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The Dynamics of Performance Over the Duration of Major League Baseball Long-Term Contracts

Author

Listed:
  • Anthony C. Krautmann

    (DePaul University, akrautma@depaul.edu)

  • John L. Solow

    (University of Iowa)

Abstract

We re-examine incentives in Major League Baseball contracts by considering performance over the duration of the contract. We consider both the incentive to perform in order to maximize the subsequent contract and the disincentive of a fixed salary. We isolate the effect of the latter by controlling for the probability that the contract is the player's last. We find that players who are less likely to sign a subsequent contract have a large and statistically significant reduction in performance compared to expectations. The incentive to perform well in anticipation of signing the next contract is equally large and offsetting so that players who expect to sign another contract largely perform to expectations.

Suggested Citation

  • Anthony C. Krautmann & John L. Solow, 2009. "The Dynamics of Performance Over the Duration of Major League Baseball Long-Term Contracts," Journal of Sports Economics, , vol. 10(1), pages 6-22, February.
    • Handle: RePEc:sae:jospec:v:10:y:2009:i:1:p:6-22
    DOI: 10.1177/1527002508327382
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    References listed on IDEAS

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    Cited by:

    1. Chen, Yu-Fu & Zoega, Gylfi, 2015. "A non-perpetual shirking model," Economics Letters, Elsevier, vol. 134(C), pages 98-101.
    2. Jin Lee & Young Hoon Lee, 2021. "Development of a Win Production Function and Evaluation of Cross-Sectional Dependence," Journal of Sports Economics, , vol. 22(4), pages 412-431, May.
    3. Quinn Keefer, 2021. "Sunk costs in the NBA: the salary cap and free agents," Empirical Economics, Springer, vol. 61(6), pages 3445-3478, December.
    4. James Alm & William H. Kaempfer & Edward Batte Sennoga, 2012. "Baseball Salaries and Income Taxes," Journal of Sports Economics, , vol. 13(6), pages 619-634, December.
    5. Daniel Weimar & Katrin Scharfenkamp, 2019. "Effort reduction of employer‐to‐employer changers: Empirical evidence from football," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 40(3), pages 277-291, April.
    6. Richard J. Paulsen, 2018. "Contract Options and Performance: The Case of Major League Baseball," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 46(4), pages 379-388, December.
    7. Anusha Nath, 2018. "Bureaucrats and Politicians: Electoral Competition and Dynamic Incentives," 2018 Meeting Papers 896, Society for Economic Dynamics.
    8. Shmanske Stephen, 2011. "Dynamic Effort, Sustainability, Myopia, and 110% Effort," Journal of Quantitative Analysis in Sports, De Gruyter, vol. 7(2), pages 1-19, May.
    9. Müller, Michael, 2015. "Leiharbeit im Profifußball: Sind Leihspieler stärker motiviert?," Discussion Papers of the Institute for Organisational Economics 6/2015, University of Münster, Institute for Organisational Economics.
    10. Berna Demiralp & Christopher Colburn & James Koch, 2012. "The effects of age, experience and managers upon baseball performance," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 36(2), pages 481-498, April.
    11. Lamy, Laurent & Patnam, Manasa & Visser, Michael, 2016. "Correcting for Sample Selection From Competitive Bidding, with an Application to Estimating the Effect of Wages on Performance," CEPR Discussion Papers 11376, C.E.P.R. Discussion Papers.
    12. Heather O’Neill, 2013. "Do Major League Baseball Hitters Engage in Opportunistic Behavior?," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 19(3), pages 215-232, August.
    13. Joshua D. Pitts & Brent A. Evans, 2023. "New contracts and dismissal threats from highly drafted rookies: What motivates NFL quarterbacks?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 4-16, January.
    14. Stephen Shmanske, 2010. "Dynamic Effort, Sustainability, Myopia, and 110% Effort," Working Papers 1005, International Association of Sports Economists;North American Association of Sports Economists.
    15. John L. Solow & Anthony C. Krautmann, 2020. "Do You Get What You Pay for? Salary and Ex Ante Player Value in Major League Baseball," Journal of Sports Economics, , vol. 21(7), pages 705-722, October.
    16. Joshua Congdon-Hohman & Jonathan A. Lanning, 2013. "Workers' Responses to Incentives: The Case of Pending MLB Free Agents," Working Papers 1304, College of the Holy Cross, Department of Economics.
    17. Joshua M. Congdon-Hohman & Jonathan A. Lanning, 2018. "Beyond Moneyball," Journal of Sports Economics, , vol. 19(7), pages 1046-1061, October.
    18. Müller, Michael, 2016. "The strongest link in a weak team? Performance of players with and without outside options in relegated football clubs," Discussion Papers of the Institute for Organisational Economics 07/2016, University of Münster, Institute for Organisational Economics.

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