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Contract Options and Performance: The Case of Major League Baseball

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  • Richard J. Paulsen

    (Northeastern University)

Abstract

This study looks to understand whether the inclusion of optional years on Major League Baseball player contracts impacts player performance. Contract options are a feature included in about 13% of new contracts given to batters from the years 2009 to 2017. There are four common types of option: club, mutual, player, and vesting. How an option affects incentives for player effort will likely depend on the type of option. It is likely that effort will be disincentivized when the team has the final decision on whether to exercise the option. This prediction is tested empirically. The results suggest that having a club or vesting option leads to diminished performance by players.

Suggested Citation

  • Richard J. Paulsen, 2018. "Contract Options and Performance: The Case of Major League Baseball," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 46(4), pages 379-388, December.
    • Handle: RePEc:kap:atlecj:v:46:y:2018:i:4:d:10.1007_s11293-018-9595-5
    DOI: 10.1007/s11293-018-9595-5
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    References listed on IDEAS

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    1. Anthony C. Krautmann & Thomas D. Donley, 2009. "Shirking in Major League Baseball Revisited," Journal of Sports Economics, , vol. 10(3), pages 292-304, June.
    2. Alexander Gross & Charles Link, 2017. "Does Option Theory Hold For Major League Baseball Contracts?," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 425-433, January.
    3. David J. Berri & Anthony C. Krautmann, 2006. "Shirking on the Court: Testing for the Incentive Effects of Guaranteed Pay," Economic Inquiry, Western Economic Association International, vol. 44(3), pages 536-546, July.
    4. Jahn K. Hakes & Chad Turner, 2008. "Long-Term Contracts in Major League Baseball," Working Papers 0831, International Association of Sports Economists;North American Association of Sports Economists.
    5. Lehn, Kenneth, 1982. "Property Rights, Risk Sharing, and Player Disability in Major League Baseball," Journal of Law and Economics, University of Chicago Press, vol. 25(2), pages 343-366, October.
    6. Anthony C. Krautmann, 2018. "Contract Extensions," Journal of Sports Economics, , vol. 19(3), pages 299-314, April.
    7. Anthony C. Krautmann & John L. Solow, 2009. "The Dynamics of Performance Over the Duration of Major League Baseball Long-Term Contracts," Journal of Sports Economics, , vol. 10(1), pages 6-22, February.
    8. Joel G. Maxcy & Rodney D. Fort & Anthony C. Krautmann, 2002. "The Effectiveness of Incentive Mechanisms in Major League Baseball," Journal of Sports Economics, , vol. 3(3), pages 246-255, August.
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    Cited by:

    1. Jin Lee & Young Hoon Lee, 2021. "Development of a Win Production Function and Evaluation of Cross-Sectional Dependence," Journal of Sports Economics, , vol. 22(4), pages 412-431, May.

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