The Effect of Contract Year Performance on Free Agent Salary in Major League Baseball

Date
2011
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Haverford College. Department of Economics
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Award
Language
eng
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Open Access
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Abstract
This study examines the effect of contract year performance on free agent salary among position players in Major League Baseball. There are two main models utilized in this study. The first model investigates how past production trends affect future production while the other examines how past production trends affect future salary. The coefficients on the lagged performance variables are broken down into ratios and compared across models to determine whether contract year performance is overweighted in the salary model relative to performance. Results show that productivity in period (t – 3) is underweighted in free agent contracts and there is also evidence that contract year productivity receives excessive weight in contract decisions.
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