jennifer Brown suggests that this may not always be the case. In fact, the presence of a superstar in a tournament can lead to worse performance from other com-petitors. Tournaments—where rewards are based only on the relative performance of those vying for the prize—are found in many con-texts. For example, firms reward the top sales-person; contracts are awarded to firms with the best technological innovation; and corporate vice presidents compete to become company president. The benefits of tournaments depend critically on the degree of heterogeneity in competitors’ underlying ability.Professional golf offers a real-world labo-ratory in which to examine the effect of a superstar on his competitors. Participants are professionals and the stakes are significant. Most importantly, for many years, profes-sional golf had an undisputed superstar: Tiger Woods. As in most tournament settings, effort on the PGA Tour is not costless. Before events, effort is about physical and mental prepara-tion. During competition, a player may exer-cise extra care in considering his target, the conditions, and his club choice. The opportu-nity cost of effort is also substantial: a popular player may collect well over $100,000 for attending a corporate outing.In her work, Brown uses rich course, prize, weather, and television viewership data to iso-late the impact of Woods on the performance of other competitors. The data include scores for every PGA Tour event from 1999 to 2010. In her work, she asks: How does a player perform when Woods is in a tournament compared to that player’s performance in the same event when Woods is not in the field? She finds that, on average, PGA golfers’ first-round scores are approximately 0.2 stroke worse when Woods participates, relative to when Woods is absent. The overall superstar effect for tournament scores is 0.8 stroke. The magnitude of the adverse effect appears particularly large when Woods is playing well and disappears when Woods is struggling. She finds no evidence that the reduced performance is due to the intensity of media attention or the adoption of risky strategies.It is useful to know not only that incen-tives are adversely affected by the presence of a superstar, but also the economic magni-tude of the effect. To address this question, Brown asks: What if any single player were able to overcome his own adverse perfor-mance by exerting costly effort? Results sug-gest that an average ranked golfer would have earned $28,000 more between 1999 and 2006 by playing one stroke better in the presence of the superstar. The simulations provide compelling evidence that, while the adverse performance effect is strikingly large, individual players may simply say: Why should I exert more costly effort when the marginal payoff in the presence of a superstar is low? The implications of the adverse superstar effect extend beyond the PGA Tour and, in principle, require firms to be cautious in using “best athlete” hiring policies when competition is a key driver of incentives. For example, sales managers should be aware of the consequences of introducing a superstar team member, and law firms should consider the impact of a superstar associate on the cohort’s overall performance. Understanding the superstar effect is a step toward learning how to structure situations where competi-tion exists between workers of very heteroge-neous abilities.

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