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Contract Length and Salaries Compensating Wage Differentials in Major League Baseball

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  • Charles R. Link
  • Martin Yosifov

Abstract

This study investigates the relationship between free agent salaries and contract length in Major League Baseball (MLB) to examine whether players trade-off returns to performance for additional job security. This study is the first to conduct a comprehensive, multiperiod study of salary determination for all MLB position players who were free agents and signed contracts between 1984-1994 and 2003-2006. The authors use the same technique and variables in all models so that comparisons across time are possible. The empirical results of this study indicate that free agent position players appear willing to trade monetary returns to performance for the security of a longer guaranteed contract. The results are not sensitive to the definition of salary used but are sensitive to the productivity measure employed. The results are least compelling for 1990-1994, a result that is different from the finding of Krautmann and Oppenheimer.

Suggested Citation

  • Charles R. Link & Martin Yosifov, 2012. "Contract Length and Salaries Compensating Wage Differentials in Major League Baseball," Journal of Sports Economics, , vol. 13(1), pages 3-19, February.
    • Handle: RePEc:sae:jospec:v:13:y:2012:i:1:p:3-19
    DOI: 10.1177/1527002510396984
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    References listed on IDEAS

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    1. Anthony C. Krautmann & Margaret Oppenheimer, 2002. "Contract Length and the Return to Performance in Major League Baseball," Journal of Sports Economics, , vol. 3(1), pages 6-17, February.
    2. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 38(2), pages 112-134.
    3. Hart, Oliver D, 1988. "Incomplete Contracts and the Theory of the Firm," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 4(1), pages 119-139, Spring.
    4. 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.
    5. Falaris, Evangelos M., 2003. "The effect of survey attrition in longitudinal surveys: evidence from Peru, Cote d'Ivoire and Vietnam," Journal of Development Economics, Elsevier, vol. 70(1), pages 133-157, February.
    6. John Cawley, 2004. "The Impact of Obesity on Wages," Journal of Human Resources, University of Wisconsin Press, vol. 39(2).
    7. 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.
    8. Joel Maxcy, 2004. "Motivating long-term employment contracts: risk management in major league baseball," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 25(2), pages 109-120.
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    Cited by:

    1. Hsuan-Yu Lin & Chih-Hai Yang, 2016. "Uncertainty, specific investment, and contract duration: evidence from the MLB player market," Empirical Economics, Springer, vol. 50(3), pages 1009-1028, May.
    2. Carlo Bellavite Pellegrini & Raul Caruso & Marco Di Domizio, 2021. "Relative wages, payroll structure and performance in soccer. Evidence from Italian Serie A (2007-2019)," DISCE - Quaderni del Dipartimento di Politica Economica dipe0015, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    3. Duha Altindag & Samuel Cole & R. Alan Seals Jr, 2022. "The Price of COVID-19 Risk in a Public University," Papers 2204.00894, arXiv.org.
    4. Marco Di Domizio & Carlo Bellavite Pellegrini & Raul Caruso, 2022. "Payroll dispersion and performance in soccer: A seasonal perspective analysis for Italian Serie A (2007–2021)," Contemporary Economic Policy, Western Economic Association International, vol. 40(3), pages 513-525, July.
    5. Heather O’Neill, 2013. "Do Major League Baseball Hitters Engage in Opportunistic Behavior?," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 19(3), pages 215-232, August.
    6. John L. Solow & Anthony C. Krautmann, 2020. "Do You Get What You Pay for? Salary and Ex Ante Player Value in Major League Baseball," Journal of Sports Economics, , vol. 21(7), pages 705-722, October.

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