Shirking in Major League Baseball in the Era of the Reserve Clause

Shirking has become an issue in professional sports with the advent of long-term guaranteed contracts, particularly because pay is largely uncoupled from performance. Baseball player-owner relations are a classic example of the principal-agent problem, which investigates incentive problems between contracting parties. The agent (player) is said to shirk if he chooses not to undertake efficient actions measured in terms of on-field performance. From the viewpoint of the principal (owner), actions are considered efficient when they afford the greatest opportunity for profit. Shirking, or inefficient action, is most likely to occur when contracts do not satisfy the incentive compatibility constraint. The constraint is satisfied when the contract spells out incentives that cause the agent to take efficient actions. (1) In the case of both one-year contracts with a reserve clause and long-term guaranteed contracts in Major League baseball (MLB), there may be inadequate financial incentives for players to perform to the best of their ability, that is, efficiently. Krautmann (1990) has argued against the popular view held by some owners and fans that after signing a long-term contract, a player's performance tends to fall off due to the disincentive effect of the long-term contract. He concludes that systematic, league-wide shirking does not occur: "It is the stochastic nature of productivity that is the source of this alleged disincentive problem," and that "what owners are interpreting as shirking by players is more likely the expected outcome of a stochastic process. " (2) In his comment on Krautmann's article, Scoggins (1993) uses a different performance measure (total bases instead of slugging average) in rejecting the hypothesis that shirking does not occur. To establish whether individual shirking has occurred in professional sports would require some information about the specific contract and an observation of a drop-off in performance (an inefficient outcome) that might be attributed to actions by the player not in the best interests of the owner. The analysis should be based on individual-specific conditions (contracts, incentive clauses, and uncontrollable factors) that would be examined on a case-by-case basis. Differentiating between shirking and stochastic productivity should also be done on an individual, case-by-case basis. To conclude that systematic or league-wide shirking and not stochastic productivity exists may be an insurmountable task in the modern era examined by Krautmann and Scoggins due to the complex nature of long-term contracts. Each individual contract should be examined for incentives, and for each drop-off in performance actions by the principal and agent should be investigated. Given the nature of the null hypothesis in the above studies, one would have to agree with Krautmann that there is no evidence for systematic shirking. However, it does not follow that individual shirking does not occur or that variations in player performance are solely due to stochastic productivity. Nor is it necessary to observe shirking only in the presence of multiyear contracts. A player has a propensity to shirk when his contract with the owner is not performance based. In the era of the reserve clause, players would have a propensity to shirk, especially for those whose salaries were held far below their marginal revenue product. (3) This was often the case because of the reserve clause in all player contracts, which assigned property rights of players to teams in perpetuity and was motivated by monopsonistic collusion. (4) With players facing a monopsonistic employer and the inability to negotiate with other teams or other leagues, players engaged in shirking as a strategy to extract salaries closer to their marginal revenue product. (5) Throughout most of the reserve era, the primary form of shirking by players was to hold out. By withholding their services until they negotiated a contract for a higher salary, players denied the team owner the ability to profit from their performances. …