Allocation of scarce resources: Insight from the NFL salary cap
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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- David Berri & R. Jewell, 2004. "Wage inequality and firm performance: Professional basketball's natural experiment," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 32(2), pages 130-139, June.
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