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Incentive Contracts in Team Sports - Theory and Practice

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  • Tina Heubeck

    (University of Hamburg)

  • Jochen Scheuer

    (University of Hamburg)

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    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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    Bibliographic Info

    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;

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    References

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    1. Baker, George P & Jensen, Michael C & Murphy, Kevin J, 1988. " Compensation and Incentives: Practice vs. Theory," Journal of Finance, American Finance Association, vol. 43(3), pages 593-616, July.
    2. Scully, Gerald W., 1995. "The Market Structure of Sports," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226743950, October.
    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.
    4. Edward P. Lazear & Sherwin Rosen, 1979. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc.
    5. 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.
    6. Rosen, Sherwin, 1981. "The Economics of Superstars," American Economic Review, American Economic Association, vol. 71(5), pages 845-58, December.
    7. George Baker, 2000. "The Use of Performance Measures in Incentive Contracting," American Economic Review, American Economic Association, vol. 90(2), pages 415-420, May.
    8. Robert Gibbons, 1998. "Incentives in Organizations," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 115-132, Fall.
    9. Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 598-614, June.
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