Should we expect a down year after a major league player signs a new long term contract?

The possibility of opportunistic behavior by workers in the labor market follows from utility maximization theory.  As utility-maximizing workers facing profit-maximizing managers negotiate contracts, both sides understand incentives affect performance and performance impacts pay.  Economists have difficulty measuring such behavior because productivity measures and salaries are not often publicly available.  Professional sports markets, however, provide fertile testing grounds since pay and player productivity statistics are easily obtained.  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 shirking opportunistic behavior for Major League Baseball positional (non-pitching) free agents who played under the recently completed 2006-2011 Collective Bargaining Agreement. 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 players over six seasons, this study eliminates omitted variable bias associated with OLS or pooled OLS by using a fixed effects model to test whether players shirk during the first year of their new long term contract.  Using the dependent variable OPS, on-base-percentage plus slugging percentage, initial results suggest statistically significant shirking behavior during the first year of the contract.  The reduction in productivity associated with shirking may be mitigated if general managers craft future contracts that penalize shirking or shorten contract lengths.