Monday, October 11, 2010: 8:50 AM
The possibility of opportunistic behavior by workers in the labor market follows from utility maximization theory. Labor economists have a difficult task measuring such behavior because productivity measures and salaries are not generally publicly available. Professional sports markets, however, often provide fertile testing grounds since pay and player productivity statistics are easily obtained. Opportunistic behavior is a popular topic in sports circles given the collective bargaining arrangements that allow professional athletes to sign guaranteed contracts. Players may engage in shirking opportunistic behavior by slacking off their effort following the signing of a long term, guaranteed contract, since their pay is not tied to their performance. The opposite is the case in the contract year, the year before a player can negotiate a new contract with any team. Players may increase their effort during the contract year to gain greater interest from teams in hopes of procuring a better contract. This study focuses on opportunistic behavior associated with the contract year for Major League Baseball positional (non-pitching) free agents. Past studies of professional baseball and basketball yield conflicting results depending on the econometric technique applied and choice of performance measure. Given a longitudinal data set of MLB positional free agents over the last six seasons, this study eliminates omitted variable bias associated with OLS or pooled OLS by using a fixed effects model to test whether players increase their effort in their contract year. The dependent variable for the study is OPS, on-base-percentage plus slugging percentage. Initial results suggest opportunistic behavior during the contract year is statistically significant, unless the player retired following the contract year. For retiring players we observe a statistically significant drop in performance during their last season.