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Allocation of scarce resources: Insight from the NFL salary cap

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  • Borghesi, Richard
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    Abstract

    We examine the effects of variations in player compensation on NFL franchise performance from 1994 to 2004. Evidence shows that team success depends significantly upon both the actual and perceived fairness of pay distribution. Specifically, proficiency relative to that of competitors is high when compensation inequity across players, whether justified or unjustified, is low. This result suggests that franchises taking a superstar-approach to personnel decisions perform worse on average, most likely because of the dissatisfaction generated among relatively low-paid teammates.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economics and Business.

    Volume (Year): 60 (2008)
    Issue (Month): 6 ()
    Pages: 536-550

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    Handle: RePEc:eee:jebusi:v:60:y:2008:i:6:p:536-550

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    Web page: http://www.elsevier.com/locate/jeconbus

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    Keywords: NFL Compensation Performance;

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    1. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-80, June.
    2. Edward P. Lazear, 1991. "Labor Economics and the Psychology of Organizations," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 89-110, Spring.
    3. Scott E. Atkinson & Linda R. Stanley & John Tschirhart, 1988. "Revenue Sharing as an Incentive in an Agency Problem: An example from the National Football League," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 27-43, Spring.
    4. Wallace Hendricks & Lawrence DeBrock & Roger Koenker, 2003. "Uncertainty, Hiring, and Subsequent Performance: The NFL Draft," Journal of Labor Economics, University of Chicago Press, vol. 21(4), pages 857-886, October.
    5. Michael A. Leeds & Sandra Kowalewski, 2001. "Winner Take All in the NFL," Journal of Sports Economics, , vol. 2(3), pages 244-256, August.
    6. David Berri & R. Jewell, 2004. "Wage inequality and firm performance: Professional basketball's natural experiment," Atlantic Economic Journal, International Atlantic Economic Society, vol. 32(2), pages 130-139, June.
    7. Rosen, Sherwin, 1981. "The Economics of Superstars," American Economic Review, American Economic Association, vol. 71(5), pages 845-58, December.
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