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Allocation of scarce resources: Insight from the NFL salary cap

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  • Borghesi, Richard

Abstract

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.

Suggested Citation

  • Borghesi, Richard, 2008. "Allocation of scarce resources: Insight from the NFL salary cap," Journal of Economics and Business, Elsevier, vol. 60(6), pages 536-550.
    • Handle: RePEc:eee:jebusi:v:60:y:2008:i:6:p:536-550
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    References listed on IDEAS

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    1. Scott E. Atkinson & Linda R. Stanley & John Tschirhart, 1988. "Revenue Sharing as an Incentive in an Agency Problem: An example from the National Football League," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 27-43, Spring.
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    3. Wallace Hendricks & Lawrence DeBrock & Roger Koenker, 2003. "Uncertainty, Hiring, and Subsequent Performance: The NFL Draft," Journal of Labor Economics, University of Chicago Press, vol. 21(4), pages 857-886, October.
    4. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-580, June.
    5. Edward P. Lazear, 1991. "Labor Economics and the Psychology of Organizations," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 89-110, Spring.
    6. Rosen, Sherwin, 1981. "The Economics of Superstars," American Economic Review, American Economic Association, vol. 71(5), pages 845-858, December.
    7. 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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    Cited by:

    1. Ian Gregory‐Smith, 2021. "Wages And Labor Productivity: Evidence From Injuries In The National Football League," Economic Inquiry, Western Economic Association International, vol. 59(2), pages 829-847, April.
    2. Mario Lackner, 2010. "And most of us go Pro in something other than Sports - Hiring Preferences and their Effect on the Labor Market for Collegiate Football Players," Economics working papers 2010-10, Department of Economics, Johannes Kepler University Linz, Austria.
    3. Quinn A. W. Keefer & Thomas J. Kniesner, 2023. "“Injury risk, concussions, race, and pay in the NFL”," Journal of Risk and Uncertainty, Springer, vol. 67(2), pages 107-136, October.
    4. Joshua D. Pitts, 2016. "Determinants of Success in the National Football League’s Postseason," Journal of Sports Economics, , vol. 17(1), pages 86-111, January.
    5. Mulholland, Jason & Jensen, Shane T., 2019. "Optimizing the allocation of funds of an NFL team under the salary cap," International Journal of Forecasting, Elsevier, vol. 35(2), pages 767-775.
    6. Chris Jeffords & Todd Potts, 2019. "NFL Salary Cap Allocation: Matching Theory with Observed Behavior," Economics Bulletin, AccessEcon, vol. 39(1), pages 270-279.

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    Keywords

    NFL Compensation Performance;

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