Motivating long-term employment contracts: risk management in major league baseball
Long-term employment contracts have typically been modeled as mechanisms whereby workers reduce the risk of lost income with a guaranteed long-term wage that is less than the expected spot wage. Examination of contract length among major league baseball players shows that long-term contracts for marginal players, those for whom it would seem most logical to desire this insurance, are rarely observed. Star players, whose income levels should enable them to purchase this sort of insurance from other sources, represent the majority of long-term contract holders. This paper presents a theoretical model showing that firms, when facing both market uncertainty and uncertainty about an employee's future productivity, have an incentive to reallocate risk with long-term labor contracts. In such cases, a long-term contract may be observed without a risk premium paid by the worker. The labor markets of professional sports represent this combination of market and productive uncertainty. Empirical results from major league baseball using a binary choice probit model, which corrects for sample selection bias, support the hypothesis that factors, which increase market uncertainty and reduce productive uncertainty, are consistent with the observation of long-term contracts. Copyright © 2004 John Wiley & Sons, Ltd.
Volume (Year): 25 (2004)
Issue (Month): 2 ()
|Contact details of provider:|| Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Joel G. Maxcy, 2002. "Rethinking Restrictions On Player Mobility In Major League Baseball," Contemporary Economic Policy, Western Economic Association International, vol. 20(2), pages 145-159, 04.
- George A. Akerlof, 1981. "Jobs as Dam Sites," Review of Economic Studies, Oxford University Press, vol. 48(1), pages 37-49.
- Scully, Gerald W, 1974. "Pay and Performance in Major League Baseball," American Economic Review, American Economic Association, vol. 64(6), pages 915-930, December.
- Newbery, David M, 1989. "The Theory of Food Price Stabilisation," Economic Journal, Royal Economic Society, vol. 99(398), pages 1065-1082, December.
- Paul M. Sommers & Noel Quinton, 1982. "Pay and Performance in Major League Baseball: The Case of the First Family of Free Agents," Journal of Human Resources, University of Wisconsin Press, vol. 17(3), pages 426-436.
- Kahn, Lawrence M, 1993. "Free Agency, Long-Term Contracts and Compensation in Major League Baseball: Estimates from Panel Data," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 157-164, February.
When requesting a correction, please mention this item's handle: RePEc:wly:mgtdec:v:25:y:2004:i:2:p:109-120. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.