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Title:The incentive effects of long-term contracts on performance - Evidence from a natural experiment in European Football PDF Logo
Authors:Gerfin, Michael
Feess, Eberhard
Mühlheusser, Gerd
Issue Date:2010
Series/Report no.:Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Worker Mobility C12-V2
Abstract:The empirical analysis of the impact of long-term contracts on performance is challenging for two reasons: first, it is difficult to get adequate performance measures and second, potentially negative incentive effects of long-term contracts are countervailed by selection effects when workers with higher abilities get longer contracts. We adopt data from professional sports to disentangle selection and incentive effects. The famous Bosman judgement in European football provides a natural experiment as it has led to an exogenous increase in the contract length of players independently of ability, and can hence be used as an instrumental variable to solve the endogeneity problem associated with the contract length. Using data from the German Bundesliga, we find evidence that long-term labor contracts reduce average performance of professional players. In addition, we find that longer contracts influence the distribution of performance asymmetrically in the sense that they increase the probability of poor performances but do not reduce the probabilities of good performances.
Subjects:contracts
incentive effects
moral hazard
instrumental variables
natural experiment
JEL:J44
C21
J41
Document Type:Conference Paper
Appears in Collections:Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie

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