No abstract

Estimates of baseball players 'marginal revenue product, derived from the methodology introduced by Gerald Scully over 20 years ago in the American Economic Review, suggest that even the highest-paid players are grossly underpaid. But given the fiercely competitive bidding process for free agents, it is hard to believe that owners can maintain salaries significantly below marginal revenue product. In this paper, an alternative approach for estimating a player b economic value is proposed. It uses market information gleaned from free agent contract negotiations. When applied to the less-mobile segment of the player market, this method yields much more reasonable estimates ofplayers 'marginal revenue products, (JEL L83) One needs to be cautious about the results, since the estimates of player marginal products are crude (Scully [ 1989(Scully [ , 1681.Our MRP estimates do not have a particularly impressive correlation with player salaries (Zimbalist [1992(Zimbalist [ , 1901.

Prior work on long‐term contracts and the incentive to shirk has focused almost exclusively on Major League Baseball. The current inquiry is the first to examine shirking in the National Basketball Association. We employed two different measures of player productivity. When the NBA's measure is used, we find evidence consistent with allegations of shirking behavior. But when productivity is measured in a fashion more consistent with economists' definition of marginal product, the evidence of shirking evaporates. (JEL J41, J44, L83)

This article focuses on the relationship between contract length and compensation in Major League Baseball. Because the best players receive both the highest salaries and the longest contracts, wage regressions that omit length can lead to misleading inferences. Although contract duration is positively related with salaries, the authors find evidence of a negative relationship between contract length and a player’s return to performance. These results indicate some type of trade-off going on in the negotiation process that has not been identified in the previous literature on compensating wage differentials.

Past work on principal-agent problems in sports does not effectively compare among players. The comparison must be made between players nearing contract negotiations and other players to detect ex ante strategic behavior (turning up performance just prior to contract negotiations) and ex post shirking (slacking off after signing the contract). The authors’ productivity measures include statistics reflecting both the player’s desire (or availability) to play as well as his performance once he enters a game. The data reject strategic performance. This suggests that mechanisms aimed at curbing strategic performance by players appear to be working well. However, pitchers with nagging injuries may be more likely to be placed on the disabled list while under long-term contracts. This may imply strategic behavior or, conversely, that clubs are choosing to protect an investment. A performance measure used to test for shirking affects some results but not the ultimate conclusions.