MA)LINGERING ON THE DISABLED LIST

I. INTRODUCTION Professional sports has long provided a setting in which to examine the principal-agent problem, which arises in the employment relationship between a principal (the employer) and its agent (the employee) when the labor contract is incomplete or when the principal is unable to distinguish reduced effort ("shirking") from below-average realizations of a stochastic production function. This agency problem has a long history in the economics literature (going back to Alchian and Demsetz 1972) and has been applied to a number of different labor outcomes including land tenure arrangements, union seniority rights, and the academic institution of tenure. As professional sports are blessed with an abundance of performance and pay data and detailed knowledge about contract parameters, there is a large and burgeoning literature on the incentives provided by the long-term contracts (LTCs) of professional athletes. That literature, however, presents a very mixed picture. The typical study examines a player's performance either in the season immediately following the signing of a new LTC, or in the player's last season of an existing contract (i.e., his "walk year"). Shirking is inferred if a player's performance falls off in the year following the new contract. While some studies have found evidence of shirking after a player signs a LTC (Marburger 2003; Scoggins 1993; Stiroh 2007), others have not (Krautmann 1990; Maxcy 1997; Maxcy, Krautmann, and Fort 2002). Further adding to the confusion is a series of papers which find conflicting evidence of shirking depending on the methodology used to study the phenomenon (Barth 2013; Berri and Krautmann 2006; Krautmann and Donley 2009). To provide an alternative approach to the question, we consider here a different aspect of performance, namely whether contract incentives affect a player's willingness to play with injuries, and the speed with which they recover from injuries. If job security adversely affects his effort to return to playing condition, then we would expect the data to reveal evidence that players remain unavailable for longer periods of time after signing a new long-term, guaranteed labor contract. (1) Although Lehn (1982) observed in passing that time spent on the disabled list (DL) (2) tended to rise with the length of a player's contract, surprisingly little is known about the effects of LTCs on player injury rates or recovery times. Our results indicate that there are indeed negative effects on player availability which are systematically related to the remaining length of the contract and the probability of signing a subsequent one. II. MOTIVATION AND PREVIOUS LITERATURE We do not believe that players deliberately turn in indifferent performances because they know they will be paid in any case; even if a player wished to reduce effort, shirking within the game may be difficult. Moreover, it is often argued that athletes are highly competitive people, and may not be able to simply turn effort on and off, especially in the heat of the game. Fort (2003), for instance, argues that it is hard to believe that a professional athlete might deliberately miss a fade-away jumper, or control how hard he tries to hit a fastball. Furthermore, players' performances are constantly monitored by coaches, owners, and fans. A player who slacks off may develop a reputation for shirking, thus reducing his bargaining power in subsequent contract negotiations. Nevertheless, a player's availability and productivity are likely a function of effort both inside and outside the game. That is, effort must also be exerted in practice, in the off-season, in the weight room, and with respect to nutrition and rest. If the player's effort to keep in shape is lacking, or if he persistently stays out too late at the clubs, then his productivity may be impaired. Moreover, if LTCs provide an incentive for shirking behavior, then why would management be so naive as to continue to offer such contracts to players? …