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Incentive Contracts in Team Sports - Theory and Practice

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Author Info
Tina Heubeck (University of Hamburg)
Jochen Scheuer (University of Hamburg)
Abstract

A comparison of incentive clauses of players’ contracts in German soccer and clauses used in the NFL and NBA shows considerable differences. Against the background of principle-agent theory we have a closer look at these incentive systems. In contrast to other industries it is easy to observe the employees’ effort in team sports. Therefore, it would be desirable to set incentives for players based on their individual effort. We show that there are reasons why incentive clauses in professional German soccer, the NBA and the NFL are not directly based on effort. We argue that there are two main reasons: Firstly, efficient incentives are complementarily provided by subjective and objective performance measures. Secondly, cooperation amongst team members is essential in team sports.

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Paper provided by Berkeley Electronic Press in its series German Working Papers in Law and Economics with number 2002-1-1042.

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Handle: RePEc:bep:dewple:2002-1-1042

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Related research
Keywords: sports; labor contracts; agency theory; incentives;

Find related papers by JEL classification:
D62 - Microeconomics - - Welfare Economics - - - Externalities
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

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  1. Edward P. Lazear & Sherwin Rosen, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. George Baker, 2000. "The Use of Performance Measures in Incentive Contracting," American Economic Review, American Economic Association, vol. 90(2), pages 415-420, May. [Downloadable!] (restricted)
  3. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-95, December. [Downloadable!] (restricted)
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  4. Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 598-614, June. [Downloadable!] (restricted)
  5. Baker, G.P. & Jensen, M.C. & Murphy, K.J., 1988. "Compensation And Incentives: Practice Vs. Theory," Papers 88-05, Rochester, Business - Managerial Economics Research Center.
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  6. Robert Gibbons, 1998. "Incentives in Organizations," NBER Working Papers 6695, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Rosen, Sherwin, 1981. "The Economics of Superstars," American Economic Review, American Economic Association, vol. 71(5), pages 845-58, December. [Downloadable!] (restricted)
  8. Gibbons, Robert, 1998. "Incentives in Organizations," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 115-32, Fall. [Downloadable!] (restricted)
  9. George Baker & Robert Gibbons & Kevin J. Murphy, 1993. "Subjective Performance Measures in Optimal Incentive Contracts," NBER Working Papers 4480, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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This page was last updated on 2009-11-28.

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