Personnel Economics in Sports
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Personnel Economics in Sports

Edited by Neil Longley

Sport is an effective industry in which to empirically test theories of personnel economics, primarily because the employer-employee relationship in sport is much more visible and transparent than in almost any other industry. This book examines personnel economics within the context of the professional sport industry. The chapters are organized around the core functional areas of personnel economics and cover all aspects of the employment relationship in sport – from recruiting and selection, to pay and performance, to work team design.
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Chapter 5: Multi-period contracts as risk management in professional sports

Joel Maxcy

Abstract

The chapter examines issues related to contract-length in sport. It focuses on the observed phenomena in baseball where players on long-term contracts also receive a salary premium – a result that is counter to the standard hypothesis that workers on long-term contracts transfer their performance risk to clubs, and hence should be willing to accept a salary penalty for such transference. It discusses a possible reason for this empirical finding – high-skilled free agents are difficult to replace, and teams may be willing to enter long-term contracts to protect against future increases in the market price for these players’ services. The chapter’s empirical results find that both player performance and free agent-eligibility (as opposed to players that are only arbitration-eligible) independently increase the probability of a player receiving a long term contract.

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