INTRODUCTION

Basic tournament theory states that compensation for a given position in the hierarchy of a firm is fixed and proceeds to rise with the tiered level of jobs. Employees then compete for a promotion to move up the hierarchal ladder to obtain the higher salary of the relevant position (Sunde ). In theory, the best-performing worker wins this competition or tournament and gets the promotion. This means that the prize of larger pay and the possibility of earning a further promotion in the future are the main drivers inducing maximum effort from workers in their current positions. Tournament theory on elimination-style competitions predicts that the total effort exerted is highest when contestants have similar abilities going into the event. As a result, uneven tournaments result in lower levels of effort being exerted, as stronger competitors are aware of their advantage and can lower effort levels, while still being confident of success (Sunde ). 20092003

Developed by Edward Lazear and Sherwin Rosen in 1981, tournament theory states that given an ideal pay dispersion scheme, position-based compensation can be just as effective as compensation based on output. Rosen (1985) expanded Lazear and Rosen's (1981) theory and claimed that the prizes in a tournament had to be disproportionately large in the final rounds to ensure high-quality performance. The possibility of promotion then drives agents to a higher position and, therefore, an increase in pay. This is done to determine the best contestant, via survival of the fittest, and to maintain an optimal quality of play throughout the tournament. Competitors choose to enter a tournament based on the expected prize available, but, once they have started competing, effort is exerted on the basis of the difference between prizes and individual motivation (Lazear 2000; Maloney & McCormick 2000).

This study investigates the efficiency of several incentive schemes implemented by the Association of Tennis Professionals (ATP) (for male players) and the Women's Tennis Association (WTA) (for female players). The rationale is that tennis players who are more highly motivated are willing to exert an increased amount of effort, which in turn leads to more games being played in individual matches, tighter matches between competitors and, overall, a more attractive competition for sponsors, fans and players.