An Analysis of the Effects of Long-Term Contracts on Performance in Major League Baseball
Date
2016
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Haverford College. Department of Economics
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Award
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eng
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Open Access
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Abstract
This study explores the effects of long-term contracts in Major League Baseball on players’ performance. By predicting performance of individual players using past performance, among other variables, this paper measures whether players perform as expected, or under/over-perform after signing a long-term contract in the free-agent market from the seasons 2006-2015. This paper analyzes pitchers and position players separately. It is expected that players with long-term contracts will underperform do to a disincentive to work hard based on the job security of a long-term contract. The results show that position players and pitchers do not underperform in the year after signing a new long-term contract, but there is a positive relationship between underperformance and total value of a contract. There may be a disincentive to perform after signing a contract for a specific amount of guaranteed money.