Academic journal article Economic Inquiry

Shirking on the Court: Testing for the Incentive Effects of Guaranteed Pay

Academic journal article Economic Inquiry

Shirking on the Court: Testing for the Incentive Effects of Guaranteed Pay

Article excerpt

INTRODUCTION

Opportunistic behavior can arise in the employment relationship between a principal (the employer) and agent (the employee) when the labor contract is incomplete or when the principal is unable to distinguish shirking behavior from below-average realizations of a stochastic process. In such cases, economists expect the evolution of self-enforcing labor contracts that contain incentive-compatible stipulations to induce workers to put forth their maximum efforts. In general, such mechanisms impose losses on cheaters greater than any gains to be received from shirking (e.g., threat of termination, efficiency wages). This agency problem has a long history in the literature (Alchian and Demsetz 1972; Holmstrom 1979), and has been applied to a number of different labor outcomes, including union seniority rights, the academic institution of tenure, and long-term contracts of professional athletes.

With respect to the contracts of professional athletes, the principal-agents problem has been extensively investigated. Such interest is not surprising given the publicity surrounding the large long-term contracts given to superstars like Kevin Garnett and Alex Rodriguez. The common perception is that players become lazy and expend less effort once they have signed a long-term contract. This sentiment was expressed by Dan O'Brian, former vice president of negotiations for the Cleveland Indians Baseball: "The experience of individual clubs, and the industry as a whole, is that for whatever reason, the player's performance is not the same following the signing of a new multiyear contract" (Sporting News 1986). If true, then why do owners continue to offer long-term contracts?

Labor theory suggests that the employment contract should evolve to contain an array of mechanisms aimed at deterring opportunistic behavior (Maxcy et al. 2002). Such an evolution is made possible by a number of important characteristics of this labor market. For one, a player's performance is easily observed and scrutinized, hence his behavior is constantly being monitored by coaches, managers, owners, and fans (Fort 2003). Second, many contracts now include incentive clauses that tie individual and team performances to compensation. Finally, there is the possibility that a shirker will develop a bad reputation, reducing his likelihood of securing a lucrative long-term contract allocated to only the very elite athletes. (1)

As noted in the literature, even if a player wished to reduce effort, shirking within the course of a game may be difficult. For a player to act opportunistically, it is necessary that he have substantial control of his effort. That is, although it is certainly possible that a player can consciously decide whether to run out a pop-up or dive for a sinking ball in the outfield, one must ask whether the player has the same degree of control over his effort when it comes to how hard he tries to hit a curveball, throw a slider, or make a fade-away jump shot.

One possibility, though, is that on-field performance is a function of a player's effort both inside and outside the game. That is, effort must be exerted in practice, in the weight room, in the off-season, and with respect to diet. A player may completely exert himself in the game, but if his effort to keep in shape is lacking, then his performance during the season can be impaired. Consider the case of Vin Baker, a player who appeared in four NBA All-Star games from 1995 to 1998, was named to the All-NBA second team in 1998, and won an Olympic gold medal in 2000. After signing an $87 million contract in 1999, Baker's per game scoring went from 16.6 points in for the 1999-2000 campaign to 12.2 in 2000-2001. For the 2002-2003 campaign he averaged only 5.2 points per contest. What explains this rapid decline in performance? According to Paul Westphal (Baker's head coach from 1999 to 2001), Baker's decline was caused by a "lack of professionalism off the court" (quoted in O'Neil 2003). …

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