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Major League Baseball Player Contracts: An Investigation of the Empirical Properties of Real Options

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  • Matthew Clayton
  • David Yermack

Abstract

We study contracts negotiated between professional baseball players and teams to investigate the use of real options in a commercial setting. Baseball contracts feature options in diverse forms, and we find that these options have significant effects on player compensation. As predicted by theory, players receive higher guaranteed compensation when they allow teams to take options on their future services, and lower salaries when they bargain for options to extend their own contracts. The apparent

Suggested Citation

  • Matthew Clayton & David Yermack, 1999. "Major League Baseball Player Contracts: An Investigation of the Empirical Properties of Real Options," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-051, New York University, Leonard N. Stern School of Business-.
    • Handle: RePEc:fth:nystfi:99-051
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    File URL: http://www.stern.nyu.edu/fin/workpapers/papers99/wpa99051.pdf
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    References listed on IDEAS

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