Pump-Faking the Effort? Evidence from NBA Players’ Contracts
36 Pages Posted: 25 Feb 2021
Date Written: January 20, 2021
We examine the effect of contract-based incentives on the performance of NBA players using data from the 2004-05 to 2014-15 seasons. We find support for a contract year effect, meaning that players in the last season of their current contract improve their performance in order to secure better conditions in their next contract. In addition, having secured a big contract, players have an immediate incentive to shirk, resulting in significantly lower performance in their first year of the new contract. Higher ability players are generally less responsive to the contract year effect, while still exhibiting a big contract effect. Furthermore, these incentive effects are impacted in the intuitive directions by contract timing factors - contract year effects weaken with the number of years remaining in the contract, while the length of a new contract enhances the disincentive effect from a big contract. Overall, these findings provide robust evidence for dynamic incentive considerations in players' performances in a high stakes setting.
Keywords: contract effect, incentive effect, effort, shirking, sports
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