The Effect of Contract Terms on Performance in Major League Baseball

Abstract

This thesis studies the effect of contract terms on performance in Major League Baseball. Specifically, I look to see if shirking is a result of long-term guaranteed contracts in the major leagues and if players show increases in performance, prior to their contract year, in anticipation of a new, more lucrative, contract. I also look to see if college educated players react differently to contract incentives and terms; whether an educated player tends to make notably different decisions then a non-educated player. Regression analysis is used to determine different variable effects on performance for hitters and pitchers separately. The only evidence of shirking that I found is for pitchers whose performance is worse the more years left on a contract. In addition there is no evidence that level of education impacts responses to contract incentives.