The tournament model: An empirical investigation of the ATP tour

In the competitive labor markets, labor is hired and paid based on their value of marginal product. However, when we observe and compare wages between top level managers, difference in those wages are very large. High wage differentials are needed to induce the incentive to provide substantial effort from the start of their careers.Structure of the marginal payoffs in professional tennis tournaments does not correspond to tournament theory. Marginal payoffs increase, but at the decreasing rate, and in the final round, final marginal payoff drops. Percentage change in marginal payoff is larger in the semi-finals than in the finals. Along the same lines, topfour finishers receive less than 50% of the total purse, around 40%. Finally, output from regressions on total purse and marginal payoff (spread) show mixed results. In some instances players’ effort is related to the purse instead of marginal payoff, which contradicts the theory. In other cases, players’ effort is dependent on bothvariables, purse and marginal payoff. Thus, results are rather inconclusive