Rule Changes and Competitive Balance in Formula One Motor Racing

This paper provides an economic explanation of the frequent rule
changes in the Formula One (F1) motor racing series. In a two-stage
model, the FIA (as the organizer of the F1) first decides whether
to change the rules or not, and then the racing teams compete in a
contest. It turns out that a rule change reduces the teams'
performances, but also improves competitive balance between the
teams. The rule change is implemented, if the FIA's revenue gain
from the latter effect overcompensates the FIA's revenue loss from
the former effect. We provide empirical evidence from F1 seasons in
the period 1950-2003 which supports the main implications of the
model.