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Playing for Keeps: Pay and Performance in the NBA

Kevin J. Stiroh

Federal Reserve Bank of New York

This paper examines contract-related incentive effects using a unique dataset on individual performance and individual contracts. Evidence from professional basketball players in the 1980s and 1990s supports the main predictions of a model of worker effort as individual performance improves in the year before signing a multi-year contract, but declines after the contract is signed. This is consistent with an observed salary structure that rewards both historical performance and recent improvement, and thus provides strong incentives to increase effort and improve performance before signing a multi-year contract. The incentive effects appear important as team outcomes improve substantially when more players are competing for new contracts, but decline when more players have just signed multi-year contracts. These results highlight the double-edge nature of long-term contracts: good for employers when workers are fighting for them, but less so when workers have them.

Number of Pages in PDF File: 31

Keywords: incentives, contracts

JEL Classification: J31, J33

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Date posted: November 15, 2002  

Suggested Citation

Stiroh, Kevin J., Playing for Keeps: Pay and Performance in the NBA. Available at SSRN: https://ssrn.com/abstract=334421 or http://dx.doi.org/10.2139/ssrn.334421

Contact Information

Kevin J. Stiroh (Contact Author)
Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045
United States
(212) 720-6633 (Phone)
(212) 720-8363 (Fax)
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References:  27
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